Skip to main content

tv   Best of Bloomberg Technology  Bloomberg  July 28, 2019 5:00pm-6:00pm EDT

5:00 pm
♪ emily: i'm emily chang and this is the "best of bloomberg technology," where we bring you all of our top interviews from this week in tech. coming up, earnings star for big tech. amazon, alphabet, and facebook all release second-quarter report cards. we will break down the results. and facebook results are overshadowed by a new antitrust investigation opened into the company's social media ads and mobile business. this after the social network pays a record $5 billion fine to settle privacy concerns.
5:01 pm
and the proclaimed arrogance of silicon valley. ripple's ceo has called facebook's libra pitch to lawmakers somewhat presumptuous. we ask how the controversy is impacting the broader crypto market. but first to our top story, it is big tech's turn, facebook, tesla, alphabet, all reporting second-quarter earnings. amazon and alphabet reported results thursday. for alphabet it was all about sales and regulation. our guests weighed in. >> if you look at the way google gets revenue, about 85% of revenue at google is coming in from the ad business. i think, given the competition they will be facing, you do not want to be in a spot where you have north of 80% of revenue coming from advertising. so i think that they are going to place a bigger emphasis on the cloud business.
5:02 pm
how much success are they going to have? it is hard to say. they have not been able to get out of that third slot, as you have said. they are facing massive competition against microsoft and amazon, who have had a lot of success and who do put significant dollars so i think it will be something that will be hard to get out of, that third slot, but it is still a significant part of their business that they will be focusing on going forward. emily: you wonder if acquisitions will be part of the story to beef up the cloud business. they did buy looker earlier this year, and i asked if acquisitions in cloud specifically would make sense. she said, we are open to acquisitions where they make sense, and we are excited about the opportunity. at the same time she said they are still interested in acquisitions, she also said organic is doing well. it is interesting given the antitrust scrutiny that google might hesitate to do more acquisitions certainly in the near future. is that what you would expect? >> actually, i think the cloud business is important strategically for this reason.
5:03 pm
look at what microsoft just did with open ai, investing $1 billion in that, i don't even know what you call it. it is a company, but kind of a nonprofit. i think google will look at the cloud business in a similar fashion. the technologies of the future that will be scaled out, obviously, the cloud business is going to be important for that. it is, in a sense, a platform for those new businesses. so while amazon will continue to push a lot of that cloud business to the bottom line, and as we have seen today, it is incredibly important for the stock price because it impacts csoi so heavily in the bottom line eps numbers. for google, i don't see it quite that way. i see it even more strategic to google than it may even be to amazon. emily: that was estimize founder and a forrester analyst.
5:04 pm
as for amazon's earnings, wall street doubled down on the company. on the heels of the company after a record-setting prime day, most advised clients to buy in, expecting strong revenue growth and operating income. i got insight after the giant reported. >> aws is a bigger story here. we saw that decline to 37% growth, the first time we saw it dip below 40%. given how much it contributes to operating profit, that is potentially the canary in the coal mine. it could also be a one-quarter blip here. that is something more considering to investors going forward. emily: it is interesting given aws and api, given how we were talking about google's cloud business and how it is still in third place, so the cloud business in general is
5:05 pm
continuing to grow, and it is certainly not a zero-sum game, but what do you think of the slowdown or the disappointing numbers have to do with it? is it because of competition, or is it because of amazon-specific issues? >> i don't think it is amazon-specific issues so much as it is the competition. microsoft's cloud business is up over 60% recently, so we know that business is on fire. but i think the stalking horse is google. we don't have a lot of visibility into those numbers, but you hear under new leadership there are signs of life here. if that becomes a strong third player, now amazon is competing with two giants and i think that can eat into the top line going forward. emily: the cfo said the company did spend more than what they said they would on the same day delivery initiative, and that it has been more difficult to execute than expected. i can sort of echo that as a customer, when i tried same day delivery on amazon, it often does not work out. what do you see there? >> the topline growth is driven by the commerce business.
5:06 pm
i was expecting investment to pay off in q3 and q4. if we are already seeing an acceleration in q2, we could be looking at an explosive q4. because consumers have to develop the habit, and that habit, they are not feeling the impact of that one day delivery. those habits will get engrained in q3 and then cement themselves in q4. i think that is where we will really see the upside. emily: let's talk about the rest of the year, going into the holiday quarter, lots of acceleration is going to be happening. you've got cyber monday, black friday, all of this competition ratcheting up. how do you expect amazon to perform, relative to the competition, in the e-commerce unit in particular? >> i think there is a few things that really advantage amazon in q4, particularly in light of the one-day shipping initiative. i don't know if a lot of folks are thinking about this just yet, but we got into a
5:07 pm
compressed holiday season. last year we had 32 days between thanksgiving and christmas. this year it shrinks to 27 days. that really advantages someone like amazon. we always see them increase their share later in the season as consumers don't have the same confidence in getting no deliveries on time with other retailers, but they do with amazon. the compressed season will really be to amazon's advantage. that is another element to upside in q4. emily: coming up, tech giants visit the white house. the trump administration hosted some of the biggest tech companies to talk about the fallout from the trade war and the ban on huawei. and if you like bloomberg news, check us out on the radio, listen on the bloomberg app, and in the u.s. on sirius xm. this is bloomberg. ♪
5:08 pm
5:09 pm
5:10 pm
5:11 pm
5:12 pm
5:13 pm
emily: white house officials are sending a delegation to china next week led by u.s. trade representative robert lighthizer. this is after a high-level meeting with the trump administration and ceo's from google, broadcom, cisco, intel, and qualcomm. the meeting was geared towards easing a ban on sales to china's huawei. i spoke to a representative from arizona's seventh district. >> it is a dangerous meeting. huawei is not an independent actor, it is an arm of the chinese intelligence agency. we cannot and trust us doing business with huawei will not have negative consequences for us. if you read the washington post
5:14 pm
last weekend, huawei was working with a shell company in north korea, supplying them with technology that was explicitly banned through our sanctions regime. this is why we have joined in a bipartisan manner with congressman gallagher from wisconsin to make sure we enforce the huawei sanctions regime that we think is being effective. the president should not do one-off trades for farm goods for something that could significantly impact the future of both our country as well as our allies' countries in terms of information technology. emily: there are some in the u.s. business community, including many high-level tech ceo's, who will tell you
5:15 pm
privately they see no evidence that huawei uses this equipment to spy on the u.s. or anyone else. what would you say to that? >> i hope they would just read the panda shell corporation that was set up in north korea to allow huawei to do business with countries we have sanctions against. so clearly this company, huawei, is not operating on the up and up. number two, it is well known that among chinese companies, it is part of their mandate they must make any assets available to the chinese government. and while i respect a lot of these companies, their goal is to have the highest profit margins for their shareholders. as a member of congress, the most important thing for me is our national security. and this sends a bad message to our allies overseas who we are trying to convince not to incorporate huawei into the national security apparatus, because it makes us as partners very difficult for us to share information with them. emily: you referenced a report in "the washington post" that huawei has partnered with a chinese state-connected company, panda, as you have said, to improve things in north korea like the wireless infrastructure. they have partnered with this company, according to "the washington post," for eight
5:16 pm
years. when the president was asked about this story, he did not seem particularly alarmed. he said the u.s. will lead on 5g. we will see what north korea does. how does this new potential revelation about huawei and north korea -- huawei has denied any work in north korea -- how does that change your level of objection? >> it certainly makes me want to -- obviously, i object even harder. i think other corporations and other members of congress should be worried about this. the fact that the president does not seem to understand the problem, the scope, really tells you we should question his judgment when it comes to decisions on this very key national security issue. again, i think the president does not understand the full scope of what is happening or what could happen if huawei should be able to have access to our information technology market and our allies'. it is essentially trying to play
5:17 pm
one trade war against each other. we should not be trading access to the 5g market for huawei for us to go back to what we had pre-trade war, which is us being able to sell farm products to china. this should be separate from this trade war because this will have longer-lasting effects to our national security than this temporary trade war we have. emily: that is my next question. the leaders of these u.s. companies will say the blacklisting of huawei has significantly hurt their bottom line. some of these companies provide supplies, provide chips to huawei smart phones and laptops and consumer products that they say do not have much of a threat to national security. what would you say to those ceo's? >> well, they are wrong. it has been the determin the u.s. intelligence community, as well as congress, that zte and huawei are dangerous operators. we have the right as a nation to stop corporations from engaging with other countries and other
5:18 pm
entities that put our national security apparatus in danger or do not align with our interests. i don't see these companies complaining about us having a sanctions regime against iran or other bad actors around the world. they do not have a right to corporate profit at the sake of u.s. national security. that is just how it is. and unfortunately, hopefully we in congress get our way and are able to stop these people from getting their way. emily: what would you like to see the trump administration do? what do you think congress should do? rep. gallego: i think the trump administration should continue with the sanctions regime they have and enforces them going stronger. hopefully that stays. if the president does not do that, i think congress, the house and the senate, in a bipartisan manner should pass a new sanctions regime or continue the sanctions regime that continues on huawei-zte to make sure we are enforcing good order and discipline to protect our national security interests. emily: since i have you, i have to ask you about iran. the president defends
5:19 pm
withdrawing from the nuclear deal, and meantime iran has seized a british-flagged oil tanker. tensions seem to be escalating, so what do you think the u.s. should do about the iran situation? >> i think we have to respond to iran in a measured manner with assistance and concurrence with our allies, especially britain and our european allies. i think at the same time we do have two recognize that us leaving the jcpoa without any plan, more as a knee-jerk reaction to anti-obama policies this president has, has created this situation. iran says they will comply, even though they will not receive any of the economic benefits of sanctions lift, but there are still other areas we have to keep. the last thing we can afford, the last thing that we need is a war in the middle east. it is not even in our national security interests to engage in this kind of war, but we have a
5:20 pm
lot of other tools in the toolbox to both keep iran in check, and at the same time, de-escalate the situation through diplomatic means. emily: and speaking of the tensions here at home, the president is under fire for what some have called racist or racially-charged language about four democratic congresswomen of color. do you believe the president's remarks have been racist and that he is stoking racial tension, especially given his response, or lack thereof, to supporters at his rallies calling "send her back?" rep. gallegos: yes, of course. this is not the first time the president has used race as a way to engage his base, and enrage his base. let's remember this president started off his political career accusing president obama of
5:21 pm
being born in africa and snuck into this country for some weird crypto reason. then he accused a mexican-american judge born in indiana of having dual loyalties. so it is not surprising that he describes four american women as essentially not being american and not loving this country. these women are of color. he does not describe nancy pelosi or any other women that are white as being un-american or not loving the country. he is clearly trying to gin up a base of his support that is racist and does believe in these racist types of theories. emily: that was congressman ruben gallego of arizona's seventh district from capitol hill. coming up, tesla sputters. shares of the electric car maker fell in after-hours trading wednesday after the company pulled back on profit promises. we will break it down. and later, we talked to ftc commissioner noah phillips about facebook's record $5 billion fine to put its privacy violations behind it. this is bloomberg. ♪
5:22 pm
5:23 pm
emily: tesla posted losses and backtracked from a profit forecast as part of its second-quarter report. cash and deliveries of emerged as the biggest challenges to growth. the company announced its longtime technology officer is stepping down, though staying on as an advisor. i covered the carmaker's challenges with max chafkin of bloomberg businessweek and a tech analyst. >> i think the $5 billion on the balance sheet is a great number. i think margin is probably why the stock is down, but i think margin is actually, if you go through the numbers in detail, is better than expected. and i think forward guidance of being gap-positive on that income is also good as well. it is kind of an overreaction to the downside, in my opinion.
5:24 pm
emily: if it is an overreaction, it is a big overreaction. i mean, shares are down 10% right now. max, there is a disappointment here on profit. the company turned profitable at the end of last year. that reversed at the beginning of this year. elon musk said the company would become profitable later this year. it looks like that's not going to happen. max: they are still trying for it. it should be said there are two things going on with tesla. one is that they've been pushing like crazy for volume. they want to be, you know, a large-volume car manufacturer, one of the biggest in the world long-term. this car that they are selling, the model 3, does not have great margins, it seems. they pushed so hard to get the price down to that magic $35,000 base price, got there. it has come up a tiny bit, but you know, the margins are supertight on those low-end cars. as people buy the cheaper model 3, they are moving away from tesla's more expensive cars, so there is this pressure on profit that is, at the very least, a
5:25 pm
near-term problem, and critics of the company are going to say no, this is a long-term problem. this is a company that will have a hard time getting to profitability. emily: is it a near or long-term problem? ben: it's not true that -- the model 3, they actually had better margins quarter over quarter, x credits, which is what everyone wants to look at. so it's not true they are making improvements on gross margin here, so i'm not sure what that statement is. emily: max? max: yeah, yeah. the company is not profitable right now. they'd obviously like to get profitable. i think in the long run, they want to be more efficient in the factory, be more efficient in their operations. that's the message we've been hearing from elon musk basically for the last year, and then they want to get this, these new cars out, the model y, which could be a huge boon for the company. that is the category of car that most americans are buying, and
5:26 pm
also getting to china -- emily: it is a cheaper suv. what is the status of it? max: they are working on it -- emily: is it going to be here next year? max: well, you know -- emily: inquiring minds want to know. max: i don't have any inside information. it is certainly the big effort tesla is doing right now on top of building a giga factory in china, which would be huge because the chinese market is the biggest market in the world for electric vehicles. emily: what is your take on how much china can change the tesla story as they continue work on this factory, as they are continuing to get new models to the market? ben: so, we don't have any production in our numbers from china this year. i think what is most underestimated about everything here is the brand in china and how it has kind of become a wildfire there and how many cars it can sell, and i think that is upside.
5:27 pm
just back to the cash flow they generate during the quarter, it is a couple hundred million dollars, so the idea they don't make money is completely wrong, and the headline needs to change. there's $5 billion on the balance sheet. they are not going out of business. you have other oem's that have really hard problems, restructuring problems, and it's not tesla. it's xyz german manufacturers. they are getting their lunch eaten by tesla. emily: now, there is a point there, max, in that if you talk to people who own teslas, they love their cars. they are not focused on the ins and outs of whether or not company is making money, how many deliveries they are making, what production is looking like. and so how much does that matter? max: it's huge. making a good car, if you are a car company, is definitely the most important thing, more important than anything else.
5:28 pm
and to ben's point, one thing about the conversation that has changed over the last year is about a year ago, there were people saying this company is doomed, they will never get to volume production, and now, the debate is a different debate. is tesla a niche manufacturer? that would be the bear case. the bull case is this is a company that is going to be bigger than toyota, daimler, and so on. and that is, if you are elon musk, that is a good shift in the conversation. you don't have as many people going around talking about this thing collapsing any day. which was happening a year ago. emily: talk about a shift in the conversation. he has been a little bit more restrained on twitter, let's say, since his settlement with the sec over how he is communicating with the public. ben, what is your evaluation of musk's leadership, given some of the hiccups over the last year?
5:29 pm
ben: i think people want to invest with musk. i think him being more restrained or quiet is helpful. i think that being cash flow positive is helpful, and having $5 billion on the balance sheet is helpful for the growth managers that have not been paying attention, or cannot own this, or are of avoiding it to come back and buy it at a lower price than, whenever, a year ago when they were with all of the callous coming up here. emily: that was max chafkin and tesla analyst ben kallo. coming up, facebook marches forward with at least one ftc settlement in its rearview mirror and a new investigation underway. facebook posted second-quarter results. shares are up more than 50% this year as most of wall street says fundamentals are still strong.
5:30 pm
and bloomberg tech is livestreaming on twitter. check us out at @technology. and follow our breaking global news network. this is bloomberg. ♪
5:31 pm
we're the slowskys. we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not.
5:32 pm
emily: welcome back to the "best of bloomberg technology." i am emily chang. facebook's second-quarter results out wednesday, proving yet again the company can grow both advertising and users while feeling the heat from regulators worldwide. just hours after facebook announced a settlement with the u.s. federal trade commission to end a probe into the company's privacy practices, the social media giant confirmed it is also being investigated by the ftc on antitrust over its social media, ads, and mobile apps. this as growth in revenue and daily active users beat estimates, but with its reputation continually under assault, just how? i asked these guests.
5:33 pm
>> we have multiple parts of the government investigating facebook for multiple things. i think one of the most salient things about the settlement and the $5 billion fine is that facebook did not really admit they did anything wrong. i think we really have not seen them really show a lot of introspection about why all this happened, and i think that is really telling. unfortunately, the reason it happened is because they have had very poor governance, and it had sort of bled out into all kinds of areas of their business, and it is causing them long-term ongoing harm. emily: we are going to talk to one of the commissioners about the details of the settlement and how it will change facebook going forward in a moment. but speaking about the numbers, debra, with all of these controversies, all of these scandals, all of this scrutiny, how does facebook seem to keep beating the odds? deborah: you know what, it is the teflon company. it really is.
5:34 pm
every quarter i say the same thing. they have been able to grow their revenue grow their user , base, despite mounting challenges. this quarter, more of the same. it is really, really incredible that facebook has been able to do this quarter after quarter after quarter. emily: david, i am going to push back a little on the teflon thing. they beat on daily active users, on revenue, they came light on monthly active users, but do you really think that all of this is not going to impact the company's long-term reputation and ability to grow? david: the company's reputation is seriously impaired already. their ability to grow is a complicated question, because, as debra pointed out, they just keep raking in the dough. they are a brilliantly designed advertising platform. and especially for smaller businesses, there really is not another place to go where results can be achieved that are similar. that is great for this company,
5:35 pm
but long-term, is it going to affect them? it is absolutely going to affect them. there is no question about that. emily: now -- [speaking simultaneously] emily: go ahead. debra: yeah, i am sorry. i absolutely 100% agree with david on that part. i think the teflon part is their ability to grow their revenue and grow their user base quarter after quarter. i do believe there is plenty of consumer sentiment issues with facebook. there is plenty and growing issues with regards to how advertisers feel about facebook, but the thing is, there is still spending there, and people are still using facebook despite those concerns. emily: now earlier today, zuckerberg did give a town hall at the company. here is what he had to say about the settlement with the ftc. take a listen. >> i believe that companies should be held accountable on privacy. and this is what accountability looks like.
5:36 pm
as part of this settlement, we have to pay a major fine, and there are now very clear rules around how we need to operate on this. i believe that this is going to help us serve our community better. emily: now the ftc could have sued facebook, but that didn't happen. they could have sued zuckerberg, personally. that definitely didn't happen. they could have curtailed zuckerberg's professional responsibilities as well. that happened to a very small extent. but david, do you think the settlement goes far enough to provoke the introspection that you believe is needed as the company continues to grow? david: i would probably have to say no, because i do not see enough introspection. i mean, if it takes a $5 billion fine to make a company finally start doing what it should have been doing all along with privacy and governance, that is a very bad sign about the culture of that company.
5:37 pm
i do see many signs of gradual reform and consciousness raising, and changing behavior. i am not going to deny the company is definitely in a better place behaviorally than it has been in the past. the fundamental reasons why this happened have not been addressed, and i think they really had allowed a culture to emerge which showed very little concern for some basic interests of their users, because they were so thrilled at the amount of money they were making. that is my simple analysis. emily: now, deb, this is really a family of companies now. there is facebook, the blue app messenger, whatsapp, , instagram. how do you see growth at all of these different divisions changing in the future? we know that instagram continues to be a better and better story. we suspect that facebook proper -- users, they are getting older, growth is starting to slow. what do you see? debra: absolutely. instagram remains a very strong growth engine for facebook, no
5:38 pm
question. but that said, according to our forecast, instagram is still well under 1/3 of facebook's total revenue and will continue to be that way in the next few years. so it is not like growth at instagram is going to suddenly balloon this company up to be much even bigger than it already , is. the main part of revenue, the main driving force of revenue for facebook remains that big blue app. there is no revenue going into whatsapp. there is very limited revenue going into messenger at this point. it is really all about the blue app and about instagram, with most of the focus on the blue app. emily: that was a marketers debra williamson and david kirkpatrick. coming up, facebook faces a new antitrust investigation by the federal trade commission, this after it agrees to pay a record penalty to settle years of privacy violations. we will talk to ftc commissioner noah phillips next.
5:39 pm
plus facebook is reeling over plus facebook's grilling over its cryptocurrency plan on capitol hill continues to generate opinion. i sat down with the ripple ceo. this is bloomberg. ♪ ♪
5:40 pm
emily: federal trade commission chair joseph simons announced what we all knew was coming wednesday, the $5 billion settlement between the ftc and the facebook for years of privacy violations by the social network. >> this settlement is the result of an exhaustive investigation which concluded that facebook
5:41 pm
betrayed the trust of its users and deceived them about their ability to control their personal information. emily: some terms of the deal, increased responsibility by the board to protect user data, but little impact in facebook's lucrative ad business. the agreement was approved by the ftc with a 3-2 vote. the data settlement was made public however. facebook is now being investigated by the ftc on antitrust concerns regarding social media, adds, and mobile. i spoke to ftc commissioner noah phillips who voted in favor of the settlement from washington. >> in 2012, facebook committed to us and to the american people that it would take certain steps with respect to privacy, in particular that it would not misrepresent the kinds of sharing that was going on with app developers, and the kind of control that facebook users had over data that they gave to facebook. it also committed to having a reasonable privacy program.
5:42 pm
but facebook broke those promises. it also broke a few other promises. we are here today because we looked at what facebook had done and we wanted to send an important message about adherence to ftc orders and commitments to privacy. emily: so mark zuckerberg will now have to personally certify that facebook is complying with its new privacy policies. how would you like to see his management of the company change? noah: i think, above all, what we would like to see is a greater focus at facebook on privacy. that includes mr. zuckerberg, and under the terms of the order, he is going to have to focus more on privacy, but it is not just about mark zuckerberg. what this order requires, beyond the $5 billion fine, is attention to privacy at every level of the company. engineers who are working on projects are going to have to think about the privacy impact of what they do, and if they choose not to protect privacy, they are going to have to explain why.
5:43 pm
this goes all the way to the board of directors. the board is going to have a new privacy committee which is going to have ultimate authority to oversee privacy at facebook. emily: so why not fine zuckerberg directly or do more to limit his personal authority? noah: as i said before, this case is not just about mark zuckerberg. this case is about facebook in general. mark zuckerberg is a very important person at that company, but he is by no means the only one. we want people up and down the line at facebook to be focused on privacy. emily: now there are a lot of critics who say a $5 billion fine is not enough, and secondly, that the structural changes required here are also not enough. one of your colleagues who voted against the settlement says it imposes no meaningful changes to the company's structure or financial incentives which led to these violations. instead, the order allows facebook to decide for itself how much information it can harvest from users and what it
5:44 pm
can do with that information, as long as it creates a paper trail. what is your response to that? noah: to me, there are two really important points here. the first is this. what we do at the ftc is law enforcement. and so, what we look at in any case is what do the facts show and what are the legal obligations, and did the company break the law? and we try to remediate the violations of the law. we don't come in and simply tell the company what to do about everything. there are a lot of people in america who have real concern about how facebook conducts itself. that is a fair conversation that goes on all the time in homes across the country, and critically right now in congress, which is thinking about privacy legislation. but what facebook was doing in terms of ad practices is not what this case is about. this case is about the misrepresentations that it made to users about privacy and several other things we have talked about, and critically,
5:45 pm
that is what we are aiming to remedy. emily: now, another one of your colleagues who voted against this, rebecca slaughter kelly, says that the ftc would have done better by suing facebook and suing zuckerberg himself. why not do that? noah: i don't think that is an accurate characterization of the state of play. the remedies that we have achieved, both financial and injunctive, meaning the changes that we are making to facebook, are very unlikely to have been achieved through a court process. in a normal litigation, what you are weighing is the certainty of less against the chance of more. in this case, what we were facing was a decision between the certainty more and the uncertainty of getting even less. emily: so, now, privacy advocates have advocated for bigger changes to how facebook tracks its users and fundamental changes to the advertising
5:46 pm
revenue business. do you really think that the changes made here are going to be enough to change facebook's practices in perpetuity going forward if it is really not, aside from a $5 billion fine, hitting the bottom line? noah: that conversation is a really important one, as i said before and it is part of the , conversation that is going on nationally and in congress about what ought to be allowed and what is not allowed. but that is not what this case is about. this case is about the commitments that facebook made and its violation of those commitments, and that is what we are focused on with the relief here. emily: that was part of my conversation with ftc commissioner noah phillips. as you can imagine, there were no shortage of opinions on the ftc and facebook settlement, as well as the new antitrust probe. i got insight from bloomberg's ben brody, a former ftc cto, and the associate director of research at the electronic frontier foundation. >> i think the challenge is that
5:47 pm
the order and the stipulations in the order do not require facebook to prioritize privacy over all else. it simply requires the company be truthful or not be deceptive again in the ways it collects consumer -- collects users' consumer information. to your point, they could actually request for numbers -- the same venues for two factor and use it for targeting. they just cannot use it under the guise of solely collecting it for two-factor authentication. the section five authority says basically companies cannot lie about, be deceptive about their practices. but nothing prevents them from being transparent about their practices and going ahead and doing so. emily: now there are things coming down the pike facebook has already said it is going to do, like merge the back end of whatsapp messenger and instagram. i know you believe this is deeply problematic. you know, what other major privacy issues do you see down the road that have already been
5:48 pm
basically teed up? >> yeah, i mean one huge one with whatsapp, instagram, and messenger merging is the issue of merging those identities for people, your whatsapp number, your facebook authentic name, and your instagram pseudonym or handle. facebook has promised it will opt-in when it rolls out, but facebook has a history of reneging on privacy commitments. i think looking at the privacy policy alone the last 10 years, it is a study in the art of bait and switch. we would like to see some kind of limitation that facebook will stick to its word, but if it says it's going to opt in, it's going to remain that way. it's not going to be the case in two or three years, users are surprised by new privacy policy that says you have to merge all these identities to continue using these services, something like that. emily: quickly, what do we know about the ftc antitrust investigation that facebook just announced and commissioner phillips just confirmed? >> absolutely. we do not know a lot about it. i sense commissioner phillips may not know a lot about it either. it is early days, but when the ftc starts an investigation like
5:49 pm
this, what they basically have is a credible reason to believe there may be a violation of antitrust laws, that there may be consumer harm that they need to look into. so that is what this investigation that facebook has disclosed, and the ftc has now confirmed, that is basically what that means. that is about all we know right now. we also know that ftc talks to european regulators, so they may be taking some cues there, but often they want to go their own way. it really remains to be seen what is going to happen. emily: as someone who worked at the ftc for many years, what is happening right now? >> i mean, so it is quite likely the commissioners do not yet know it at the staff level. they were probably briefed on it, but they probably don't know the details, and that is by design. they are supposed to keep a wall between the investigation. i do know like the practice you just described in antitrust terms would be bundling, right requiring that one account , be forced to use a different product, right? so then if you have a whatsapp account, you would be forced to use a facebook account. that would be bundling. so there is a number of factors
5:50 pm
the ftc could be looking at with regard to the antitrust investigation. i think the most critical piece, which is i think one you asked the commissioner himself, is to what degree -- so the bureau of consumer protection and the bureau of competition, and the bureau of economics. the consumer protection competition -- consumer and protection competition bureaus operate independently, right? so the question would be, to what degree are they overlapping and sharing information from the consumer protection investigation with the competition investigation? formerben brodie, the ftc cto and -- coming up, facebook's libra got little love from lawmakers on capitol hill last week. but will the crypto community welcome the new digital money? i asked ripple ceo brad garlinghouse. this is bloomberg. ♪
5:51 pm
5:52 pm
emily: the capitol hill hearings last week continued to roil the crypto market as most all cryptocurrencies were down except for ripple. u.s. lawmakers spent two days last week grilling facebook's david marcus, cocreator of the proposed stable coin called libra. to get insight on how it could shape the digital money space, on monday i spoke with the ceo of ripple and bloomberg tech's social media reporter kurt wagner. >> i think they have taken a very bold, ambitious effort, which is part of what makes silicon valley great. right? we have these incredible entrepreneurs, think big, think outside the box. i think there is a little bit maybe more than ambitious, maybe arrogant. we are going to build -- the white paper articulates a new currency. i think the u.s. dollar works pretty well. one of the things i tweeted last week is a moment where i agree with the president on this. we don't need a new fiat currency. the g20, the dollar, the pound, the yen, there might be some
5:53 pm
smaller markets where -- the argentinian peso, that might make sense. but i think that is a longer tail. and i think the way they rolled it out, there is a lot of turbulence, a lot of headwinds. it will be interesting to see how that plays out. emily: we talked a lot less rate about the level of skepticism and ire. you know, one lawmaker comparing it to 9/11 and the level of danger. but what is happening now? now that this hearing has happened, what happens next? >> that is to facebook to figure out. they have announced, we have this group of 28 different partners that are going to be part of the libra association that oversees this currency. right now there is no charter for that organization. there is no payments that have been made. at this point it is just kind of a continue to talk about regulation. but also on facebook's side, they need to get their team together here to actually get this moving forward because right now it is just a white paper. it is an idea, but not something that is tangible. emily: do you think the regulators will let libra happen in the u.s.?
5:54 pm
brad: look, i think, facebook had had conversations with regulators before they announced the white paper. some of those regulators i know had expressed concerns. i don't think facebook really did enough to mitigate that and to really make them feel comfortable. it is very important to both the u.s. government and governments around the world that financial regulation matters. know your customer, and anti-money laundering and antiterrorist financing. these are important foundational pieces of our financial system. we need to make sure that future constructs keep those in mind. and again i think the only , danger that is happening right now is that legitimate projects working on taking advantage of , crypto to solve real problems get caught in the crossfire. because you are seeing, even the president came out and tweeted, i don't like cryptocurrencies. that's like saying i don't like an internet company in 1997. there is lots of different shapes and sizes. what ripple is obviously doing is with banks and regulators, it is almost the antithesis of how libra is approaching the effort. emily: so there are some who have said that if libra
5:55 pm
succeeded, that would not be good for ripple. it would reduce ripple's opportunities. is there truth to that? brad: no. i look at libra -- facebook is a consumer company. when they think about the problem they are solving, it is very much a consumer-oriented problem. what ripple is doing is at the institutional level. we are connecting banks. if anything, and i said this publicly, we had one of the best weeks we have had in our history the week libra was announced. it is a call to action for banks. david marcus came out and said it is the end of western union. well that is an assault on the , financial sector, and we have taken the opposite approach, let's work with the system. because the regulations are enforced at that point. we cannot paint this one big broad brush, particularly at the u.s. government level where you have technologies like bitcoin and others controlled by chinese miners. emily: you work with a lot of banks. what do they think of the libra association? and would you ever work with the libra association? brad: i think what you saw happen, and kurt kind of alluded to this a lot of people signed , up, the 28 members signed up,
5:56 pm
it was just an l.o.i., no money changing hands, no hard commitment. they wanted to have a seat at the table. they wanted to hear what was going on. i would be interested to see if the 28 who have signed up continue to participate. yeah, i think it is too early to tell. but i do think it was very noteworthy that there weren't any banks or financial institutions as a part of that 28. because again i think it is kind of an assault on that system, which is ambitious, to say the least. emily: kurt there have been , reports that there has been skepticism among the partners who have already signed on. what are we hearing? especially since -- kurt: they are not saying anything publicly. i think that is one of the biggest concerns, quite frankly that facebook is out here taking for abeating by itself project they claim is very cofounder with many other companies. if i am facebook, i'm saying, are you guys in or not? we could use a little support out there. but with the banks, you know, bloomberg has reported that facebook and others in the association are out talking to banks right now. they want them to be part of those members because i think it does add a level of legitimacy
5:57 pm
to this whole effort if they can have banking partners on board. but right now, if you're facebook, the biggest challenge is getting those people to say something publicly so they put their name behind what they are doing. emily: so brad on another topic, , bank of america, there have been reports that bank of america has taken out a patent that suggests it is using the ripple ledger for its currency transactions. can you comment on that? >> i saw that. emily: [laughter] can you confirm or kill the speculation? brad: i can neither confirm nor kill. emily: [laughter] brad: we are working with a lot of banks around the world. and certainly some of the largest banks already in the world are customers of ours today. we will continue to work with big banks around the world. and i too was surprised by that patent application because we have not announced anything. emily: that does it for this edition of the "best of bloomberg technology." we will bring you all the latest in tech throughout the week. tune in every day. 5:00 p.m. in new york, 2:00 p.m. in san francisco. we are live streaming on twitter. check us out at @technology.
5:58 pm
follow our global news network tictoc on twitter. this is bloomberg. ♪
5:59 pm
6:00 pm
welcome to daybreak australia. i am paul allen. shery: i am shery ahn. we are counting down to asia's major market opens. ♪ paul: here are the top stories we are covering. time to talk again, u.s. negotiators going to china but little hope of a breakthrough. neither side seems ready to compromise. andour guest -- teargas arrests in hong kong, threatening to scare business and tourism away. markets prepare for the first fed rate

34 Views

info Stream Only

Uploaded by TV Archive on