Sri lanka has raised its key Interest Rate of the First Time Since july to bolster the rupee. That lending and deposit rates were increased by 25 basis points. Sri lanka is struggling to balance growth and record inflation amid the worst drought in 40 years. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Turning now to the markets. Afternoon trading getting underway and hong kong and china. The hang seng down. 1 . Shenzhen and shanghai both down slightly. Caroline im caroline hyde. This is Bloomberg Technology. Coming up, googles advertising crisis goes global. Big brands in the u. S. Join the u. K. In the backlash over terrorism. Fitbit turns 10, the ceo reflects on the early hypergrowth and the recent troubles facing the company in its turnaround efforts. The senate votes to nullify fcc broadband privacy rules. What that means for internet giants and your data. Googles advertising crisis goes global. It began with an investigation by the london times newspaper, which found that some ads ran with youtube videos promoting terrorism and antisemitism. The Guardian Newspaper even the u. K. Government pulled display ads from googles display network and youtube. Then wednesday, the boycott spread across the atlantic, with at t, verizon, johnson johnson, halting spending on ads, and youtube as well. Google tried to head off the backlash this week with updated policies, but eric schmidt told people that google cannot guarantee that this will not appear that are considered inappropriate. How big of a problem is this . Alphabet was downgraded to hold on monday. He joins us by phone. , ourigital perspective analyst joins us by skype. Also, our Bloomberg Technology reporter. Mark, i want to kick things off with you. Mark the particular question is why now . This is not a new problem, youtube has had this for years. There is a couple things. One is the political climate, a lot of sensitivity around fake news, hate speech, terrorism. The second is there has been this kind of growing noise and the Advertising Industry about google and facebook and their control. Marketers have been pushing for more uniform measurement standards and thirdparty audits. Now they are seeing an opening and seizing it. Caroline jpmorgan also following on, taking ads off youtube. Mark correct. Caroline brian, first to you. Of course you downgraded alphabet to hold on the news that it affected the u. K. , but your worry was that this could have global repercussions. It clearly does. How much you worry about the stocks performance Going Forward . Brian i think it is subject in small part, not major part, to headline risks from here. Namely, you will see more brands demonstrating their concern, announcing they are pulling their ads from youtube. So for google does not appear to understand the gravity of the situation. It is on some levels mindboggling, and on the other hand it is not surprising because it is very googleey. This will go on a little while. They will solve it eventually. When i meant that the repercussions would be global and would have an impact on their business, it is not about the boycott per se. We will never notice or see that in the numbers unless it did persist for weeks on end. What is going to happen is that every advertiser is now going to have a conversation with google that is not focused on what the be on searches and enhanced brand building, what the strategy is on thinking about moving from tv into digital, not on how to put spending into facebook from google or the other way. Conversation is around safety. Google is on the defensive for the next 36 months. Any conversation they have that will have an impact in terms of their ability to expand business at the pace that they would have with the large brands serviced by agencies. Paul, lets take it out a step and look a little bit to look at the display business and youtube that it is affecting. This is not the search business of google. It is a major cash cow. How does this affect advertising spending generally . Fors you said, perspective, search is googles bread and butter as you said. It represents three times what it spent on video on youtube. Search in the u. S. Is about 37 billion this year. 78 of that is on google. They are by far the dominant player. If you look at video advertising, that is about 12. 5 billion. A thirdt is about o of what search represents overall. Google has 20 of the u. S. Digital video advertising business. We are talking about big dollars. This comes at a critical time for google, because as brian was saying, they are trying to expand the conversation, to draw those tv advertising dollars, to present themselves as more of a haven for tv style advertising. The search business is something they have been doing, they know how to do. It will continue. They know it better than an body else, but video is certainly google and youtube have a major presence, but there are a lot of other players who are vying for those same tv advertising dollars. The stakes are very high. Caroline mark, you have been nodding your head throughout. Brian called this rather googleey, perhaps the lack of reaction. We have heard from eric schmidt, the chief business officer. Why are they not reacting fast, or are they not taking it seriously enough . Mark to be fair, brian is probably the only analyst that has downgraded it. I talked to other analysts who are shrugging this off. To this point, that will not have a Material Impact on revenue. Maybe there is not an expectation that this might change the caliber of the conversation. Google has weathered this before. They are not panicking, maybe to brians point that they should be. I think we have to think about the fact that a lot of advertisers do not have a lot of other options. Where else are they going to go . They could go to facebook, snap, a new emerging advertising channel, verizon, aol, but google is the best bang for your buck. Caroline talk to us about the rivals. Verizon, which might be dining out on this problem, so who might be the winners here . It is interesting that. Some of the companies that have pulled their advertising from youtube temporarily are ones that do stand to benefit, because they are in direct competition. I think though that when you look across the competitive landscape, what is interesting to me is that all of the potential players, and we have mentioned all of them are many of the major ones, they really all have the same risk level. What just happened is not necessarily a youtube problem. It is a Programmatic Advertising problem. It is a problem that happens when advertising is propagated through an Automated System throughout a very, very Broad Network of websites and Digital Properties without necessarily being able to control and vet every single one. Facebook has had advertising issues with its ad platform over the years. Snapchat has had problems and probably will continue to. As long as advertising is bought and sold this way, it will remain a risk. Google has said that they cannot guarantee 100 brand safety. Maybe the issue here is, can they go from 98 to 99 . They need to do more, but i dont know how much more they can do. Competitors are facing the same basic problem. Finish it off for us. You downgraded it to a hold. Ould it take alphabet, what moves would you to see move it back to a buy . What would worsen it . What would have to the key catalyst there . Brian the downgrade was in part because the stock has risen since the last time i published a note on google. The prices are down a little bit. Necessarily becomes a whole. If the price had been a lot low already, it would have been a buy. I think what happens next, it is going to be a little bit of time. The right answer is not 98 , 99 . The right answer is zero. Large print advertiser expectations are that google is a company that can have a much up for some driving cars, balloons in new zealand, a company that can have robots running down the street. They can have a moonshot for a completely 100 brand safety environment, even if they do not get there completely. One screenshot of a brand sponsoring a beheading is one too many. Caroline they need to plan. It has been great to have your opinion. Thank you for joining us on skype. Brilliant now, a story we are to have you with us. Now, a story we are watching, wikileaks has released new documents that reportedly contain techniques the cia uses to infect apple devices. According to the group, there were several cia projects devoted to infecting Apple Mac Computers firmware, meaning the infection remains even if the operating system is reinstalled. The documents also disclosed tools to infect iphones. Earlier this month, Julian Assange said he is willing to work with Tech Companies to close security gaps. The cia has said, it does not confirm the legitimacy of such leaks. In other apple news, the iphone company has finalized a deal to workflow,e start up and app that allows users to put together apps using a string of commands. Workflows threeperson teams being hired by apple who will continue to develop the app. Details on financials were not released. Coming up, fitbit hits a major milestone. We will hear from the ceo from a companys 10 Year Anniversary and what is next in their turnaround strategy. All episodes of Bloomberg Technology are now Live Streaming on twitter, check us out bloombergtechtv. This is bloomberg. Caroline fitbit is turning 10. The last decade has been anything but a walk in the park. Five years ago, cory johnson took a walk with the then private startup ceo. Now five years, one ipo and over 60 million products sold later, the took another walk on the two streets of San Francisco. We talked five years ago, you said we are Software Guys making hardware. I do not think we thought about the challenges we would encounter. He just went and did it. My cofounder eric and i are Software Guys. Weve never done hardware. Cory now five years later, ceo james park is sticking to the claim, even though it is the hardware that makes it that household name. James it is really about the combination of the two working well together that creates the magic. I do not know i dont think we can classify ourselves as strictly a Software Company or hardware company. Cory hypergrowth might be a hard thing to manage, but growing cells more slowly can be just as difficult. We had a rocket ship of a company for quite a long time. We shipped our first product in 2009, 5000 units. Last year, we shipped over 20 million. It has been pretty stratospheric growth. Now the challenges, we are moving into a slightly different environment. It is a new set of issues that myself and the company has to tackle. Cory which are what . James moving from an environment of hypergrowth to one where we have to be more efficient and focus on fixing a lot of the things that we had ignored in the past because of our growth profile. I think that is a good thing for the company. It is time for us to reflect, look at the things that are working, not working, make your fixes and passed back to growth. Cory fitbits firstever contraction has been painful to employees and wall street. Since their ipo in 2015, their shares have plummeted over 71 . So Many Companies have stayed private for longer periods of retrospectder if in you think the negatives would outweigh the positives. James there are always positive and negatives. The positives for us is that for a long time we were not very well capitalized as a company. We had hypergrowth, but our Balance Sheet was pretty light. We always viewed the ipo primarily as a financing event. When we went public, we raised hundreds of millions of dollars, and it was the Largest Consumer electronics ipo in history. That was a huge event. It put a lot of cash in our Balance Sheet. In the end of december we had approximately 700 million in cash. That gives us a lot of confidence for us to operate the business Going Forward. Working capital, sleep at night r d m a, its a lot of , security to the business. Cory when you look at the stock price, stock price is stock price, but i wonder what that means for you in terms of the Business Plan and keeping behind the high margins that you have kept and other decision to have made there. You can certainly goose earnings or goose sales, i would think if you lower prices and cut margins, but you have chosen not to do that. Why is that . James pricing is something you cannot reverse from. So we want to make sure that people really value our products. I think maintaining pricing discipline is an important part of that. Invest a lot in significant and Innovative Research and development. That is something we want to continue. The stock price and public investors, that is all very important considerations on how we run our business. It is also one input. I what shareholders would like us to see is properly managing some of the shortterm interests, but also look at the longterm. I hope we are able to do that as a business. Customer demand resulted in a Fourth Quarter revenue fall of 19 . Announcing a restructuring plan, taking 4 million from 110 employees. How do they plan to turn around . James streamline our product portfolio. We have way too many trackers. A real focus on software, publishing, guidance, personalization. The later adopters in this category want a solution rather than just a touch and tracking. Data and tracking. We want to move into adjacencies like smart watches. The acquisition of pebble, factor, and coin, all play into that strategy. We have announced we are entering that category. It is a move that will immediately double our addressable market, so that is a huge area of growth. There are form factors beyond the risk that we are looking at as well. As part of our restructuring, we are looking at the business in two perspectives. One consumer, but more importantly what we call in a price health where we have started targeting employers, but want to start to target insurers and other partners in health ecosystem. Cory you are running a hundred thousand units at a time. James there will be Incredible Opportunity for bulk recurring sales tied to health plans. Ultimately it comes down to inspiring sales to getting customers on their feet. What is something you wish someone wouldve told you five years younger you . James sure challenges today that wouldve been easier to manage a big cash as a private company because you are less visible, not being judged on a daytoday basis, so a lot of the things you have to do to chart a path back to growth and profitability are definitely a lot harder in a public spot. Spotlight. What i think about on a daily basis is how we transform fitbit into a product that is nice to have, to something that is a must have. Caroline fitbit ceo james park and bloombergs cory johnson. Coming up, we will hear from one of the biggest players in online lending. Ceo greg gibbs on his outlook for china and the tech industry. Fintech industry. Tv esting function, on the bloomberg. You can watch his life and see interviews and dive into any securities or bloomberg functions we talk about. You can become part of the conversation by sending us instant messages during the show. This is for bloomberg subscribers only am afraid. Check it out at tv. This is bloomberg. Caroline greg gibbs, ceo of one of the largest players of the online lending industry, says the company has benefited from the decrease in peertopeer bands in china. The number of players in the industry, we used to talk about 2000, 3000. Now we are talking about 1000. Out of that thousand, the top 20 have got 50 of the market, the other 980 have the other 50 . We have seen in our case, our market share double roughly over the last year. Caroline lufax is valued at 18. 5 million. Eeye jumped after Goldman Sachs upgraded the company to a buy from celebrating, and increased its price target to 15. The goldman note says, the introduction of analytic facts, will address many of the firms previous challenges. Ed williams will unveil new business models, a five dollar per month subscription service. Earlier this year, williams swore off advertising on the medium platform and cut one third of its staff. Few details about the benefits have been released. It will include exclusive content and early access to new experiences. The site will remain free to those who are not members. It looks like bob iger is sticking around at disney. The ceo of over a decade has agreed to a contract extension that will keep him atop the Worlds LargestEntertainment Company until july 2019. He said he would not extend his contract afterwards. Bob igers annual salary will remain unchanged, but youll get 5 million for agreeing to the new contract. This settles who were run the company for the immediate future as the board of directors continues to search for his replacement. The move also gives him the time to address proms at disneys most profitable business, espn. Coming up, as google works to rectify its growing ad controversy, more analysts are weighing in. Well break it down next. Thats next. If you like bloomberg news, check us out on the Bloomberg Radio. You can now listen to us on the Bloomberg Radio app, bloomberg. Com, and in the u. S. On sirius xm. This is bloomberg. It is 1 30 p. M. In hong kong. President obamas top trade negotiator says the trump administrations withdrawal from the tpp is an error of judgment. He says a wide ranging trade deal may go ahead without the u. S. , leaving american businesses and farmers cut out. He sees worrying signs of protectionism. Things, the those only one he has done is indicate the u. S. Will withdraw from tpp, which i think its a terrible mistake and creates a void that china is filling in the region and will affect our s