Headtohead with apple music and spotify. Tesla taking reservations with a massmarket vehicle on the third 35,000 model three. People put down a 1000 reservation on the car. It will not be available until 2018. His master plan to enter the highend of the market and then drive down the market as fast as possible to higher volume and lower prices with each successive model. William explains why tesla needs the model three to sell like hotcakes. The model three is arguably the companys most important vehicle yet. The new car will not launch fully until next year at the earliest will be priced more for the massmarket. With massmarket comes competition. Their success today mean s competitors like gm and bmw are working hard to catch up. Just five years ago, there were only four electric models in the u. S. By the end of next year, there are expected to be almost 60. As any car dealer knows, the more people you are up against, the harder to make a sale. The more you have to spend to promote and market the product. This uses up a lot of cash. Tesla already burns a lot of cash. Worse, both competitors have a big edge. They sell millions of regular cars and trucks to observe the absorb the losses on their electric product. All of which is a problem for investors paying top dollar for tesla shares. Tesla is valued at 30 billion, putting it in the top 10 carmakers of the world. But its sales do not come close to matching other companie you cannot even see them in this graph. To buy this stock at this price, you have to believe they can change the global car market and beat everyone else what they do so. The model three will have to move fast to catch up. I spoke in portland, oregon with more on teslas plans. The most important issues here, tesla has a huge number of challenges going for. They have said all along, even as a luxury company, their brand is underpinned by this idea that they are on a mission to make cars available everywhere. This is the first vehicle that will take a step in that direction meeting fully. Meaningfully. Execution is everything. Tesla is fueled by big subsidies for the car. Some states have added to that. Weve seen those subsidies have going away in europe, norway in particular. The suggestion is that by the time this gets out, they say theyre going to ship in the last quarter of 2017. Only made six cars the last time. Look at all of the competition out there. Mercedes, bmw, we have a lot of cars that will be there to compete with them in the all electric space even before this thing is in production. I think that is why tesla is taking this step of going ahead and collecting deposits before they even show the car. They want perception that they will be the first to market with the affordable car. The reality is there will be a lot of competition when they get to market, assuming they do not delay the actual launch of the car. Which they have for all their other vehicles. Huge challenges there. Back to that pricing, is that 35,000, does that not include a lot of the extras people will want with the car . We have seen that where the average price is a lot higher than the base model. They have a choice, they can either have an affordable car that beats all the competitors by every metric, or they can have a car that beats profit delivers solid profit over the competition. They cannot have both of those things. The real question here with this launch, what we will look at, is which side of that equation are tesla is on. Are they going to continue to be the competition and build their brand by offering more for less or are they going to start generating profits at some point to support their ridiculously high valuation . I think they have to do the latter. But that threatens to disappoint consumers. Who are used to this prestigious come high level of execution on the product. Cory the model s is so cool. Even at 100,000, they lose money on every sale. What are they not going to put in this car . If you lose money on every sale, you cannot make it up in volume. As great a product as the model s is, its reliability and quality has been quite bad. If you do the research on this vehicle, Something Like 80 have had the driving unit replaced once. That is a big deal. Edmonds is a car in tumor consumer advice company, their test model s had the drive unit replaced twice. They are on their third drive unit. As you get into this massmarket, people become more demanding. It is an interesting dynamic. Mass consumers rely on their car more than luxury consumers. They will be a lot less forgiving if these problems persist. As they ramp up production, without a great track record of manufacturing quality, those defects are likely to go up. All this together spells a tough challenge for tesla and elon musk. Cory microsoft makes a big bet on Artificial Intelligence after their last ai bet led to a stream of sexist, racist tweets. Well show you their take on ai. Spotify and pandora singing a different tune. . Cory this week, microsoft is hosting their annual Developers Conference in San Francisco. Their ceo announcing their intention to be a leader in Artificial Intelligence. Their latest attempt was kind of hilarious. They launched an ai tweeting program. It ended up tweeting racist and sexist things. We want to take that power of human language and apply it to all of the computing interface. To do that you have to infuse into computing all around us, intelligence. That means you have to bring forth these technologies of Artificial Intelligence and Machine Learning so that we can teach computers to learn human language, have conversational understanding, teach them about the broad context, People Places people, places, things. Context about your preferences, your personal knowledge. So they can really help you with your everyday tasks and everyday life, both at work and elsewhere. Cory does microsoft have a future in ai . Chat bots are ai programs that do things in a human fashion. Microsoft wants them in commercial areas, but also to sell you things and provide customer service. Theyre going to make them themselves and ask people to write them. They put out developer tools. Cory weve had people say on this program that microsoft is quietly making a big comeback. Is microsoft very relevant . People are paying attention again. There are exciting, interesting things happening. This company is more tuned into the overall state of programmers than it used to be in the world of coding than it used to be. Every now and again the old microsoft comes out and bad things happen. Cory i think it is so interesting that microsoft as a thats was a Company Microsoft was a company that dominated technology, every conversation about technology regardless of the aspect not so long ago 10 or 15 years ago , maybe. What matters most . What matters most is building a future. They missed the mobile revolution. Steve ballmer, that is probably the one big hit on his agassi. It put microsoft in this position. For the future, it is carving out a new market. Artificial intelligence seems to be a strong part of that. Conversation as a platform is a strong part of that. I also think that the success of the platform. Cory the success of azure or whatever everyone pronounces it differently. I say azure. That is a huge success for them. You see a lot of your clients talking about this. I think they are part of the big two. What microsoft hopes to do is infuse intelligence into that delivery of cloudbased services. Intelligence like a bouncing paperclip. Hopefully it will be better than our old friend, clippy. In this instance, developers can call on these different apis to create these bots. There are all these cameras today, and they could tell you your emotional state. They could tell you youre happy, sad, you are 31 years old, your 51 years old. That you are you are 51 years old. Theyre trying to make those tools available so developers and incorporate them into their own programs. I think that they are killing it in the cloud. They are number two. Azure is a big deal. Cory i like this it im not the only one who cant pronounce this. I think we are back to clippy. It was based on the idea that conversational interface would help people deal with all the complex of the in mark software. Theyre trying to do it for the whole world, not just one application. Why didnt that work . The idea was not a problem, but it had no intelligence. It did not know what you needed most of the time and it and did most of the time and it did not know when to shut up. Microsoft is thinking with ai and Machine Learning, these things will understand your context, what you need and when you need it. That is the bet for them. Cory have you used amazon echo . It is catching on for a reason. It seems to understand natural language. You can do something with it, too. Siri works, but i dont use it. I think that is a common expense. People use it for things like they are in the middle driving, and they need to send a text. That is not super intelligent. Today, they showed this idea of being in a chat about travel and there is a box that gets into the conversation that makes a recommendation. That is proactive intelligence. Cory is this anything more than the advancement of moores law . Machine learning has been talked about for 70 years or so. Are we finally at a point only because of the advancement of semiconductors or Something Else going on driving this . People in the world of ai will tell you that there has been new approaches and models for representing knowledge and doing weird things with ada. With data. A computer just beat a person at go thanks to google. Things are happening. There are new approaches. A lot of excitement. The basic idea is the same. The idea, the dna is not entirely dissimilar to what we see from clippy. We see a lot of Information Available on the open web and giant databases. There are billions of more users to interact with. Cory that is our own deana vass, jp and paul. A littleknown japanese pinball maker soaring this week after reports that it might be behind the fbi hack of the San Bernardino iphone. That story is next. Sound cloud launches a long awaited premium service. Why sound cloud will survive the streaming wars, from their ceo. . Cory lets take a look at apple. The fbi said they cracked the security of the iphone used by the San Bernardino gunman. A littleknown company worked with the fbi to crack the phone. They saw their shares soar 40 after that report. I sat down with alex webb. Alex suncor sounds like the company we should all know about. It is completely off the radar. It has a rudimentary website. It is like a holding company. The have a number of assets, one is this israeli firm. A small company. This is an interesting company. We should see it more as a shuffle master, a company that makes slot machines, things like that. It is interesting they are in this business. This is not a huge secret in the intelligent community. Alex the fbi does contract with a lot of different people. When i was looking last week, people were saying there may be maybe a Dozen Companies that could do this and any number of those work with the fbi in some capacity. There could be an office in San Francisco with two guys who are experts that might help the fbi locally. People talk about this, but it is a box that you can plug into a pond. That plug into a phone. Cory it is a machine that the company it is a machine, the Parent Company is based in japan. Alex it was bought by the japanese in 1990. It remains largely independent. They have offices in the United States. Their r d is done in israel. Cory there is a lot of Cyber Security work that happens in israel. Alex that is one of the reasons bloomberg expanded our tech coverage there. Theres a lot of innovation there. Cory heres the question. If the fbi has had a contract with them for a long time, the fbi said they needed apple to get into this phone, and they did not meet apple. One wonders why did they realize they did not meet apple and if best need not need apple and if the court case was an excuse to get a legal ruling to get into a lot of iphones. That is something experts have been talking about. It seems the fbi could have done this for a long time, that means judges will be circumspect Going Forward when they look at these rulings. They will have a second look and say to Law Enforcement agencies, are sure you cannot do this. Who are you using . Have another try and come back. Cory we dont know if these founders of this company that leads to a lot of companies doing Cyber Security. It suggests that israel has some of the strongest ability to hack and get information when they want information. Alex going back six years now, if you think about the bug that infected a lot of factories around the world. People suspect that came out of a combination of israel and the United States. Cory it has been reported that it was the u. S. And israel combined. Certainly a focus in defensive and offensive tools. Alex they have a huge amount of ability there. People say that the greatest concentration in this area is the nsa. If the fbi cannot do it, surely the nsa can. Cory that was our Bloomberg News reporter covering apple for us. It is getting crowded in the market or music streaming. Pandora and spotify have high hopes of cracking this market. If you like bloomberg, check us out on the radio. You can check us out in the United States on sirius xm. We continue after the break. . Cory welcome back to the best of bloomberg west. And im cory johnson, in for emily chang. Competition is heating up in the music streaming business. This week got hotter. Deezer is the most popular in france, that is just the beginning for this company. They hope to fuel International Growth with an ipo. Those plans were squashed. Francine lacqua sat down with hans albrecht. We decided that the market was not there. There are conditions which were complicated. We always had other options. The finalized our funding privately. You raise 100 billion euros from our main shareholders. We will keep all the options open at this stage. Francine when you talk about the options not being there, is that because it is difficult to get funding on the markets . Because the markets are volatile, were you sell something uglier . I think there are two issues, the markets are very volatile. Tech Companies Like ours. We always a good market support. Second thing, it was just a few months after the apple launch. There are concerns about groups like pandora. It didnt make the environment the good news was, we had options. Francine give me a sense of the United States market. This is the toughest to crack. I know you are present in france. Investors are saying youre maybe too close to orange, how do you crack the market, is it pricing . Do need to get the music acts on board . I think we need Good Partnership models. I think we need big telephone Companies Like orange or others. I think we are going to be one of the big three in the world. We have a Successful Partnership with at t and cricket. We are observing the market. We operate in the market. We have not found the right time to go in. Francine do need to spend more on marketing . You asked for an example. A few hundred million is not do the trick. If you are committed strongly, you have to put a lot of Financial Resources behind it. It is a question of options. Francine how, is it social media . Everyone knows spotify in the u. S. If you want to tap into that market share, what kind of narrative do you have to play out for consumers . Is a mix of social media and traditional media and pr and communication. You need to explain to people what you get that is different. The Biggest Issue of all is how you access the consumer. What are the best sales channels. Telco partnerships are good solution. Francine a lot of the music acts have wanted more of a say on what music goes into what service. Some competitors have given into that. Will you . We are in constant debate with people as well. We have explained very good to our artists and the Music Industry the big debate is on the free side. That is fair. The only has to prescription model. It passes to a subscription model. We are at the beginning of a big market. More than 50 of the revenue is digital revenue. You can see the potential. Francine are there any markets or countries that are willing to pay . We are the leader in the emerging markets. We have some asian markets. Columbia, for example, was a small market or the Music Industry, but now it is a double digit Million Dollars market. Those markets will leapfrog. People jump into streaming. Francine is it infrastructure . It is infrastructure and mobile economy. Francine is that five or 10 years away . It is shorter. You will see the top level of customers. In latin america it goes fast. Africa, it may take a bit longer. Cory that was deezer ceo hans holger albert. Talking with Francine Lacqua in london. Meanwhile, spotify is said to raise 1 billion in debt. That debt is a loan that converts into stock in certain scenarios that turn into class a shares. This deal has some toxic terms. Caroline hyde is monitoring that story from london. Caroline there is a lot of ipo noise coming from the streaming industry. With deezers chief executive saying the French Company may revisit the listing after pulling an initial share in october. It seems spotify has also started the clock on their own idea by raising funds that get more costly for the business if it does not sell shares in a year. The streaming company with a presence in about 60 companies has raised 1 billion in convertible debt. Perhaps using the instrument rather than using normal fundraising to