Transcripts For BLOOMBERG Bloomberg West 20150510 : vimarsan

BLOOMBERG Bloomberg West May 10, 2015

There are lingering concerns about alibabas ability to up international revenue. Chairman jack ma Just Announced a hiring freeze. There are concerns about their relationship with the Chinese Government, which said they are saying alibaba is not doing enough to crack down fraud on the site. I spoke with the new ceo, daniel zhang, a former accountant, who went from cfo to coo and now ceo. I asked him what he plans to do differently and when alibabas Management Team will stabilize. Daniel we changed the leadership in our fields. We believe that today is the right time for us to bring the young generation to the leadership. As you know, alibaba this is a long journey. We need the young generation to participate in the leadership and lead the company to the next part of journey. Emily how will you bring more talent into the leadership and management roles . Daniel today if you look at our key Business Units and all the leaders are out of 1970s. Were also trying to bring more and more 1980s, 1985, 1990 young generations to the middle class level and finally to the leadership level. We believe this will be the foundation for our future growth. Emily jack ma said he wants 50 of revenue to come from outside of china. Currently that number is more like 9 . What is your target for that number this year . Daniel globalization is one of our Core Strategies in the future. We start with our crossborder strategies and help to chinese consumers. On the other hand, through our ali express retail platform we help chinese suppliers to sell to customers all over the world. We want to build a global network. A Global Platform to serve all the merchant and consumers around the world. Emily if it is 9 now coming from internationals, what do you want that number to be . Daniel the business from international, from globalization will continue to grow. Now is just a starting point. Emily so what kind of countries can we expect to see alibaba popping up in . Where are we going to see a greater presence from alibaba abroad, more specifically . Daniel today through our retail platform, ali express, we sell a lot of products to developing countries like brazil, like russia, and in those countries the Consumer Product is very expensive. So we help get supplies to those countries. We will cover a lot more countries in the future. On the other hand, we will participate in the growth of certain countries, investment and m a. We will try to help the young generations and the young entrepreneur in the local countries to do their own business. Emily how do you plan to do that . Daniel actually we have a strategy of globalization. Today we start with the cross border, as i said. We will go further to build a global network. As i said, today is just beginning. It is a long journey for globalization. Emily we have heard about the hiring freeze, you know, capping employees at 30,000 employees today. How likely would layoffs be if layoffs are a potential next step . Daniel head count freezing is largely integrated by the market. We will adopt a zero net policy this year for our head count policy, but we will definitely continue to hire talented people to join us and replace those guys that underperform employees. The purpose of this zero net add in head count is to improve our operating efficiency. We did the same thing three years ago, which gave us very productive results. In five years, we have a dream that we will have 1 trillion u. S. At least, and jack set a target for us at that day the head count in our group should be 50,000 people. Today is a good time, we adopt a zero add policy to help efficiency. We are prepared for the future growth. Emily the Chinese Government has made harsh accusations against alibaba about bribes and knockoffs. What is the state of your relationship with the Chinese Government right now . Daniel like all global companies, alibaba has a very transparent conversation with Chinese Government. We share our views and our plans of Business Development and also address their concerns. We do everything we can to make sure all of our all the business platforms are in compliance with the laws and regulations. Emily new alibaba Ceo Daniel Zhang there. We will be right back talking with twitter ceo dick costolo. That is next. Emily this is bloomberg west. Im emily chang. Bloomberg television recently premiered season two of studio 1. 0. My first guest this season was twitter ceo dick costolo. We talked about his improv comedy training and how it prepared him for wall street his relationship with twitters cofounders, and how he deals with the skeptics who say he should be fired. Here is a bit from that interview. How do you and your team deal with that . How do you as a person do with that, when people say you should be fired . Dick i was invited to something a couple years ago, and my daughter said, you should totally go to that. I said, i dont think i will go because i got invited to it because of what i am, not who i am. I got invited because i was the twitter ceo, not because im dick costolo. I have never paid too much attention to the ceo of the year stuff because the worst ceo of the year stuff is right around the corner. I therefore dont get worked up or frankly care too much when people say those things. In fact, i have had to make myself care a little bit about them only after i started realizing oh, it could affect recruiting if people started thinking, i want to go to twitter, but what if dick is not there tomorrow and everything changes . So i have to Pay Attention to that and talk to people that i bring into the company and say that is not the case. Emily how does not being a founder affect your ability to lead . Dick jack dorsey could be here and ask him what he was thinking about when he invented twitter. You cant ask me that same question because my answer is i didnt invent twitter. You can be a nonfounder ceo and have real, thoughtful opinions and even certainty about where something needs to be taken that is helpful to the company. I can tell you, when jack saw vine and loved it and knew it was right right away and we both realized we have to do this. I felt the same way when someone on my team came to talk to me about periscope. Right away it was we have to make that part of the company. My daughter at the end of 2014 texted me and said, i have bad news and good news. The bad news is an article said that you were one of the worst five ceos of 2014. Ok, what is the good news . You are number five. The good news is you are number five. I view that as a lesson to not get too carried away one way or the other on the sorts of things. Emily my interview with dick costolo from the premiere of studio 1. 0, which you can find any time online. From twitter to salesforce another san franciscobased company. People familiar with the matter say microsoft is making a bid for salesforce after the cloud giant was approached by another suitor. Would such a deal make sense . We spoke with Matt Mcilwain from seattlebased Madrona Venture Group. Matt i think their aspirations are to be a winner at both, the infrastructure in the cloud as well as software as a service. I dont think either of those would be enough to justify buying salesforce. I think the bet on salesforce is to say can we build Intelligent Apps together . Datadriven apps are going to be the smart apps of the future. For example, salesforce bought a company last year that used technologies combined with microsoft data and technologies like exchange, and that delivered Intelligent Services to companies. Cory im going to back you up for a second. You said microsoft needs salesforces engineers and their imagination . Matt i think that is correct. Particularly about software as a service application. There are things it has done not just engineers, microsoft hasnt fully figured out yet, and that together they could build this next generation of smarter applications for the enterprise. Cory that is interesting. My excel spread sheets on this deal have been burning over the last couple of hours. Ive been trying to look at ways it makes sense. Salesforce, it is what it is but it is also a compilation of a bunch of recent acquisitions that have been very expensive to the Company Without delivering profit or Free Cash Flow after the cost of those acquisitions. Anyone in the industry can see that they are doing a lot of acquisitions to boost revenues but they are not getting the Free Cash Flow that would result from it otherwise. They are just spending a ton on marketing. Matt i agree with your analysis. It is risky bet on a company that is already highly valued before the run up have seen in the last few days. Thats why, you know, it is a big bet if that is something they are trying to evaluate here. Certainly the rumors suggest they are. If so, it is not going to be just because cloud makes you better. Cloud or microsoft is coming on strong and really the data analytic that you can embed into all of those solutions, that would be the bet. Part of the reason that matters, cory, is there is a lot of usage and understanding in both what salesforce delivers in its own products as well as things built on their platform. Emily cory johnson with Matt Mcilwain of Madrona Venture Group in microsofts backyard. Up next, are we in bubble territory . Ill speak with parker conrad, the ceo of zenefits, which just raised 500 million. Emily this is bloomberg west. Im emily chang. The money keeps flowing to Tech Startups and shows no signs of slowing down. Last week, payment startup affirm raised 275 million. The drone maker dji pocketed 75 million. And h. R. Software startup zenefits scored 500 million. Are things getting a bit too bubbly here . Cory johnson and i spoke with parker conrad, the ceo of zenefits. Parker basically a lot of businesses out there are going after a couple thousand of the Largest Companies in america to sell them business software. There are so many of these companies out there that there are a lot of people we need to have conversations with, that we need to give pitches to, and that we need to field questions from. There are a lot of folks we need to hire. Longterm the business looks very profitable, but a lot of those costs are frontloaded, so when you want to go very fast and very far, youre going to burn a lot of gasoline. This car that were driving at high speed and we want to get a lot of customers, we have to make the mother of all pit stops to fill up on gasoline and beef jerky. [laughter] emily i appreciate the metaphor. We have been speaking a few time over the last year or so. A year ago it was a 100 million a 500 million valuation. Is it scary to take on this responsibility . Parker definitely, you know there is a little bit of celebration. I think a lot of humility about what is in front of us. Obviously investors are investing on the promise of a lot of future growth and execution in the business. We feel that, you know, what the market that were going after is absolutely enormous. It solves a really big problem for almost any business in the united states. We think that, you know, if we dont screw it up in a couple of years, a lot of guys in this round will look prescient. Cory what kind of growth are you talking about, and what do you imagine they are going to be now that you have filled up on beef jerky . Parker well, you know, zenefits is the Fastest Growing business in Silicon Valley. It is two years old this week. We started off in 2014 with about 1 million in revenue. We closed having grown 20 million. The plan for this year takes past 100 million in run rate revenue by the end of the year. We want to keep growing at those kind of rates into 2015, 2016, 2017. When you want to grow that quickly, you need to really capitalize the business well. Emily lets take a step back and talk about what you do. You tie together payroll, health insurance. All of these different kinds of h. R. Things into one software. Right . Parker that is the idea. Basically companies today have all of these systems related to their employees. Benefits, Time Tracking Software creates an administrative nightmare for a lot of people. Zenefits ties it all together. You get rid of the Administrative Burden and the compliance headache. We give the Core Software away for free because we make money on all of these different spoke and adjacent systems. Cory youre saying it is like a lead generation basically for those other businesses, right . Parker that is one way to think about it. It is almost like a premium model. Emily how does the Affordable Care act affect your business . Parker it does a couple of things in the Insurance Market that makes it simpler to price health insurance, which makes it easier for us to do it online. It also quite frankly adds to the compliance burden for a lot of Small Businesses. There is a lot of filings they need to make and compliance they need to deal with. What it does is makes it harder and harder for a Small Business to roll their own on this stuff. Zenefits, we can take all of that off their plate and handle it for them. So it makes our Value Proposition really compelling. Emily do you watch the show Silicon Valley . Parker occasionally i watch the show. When im fundraising, sometimes it is a little too close to home. I stop watching it then. Emily there is a scene in the show this season where the main character is talking about raising money, and someone tells him, look, dont raise that much money. You might go through a down round. He said maybe ill raise less money at a lower valuation and says no to a lot of people trying to write him checks. Would that ever happen in real life . Do you as a ceo think maybe i shouldnt be raising because it is too risky . Parker it depends on the stage of the company. Our view of our business is all of the underlying metrics are pointing in the right direction. Every customer we acquire longterm we think is extremely profitable. All signs point towards us stepping on the gas. So for us, you know, we my goal is to run the company so that we never need to raise another round of financing. We want to capitalize the business in a way that lets us run the company in a way we want to run it, scale at the speed we want to scale, and go out and grab this giant opportunity we see in front of us. Emily we just heard from Zenefits Parker Conrad there about the company raising 500 million in its latest round. In light of the messaging app secret shutting down after it raised more than 35 million are these investments secure . I asked Mike Hirshland of founder resolute ventures. How do they make sure investments will be spent responsibly after one of them bought a ferrari . Mike i think it is very risky all around. Emily risky or irresponsible . Mike it certainly can be an irresponsible thing. I think the worry is that it changes incentives. Emily once you give these guys money, how much followthrough is there . How much are you looking at how are they spending it . Did they buy a red ferrari . Mike the important thing is how are they thinking about spending it before they raise it . Ideally investors will spend time with the Management Team. Emily do you think investors knew they were going to take that much money off the table for themselves . Mike they agreed to it. Whether they knew it was going to be spent on red ferraris. Emily why do investors allow that to happen . Why would an investor allow that to happen . Mike i think the only reason is because they really want to get into the deal and that is the bargain the founders are willing to strike. Emily secret was extremely buzzy at the time. Now 16 months later it is completely shut down. What kind of diligence is done to determine whether the company is going to be successful . Mike that depends on the company. A company like zenefits is different than secret. Zenefits, youre talking to customers and understand the market. Secret, youre looking at User Behavior and tension. Not just the number of users. How many users are coming back . How frequently . Is it something that becomes habitual behavior . Emily should we be concerned you see a lot of companies struggling. On the opposite end of the spectrum, youre seeing zenefits raise 500 million. What is going on here . Mike we should be concerned. I think these large valuations make a ton of sense as long as the tide keeps rising. We know every up cycle is followed by a down cycle. None of us know when that shift is going to happen, but when it does, it is going to be a painful thing. Their burn rate grows into that capital raise. If a company gets in a situation where they are going through that capital very rapidly, the market turns, it is going to be difficult to raise more capital, and that can be a very dangerous place. Emily you think this down cycle is definitely going to happen . Mike definitely. The market is riding a high, and it will not continue to go up. Emily how much longer do we have . Mike none of us know when. We all know that it will happen. Emily what do you think Companies Need to do in taking on this kind of risk . Mike i had this conversation with one of my ceos. He raised 200,000 his first round and has done well. The conversation is be really, really thoughtful. Raising the absolute maximum you can at the highest valuation often is not the answer. Emily really . You would do like the guy on Silicon Valley then and take less . Mike i oftentimes would. This ceo actually did that. Emily so it does happen . Mike it does happen. Sometimes boards and ceos and founders ar

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