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The Toyota Certified Used Vehicles Sales Event is full of great surprises like a wide selection of low mileage models all backed by Toyota with warranties that start on the date of purchase. Because when it comes to quality, the best new cars make the best used cars. So don't miss your chance. Find your certified Toyota today, but hurry. These Great offers end November 3rd. Toyota Certified used Vehicle Sales Event where every surprise is a great one.
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Comprehensive and powertrain are limited warranties. See TCUV warranty supplement toyota certified.com or your toyota dealer for details. These days AI can help you adopt better time management, but it can't stop colleagues booking meetings during lunch. But how about being able to easily adopt industrial AI to streamline your business? Siemens xcelerator helps you find the right AI providers and easily understand what they offer so you can use modular solutions to quickly scale up and grow your business. That's AI for real. From the global market leader in industrial AI Siemens. Learn more on USA.siemens.com AI Hiscock Small Business Insurance Knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, looked to his Cox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online'@hiscox.com that's his c o x.com there's no business like small business. Hiscox Small Business Insurance Bloomberg Tech is.
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Live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco.
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C
This is Bloomberg Tech. Coming up, Alphabet hits a record high as Google dodges the sale of Chrome in a key antitrust ruling.
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B
Plus Apple benefits from Google's legal win, but loses out on the talent wars. Again we discuss the latest key researcher jumping to rival matter and the Rolls.
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C
Royce CFO joins us stateside as the British engineering giant goes off to a fuel data center. Demand for power tech.
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B
But first we check in on these markets that power higher on the day and reprieve from yesterday's sell off as we see bond yield come back a little bit and we focus on well, pretty woeful data when it comes to the jobs data. But does that mean the Fed can indeed cut we're up more than a percentage point but dig into the individual movers because they're big.
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C
Yeah, our top story is Google. The key headline that you need to know is that they will not have to divest or sell Chrome. They will be allowed to continue paying. In particular Apple $20 billion per year for placement of search. But there is a lot that they're still, still required to do in the remedy section of that key trust ruling the stock for Alphabet, parent of Google, on track for its biggest jump since April. Record high alpha. Apple is also pushing a lot higher later in the program. Go into detail. Let's start with the Google piece and bring in our guest car.
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B
Yeah, let's bring in Sarah Fordham because we want a blow by blow account about what the legal win is here. You're in D.C. our legal team leader. Sarah, just walk us through why this seems to be such a win for Alphabet.
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D
Yeah, absolutely. I mean this was a huge win because primarily, I mean the judge in the end didn't give Google much more than a slap on the wrist and there was a lot of fear and concern that this was going to completely reshape the tech market, the search market and instead it's almost status quo. I mean they're, they don't have to break off Chrome, they can keep paying the money to Apple to be deferred default search engine. But the only caveat there was that it can't be exclusive. So that, that opens up things for Apple a little bit more and they have to do some data sharing but it's very limited. It's a one time shot at sharing the data and it's just search data, not advertising data. So they're still looking at how that's going to work technically and they'll have to report back to the judge. But at the end of the day it's not a huge change or a huge blow for Google.
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C
Sarah, Google's response and its statement was celebratory basically, and that largely focuses on Chrome. They do note in the data sharing part their concern is privacy because they don't want to share data with rivals like perplexity, open AI, DuckDuckGo, etc. There's still some mechanics here. September 10th is a key date. The parties need to write down on paper something that appeases this judge. But in the ruling the judge also talks about generative AI being key to the outcome of this case. Explain that.
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D
Yes, so that was very interesting because the way the judge handled the initial trial and even the remedy portion of the trial made a lot of people think that he was going to be much tougher. But at the end of the day his ruling was very conservative and he said the main reason was that, that he said that generative AI is really changing the shape of the market and he didn't want to get out ahead of that. And he didn't want to issue a ruling that was going to really disrupt the market, you know, change the money flows, inhibit innovation in any way.
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C
Bloomberg, Sarah Ford and who leads the antitrust team out of DC and all things legal. Thank you very much. Let's talk through the market reaction. Jefferies analyst Brent Thale joins us now. The stock's up 8.6%, record high. But that's only the biggest jump since the first week of April. Your colleagues on the street, many of them have raised price targets or calls on the stock. You have not in response to this ruling. Why and what is your main takeaway from it?
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E
So for the last 10 years in tech, we've maintained that any regulatory insertion into these stocks are really not founded. So watching what happened in that Was Zuckerberg watching what happened with Microsoft. There's been no breakup ever. And so we've always said that in a legal case like this that there's always a remedy and that the companies are too big and that the regulators want one thing and the tech companies want one thing and they'll find a way to meet in the middle. They have found a way to meet in the middle. And so our view is that again in any situation you buy these stocks on the sphere and that work for Matt, work for Microsoft and it worked. Now for Google, we are 100% hit rate. This isn't the game I'm creating, this is the game we're playing in. And that's been the rule book. So our view is like it's, there's been no change. This company's growing their EBITDA at a mid to high teen multiple and the stocks trading at 14 times and it traded at 12 times just a few months ago. So there's really no knee jerk reaction from us because the reaction for the last 10 years has been the same reaction and any legal case that we've had when we talk to our clients, which is they'll figure out a way.
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D
Yeah.
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E
And the inherent value is higher for what they're doing than what the street is embedding. Well, Brent, now will change.
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B
Well, Google needs to find a way to continue to compete even with a little bit of data sharing. What do you make of that part of the agreement and what it means versus rivals, particularly in generative AI?
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E
Look, I mean we are starting our searches in perplexity and OpenAI and then we're going to Google. We're not going away from Google. Google's still part of that. But the way we as consumers are looking for information, I think is changing. And so I think this pressure on Google is good. It's going to bring their game out. You know, it's not like Scotty Shoffler likes to go out and play golf against himself. He wants Justin Thomas. He wants the other players, whether it's Tommy Fleetwood competing against him, that makes him better. So I think many of these companies are making Google better. And we've said this for a long time, there's more horsepower underneath the hood. Google has done a terrible job of popping the hood and showing us what's behind the hood, and we think you're going to see that. So, you know, Gemini is doing a good job. We think ultimately that that many competitors are a good thing. And I think this came into, obviously, the judge's ruling, which is there's a lot more competition now than there was a few years ago.
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C
We're going to go very deep on the Apple portion of this later in the hour. But the basics of it are, is that Google still allowed to play, pay Apple $20 billion a year and others to be the default search placement. How, how big is that for Google? That result, I think, I mean, it's huge.
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E
It's, it's, it's a big thing. And I think Apple has said that they are also looking and evaluating Gemini. They're evaluating other AI tools. But I think ultimately what happens is, look, even if they had to divest the browser, they didn't get this. Everyone's still going to go back to Google, right? We're going to go to OpenAI perplexity to do different searches, but we ultimately end back up in Google. You can't complete the loop without Google. Whether it's map information or hours about a business you're trying to visit or you're trying to figure out, you know, what time does the vet close? Like, there's just things that you need Google for, and it's the best way. And so it really didn't matter, in our opinion, if they had to divest the browser or what's going to happen. It's the consumers are going to defect their behavior. And the behavior is you go to where you get the best information, and that's the best information today for a lot of the consumers is in Google. So, again, I think the world is shifting. There's no question. I think this pressure is going to be good. But I think, again, if you take a picture of a car in California, which I did for my son, and you want to figure out where a Toyota 4Runner with different colors is at in Gemini will tell you the dealerships where that car is available in Perplexity or chatgpt will just tell you the dealerships. It won't tell you where the exact car can be found. So I think there's examples of where Gemini is actually better than the other systems. And again, we're going to have multiple agents, we're going to have multiple AI systems that we all embrace that work in concert with each other. And again, I think that's what we're seeing in our survey work. When you talk to your own usage, when you look at you talk to your friends, we're using multiple tools. This is going to reduce the need for Google.
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B
We're at your price target for Alphabet, I believe. So do we see ongoing growth for Alphabet? You seem to be talking a very bullish case for why it's going to win out in this competition.
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E
Yeah, I mean, stocks up 22% now and it's outperforming Amazon and many of the other names. The sentiment and I was too negative and on this court ruling it was too, it was too negative. So we've had a nice snapback. And again, as we've seen in many cases like Oracle's up 15 stock gave back 15 points recently. I mean, I would say that I think clearly stocks reflecting a lot of the good news now and that's honestly kind of again where our price target was set. So we didn't predict this, but I certainly think there again, just go back to the playbook for the last two decades in tech. The rule is every time going forward in every conversation we have going forward with you guys, the big tech investigations lead to basically nothing and they are great buying opportunities. And it's been that case for two decades. So that's the, that's the, that's what I think we got to continue to take away.
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F
Right.
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E
Big tech's trying to help consumers, governments trying to protect and they ultimately find a way to have peace and in this new AI world. And I think that's exactly what we got.
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Brent Hill and as Jefferies, great to have you on. Thank you. Coming up, software companies, well, they're offering the government steep discounts to line up contracts. We'll discuss next this Bluebed Tech.
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Accelerator ServiceNow is aiming to boost its contracts with the US government by offering federal agencies disadvantage counts as much as 70% on its software. Bloomberg's Brody Ford breaks the story and joins us. Now ServiceNow wants adoption of its AI tools. Right, but just explain the mechanism. What does a federal government agency need to do to get that 70% discount?
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G
Yeah, so ServiceNow makes effectively IT help desk software. You say, oh dang, I lost my laptop, I need a new one. Instead of going and finding somebody you know, you just put in a ticket with ServiceNow oversimplification. But it makes these kinds of things simple in the workplace. Essentially the federal government has been saying for these software tools we use, why don't we centralize our negotiations and try to get the best discount we can from these software vendors? And so ServiceNow is just the latest of these steep discounts. They say if you upgrade. If you expand your business, we'll give you a discount. Government gets a discount and ServiceNow gets effectively new business because in a couple of years that pricing might go back to normal.
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B
And is that the positive here? Because ServiceNow is in what, 75% of government agencies. So they take this hit to margin in the short term for long term reward.
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G
Yeah, I'm sure that is the bet they're making, right? They're saying that we can land some new business, get them to upgrade to our better systems, we'll take the margin hit for a little while and then in two or three years, you know, what are we going to charge them then? It's unclear how these discounts will stick. Will they stick? But for now, the government and these vendors are saying it's a bit of a win win situation. I mean government buying of software is a famously fragmented and chaotic process and they're trying to improve that a bit.
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B
Bloomberg's Brody Ford. It's a great read. Thanks so much for exciting explaining it. Look for more on software expertise here. Let's bring in Hillary Fresh. She is a senior research analyst for software and IT services at Clearbridge Investments. And Hillary, look, It's not just ServiceNow. Microsoft has also been discounting. We've seen Slack has to pass a salesforce and indeed some of the providers of cloud. Is this something you build into the models at the moment that for the time being they're going to have to offer more for less?
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D
Sure. Well, I think yes, it's part and parcel of actually doing business in the current era with the government. But the government has such antiquated systems. They have so much to do with respect to digitizing their environments that as Brody said, I think it's a big opportunity for the vendors and recall that the margin on incremental software is incredibly high so they can afford to give more for the same amount initially to get more in the end. So in fact I think it's been a source of upside side for some of these models. We actually saw that in servicenow quarters ago.
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C
Hillary, you said in this current environment and Caroline and I were discussing this morning at the desk about how that last earnings period there were a number of names where government contracts were tracked so closely. How crucial is it that a software name is on good terms with this administration and able to get through that procurement process?
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D
I think it's very important and beneficial. Most of the vendors we track are doing a pretty good job of it. And actually I think most investors haven't imputed much benefit from government near term in their models too. So to the extent that comes through I think that could be a source of upside for some of them.
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C
So then how should investors adjust maybe how they model some of these names? Is there a lot more upside in some of these shares that come directly from from top line growth from government sales that you're not yet saying seeing baked in over time?
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D
Yes, over time. Potentially next quarter. I don't think that's an immediate term phenomenon for many, but we saw Salesforce had booked $100 million government contract recently toward the end of the quarter. That's actually very small relative to the total, but it's indicative of a thawing. It's an indicative of the government starting to purchase following doge cuts where the vendors saw some some immediate term pain in the prior few quarters numbers and.
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That'S important considering we've got Salesforce numbers coming out after the bell on September 3rd and I'm interested well today I'm interested in the growth or the winners and losers here because in many ways Salesforce has been beaten up this year unlike many other tech names because we're worried that it's losing out to Geni Gen AI competitors. That's something you're seeing.
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D
Yes, the entire SAS complex has been really beaten up on investor concerns over disintermediation. And it's funny, we've seen rolling recognition of Jenny I beneficiaries starting with semis and and hardware, data center power hyperscalers, etc. Most recently the data platform names. But SAS has been left behind and I believe in that vein investors are assuming that SaaS is very much a zero sum game, meaning for any Jenny I winner there are going to be multiple incumbent losers. But there are a few things I think about when thinking through that, which I'd be happy to discuss. One of them is that over the next five years we're going to see some so much more opportunity in software and even then SaaS than we've been seeing. There's going to be far more workloads to address, far more software written and the incumbents who are moving quickly and executing will be a big part of that. Second, these vendors are probably going to generate more revenue from Jenny I first before we see any actual real discontermination from their businesses and there are variances depending on the subsegment but that's something to think about. And then finally the valuations have been crushed as you pointed out. So it's an interesting step up. There's still a fair amount of near term uncertainty. But as we move through the year, that narrative could shift. Similar to, but not exactly to the extent that we saw in a, in a Snowflake a year ago or MongoDB more recently, but to a lesser.
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C
Find that so fascinating. I was in Europe for the UK for much of the last 30 days and a lot of the software names had a rough period. There's a lot of emphasis on how the no code low code player survives. Right. And I'm interested in Salesforce earnings. Right, because there's, there's the hype of the headline. Do you see that materially, like growing these businesses now? Are they good at AI or are they just good at marketing?
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D
They'll, they'll, some of them will be good at both. I think Salesforce will be good at both. Cogent is a very different discipline. Cogen doesn't have to be right out of the box. You have a world of developers who can spend all the time they save actually generating code or remediating the code after it's been written. When something is customer facing or even broadly employee facing, it has to be accurate, secure, compliant, trusted. It can't run off the rails. It can't expose proprietary data or expose the organization to liability or security vulnerabilities. So that just translates to slower adoption in the enterprise in particular and commercial organizations. But the incumbents have incumbency advantages. They have delivery and distribution advantages. They have a lot of hooks into every system. They can make things work together. They own the workflows, the data fabric, the business logic. There's a lot there that they can work with and impute AI on top of it. So it just means they have a fighting chance and they're moving a whole lot faster this time around than they did in cloud. But it's going to take time. We're not going to see it immediately. It'll take time.
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B
Hillary Fresh Deep Insight. We thank her Senior Research Analyst for Software and IT Services at Clearbridge Investments.
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C
Cato Networks is announcing its first ever acquisition, buying Israeli startup AIM Security, which specializes in enterprise AI security tools. Going to bring in Cato CEO Shlomo Kramer. And you know, this is interesting. You've been on the show regularly throughout the year. We've talked about M and A and now you've done some. What's the rationale here?
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H
Well, the rationale is that a transformation is going to dominate enterprise investment in the next decade, soon to be bigger and faster and more impactful from a business perspective than even digital transformation. And it creates a Huge security challenge because it's a completely new security SEC that needs to listen to all these tens of thousands of conversation in plain language and decide what is appropriate for the enterprise according to some policy. So this is a whole new category and security is going to be huge and SASE is the best place to put it. SASE is the network security as a cloud service that sits and listen to all these conversations. So we've obviously jumped in early into this and bought a security that specializes for the last three years in building these a security stairs.
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B
Shlomo, is it about. Is it about the talent that you need to bring in when you've already got an annual recurring revenue run rate of $300 million? You're building fast too. Why can't you do it organically?
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H
Because the market is happening at a rate that is unprecedented. There's huge pressure both from the board that sees a as most important business initiative as well as from employees that see the eyes the most important productivity initiative and the CISO that as we talked last time is in predicament as it is from a budget and from operational, from an agility perspective now has to face AI and needs to deliver a secure journey and it needs to. And they need to do it now. So developing three years now, what AIM has developed in the last three years is not going to cut its enterprises need it now and need a broad solution and a deep solution and that's.
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C
What we bring to Shlomo. We only have a minute left but a cruise come in and given you an additional 50 million on top of the 350 you did in June. Did you need the money for this piece of M and A or why are you taking that extra capital?
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H
Because we can. Because I think that with this acquisition Cato is becoming even more exciting to investors. And you know, we always have a second closing plan and, and we have, we have a. We have enough cash in the bank to get to profitability without compromising our aggressive growth targets with or without these 50 million. But showing a stronger balance sheet is always a good thing.
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B
Certainly it is. Shlomo Kramer, it's always great to catch up with you co Founder CEO Cato Networks as it makes its first ever M and A. Welcome back to Bloomberg Tech Datacenter Power demand is growing exponentially thanks to AI and the UK's biggest engineering company, Rolls Royce is seizing that opportunity. Best known for its jet engine business, Rolls Royce is also one of the pioneers of small nuclear reactor technology, was recently chosen to build three units in the United Kingdom Here to talk through the power systems growth, along with civil, aerospace and defense, is the company's CFO, Helen McCabe. It is wonderful, wonderful to have you here, Helen, while you're in the US talking to investors. But I'm interested in what you tell them at the moment, particularly about small technology. What is the opportunity here for you as a business?
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A
Huge opportunity, as you see in smr, the size of that market, we think the addressable market is about 400 equivalents of their SM ours. Huge opportunity coming forward. As you think about how we're going to support energy resilience going forward, it has to figure we have a leading position in that market. As you said, we won the contract with the UK government for the first three small modular reactors. We've actually won a contract with the Czech Republic for up to six. We're in final stages with Sweden for their small modular reactors. And we're actually looking at entry positions in the us the mean the US market, you have a nuclear ambition to go from I think it's 100 gigawatts to 400 gigawatts by 2050. Massive opportunity. And we've been building nuclear reactors for submarines, for nuclear submarines for more than 60 years. And our small modular reactors are the largest on the market as well.
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B
You've really been selling into government. And it's interesting at the moment that for us it's all about the hyperscaler demand as well. And we have seen this nuclear renaissance bear fruit. When you've got Amazon with X Energy. When you've got Alphabet going with Kairos Power, do you talk to the hyperscalers or is it more about the US government? Given your defense leaning?
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A
No. So absolutely we're talking to the hyperscalers right now, where the initial focus is on governments and utility companies. But the hyperscalers are absolutely talking to us and interested in this. If you think about, as you said earlier, the growth in AI, the energy that's going to be required to provide that continuity and resilience, SMR will absolutely figure in that. So those conversations are underway across the globe, not just in the U.S. helen.
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C
We spent a lot of time in the last year speaking to OCLO and X Energy, the kind of more small, nimble startups in SMR on this program. What's the Rolls Royce advantage? What, what makes your technology better than the newcomers to the field?
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A
Fantastic. So thanks for the question. So we've been in this area for more than 60 years. Yeah. We have built nuclear submarines with nuclear reactors, which is consistent technology with Smarts for the US for the UK Navy. So we've got leading technology, proven technology. It's based on proven fuel supplies as well. In addition to that, Air SMR is the largest on the market. 470 megawatts. That means from a cost and efficiency perspective, it's one of the most efficient, actually more comparable with energy and wind, but importantly more consistent so it doesn't have latency issues. And very importantly, air SMR construction, 80% of it can be modular built so you can construct it in the factory. And if you think about almost like a Lego block and then you take it to build on site. So it means the construction is much shorter and it means the risk factor. Yeah, is much lower as well. So we do have that leading position with that distinctive technology.
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C
Helen, in the defense tech context, the political and strategic environments like really changed. Not just the United States, but like Western allies overall. Could you just kind of give me your outlook for the next gen military turbofans, combined cycle engines and what's changing for you?
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A
So as you see lots of activity in relation to investment in defense at the minute, both in the US and in Europe where we, and we've got a very strong position in the defense business, not just and what we provide for military operations, but actually how that shows up in our energy business. Within power systems, we have a very strong governmental position there. We have got leading positions in Germany and Europe. We have got leading positions in land and naval. And with the spending particularly that's happening in Europe when people are talking about increasing NATO commitments, where we expect to see that show up in the short term is actually in land and then naval. You know, in our power systems business, that governmental business is 25% of our revenues. So we are very well positioned yet to support that growth and to capture those opportunities going forward. So short term that's where we see it will show up and longer term we expect to see it show up. And in our defense business. But very exciting.
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B
I mean, talk to us about the positioning for the long term opportunity here because you're the cfo, you're thinking about how to finance all of this. There has been some reporting around the summer part of the business maybe you think for outside funding, even talk of an IPO of that unit. What are you thinking about longer term to finance all of this?
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A
So smr, we're not IPOing that just to be clear. So we're investing right now to support growth across all of our businesses. But if I maybe focus on the, the governmental business just within the last six weeks, we've actually invested more than £100 million in the US alone to support the growth of expanded production, be that in defense or data centers.
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B
Do you have to. Because the administration invests more in the.
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A
No.
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F
Yeah.
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A
The U.S. is an important market for it is very important. Important that we continue to grow our position here. It's one of our home markets, so it's the right thing for us to do. But across our business, since we put our transformation together, we've actually increased investment each year. Yet while we've delivered this results and we're investing now for the longer term, some of the investments that we are doing in our investments and defence business platforms and the programs won't come into operation until the 2030s. So the long term growth is happening right now.
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C
HELEN Rolls Royce so aligned with Airbus that the strategy of this, this present administration is to use Boeing as like a negotiating tool, you know, in international markets. How do you, how do you see that playing out? Do you participate in a US Administration that's focused on Boeing? If you're so close to Airbus, by the way, massive aviation like a career about the propulsion as well as the fuselage, which aircraft I'm on.
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A
I mean, so what I'd say is we have got a very good and strong relationship with the US Administration and we've got a very good relationship with Boeing and Airbus. So that's how we lead into that. We've had a presence in America for more than 100 years. We have got 5,000 people across 26 states that work for Rolls Royce. It is one of our home markets. So that is how we approach those relationships with the administration in the US and it has worked incredibly well and it will remain a very important market for us going forward.
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C
Helen McCabe, CFO Rolls Royce thank you so much for joining us on Bloomberg Tech. Let's get back to our top story, and that is Google. It does not have to divest Chrome. The shares are up almost 9%. Biggest jumps in April, record high. There's a second part to the story which is that Google is able to continue paying partners for placement of search. Apple is the main part of that story. Its shares are also higher and in the balance and remainder of the show. We're going to go out to Bloomberg's Mark Gurman and understand the Apple piece of this story. What else is coming up?
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B
KAREN oh, plenty more, particularly when it comes to funding and in the world of Generative AI, the CEO of You.com joining us to discuss the company's latest 100 $100 million funding round this is Bloomberg Tech.
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- [34:35]
F
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- [36:24]
C
A search company. You.com has closed a $100 million Series C funding round that values it at $1.5 billion, fueled by the AI boom and its shift in focus to enterprise customers. Use.com co founder and CEO Rich Associates with us in San Francisco the environment has changed, the landscape has changed. Every time you come on, it's changed. But did that sort of make this round necessary? What do you need the funds for?
- [36:51]
G
We're scaling. Our customers are scaling the LM infrastructure that we need to keep these AI and agents up to date is increasing, the needs for IT are increasing. So that's why we raised it to support our customers like Harvey, the NIH, DuckDuckGo, Windsurf, Telegraph, the German Press Agency, EPA. There's so many customers now that want this technology and need to get the LMS to be up to date.
- [37:20]
C
Many founders, CEOs come to show saying, we're scaling. I think that there's like a lot of value in explaining what that means in material real terms. Like you're hiring better talent, you need more compute. What is it?
- [37:31]
G
Yeah, for us it's definitely more compute, but also the talent. Those are basically the two biggest factors are more Nvidia GPUs but also more scraping infrastructure to really build out the best search index for lms. You know, Google built an amazing search index for people to decide, oh, which link should I click on? But LM search differently. They can search through hundreds of different websites.
- [37:55]
C
Right.
- [37:55]
G
They can read the whole text or certain blurbs of each website to then give you a summary of those answers. So all of that is different and needs investment.
- [38:04]
B
Richard, I mean you are one of the heroes in natural language processing. You're like the fourth most cited researcher in it. You've been studying it for years. I must envisage that you've had some calls for your talent, that is you and wanting to purchase your company. Have you been fending off matter and the likes of so left, right and center.
- [38:24]
G
There's definitely been interest in you.com and our team for the last like five years. But we're here to really build an enduring company where people can get answers, build their own agents, transform their companies. And so we're not that interested in that.
- [38:40]
B
It is such a fierce space though. Everyone's in on the enterprise. The large language model developers that you use, OpenAI, they're trying to get into enterprise. And just, just recently the judge met a ruling on Alphabet, for example. And the fact that they're going to have to share data, how does that benefit you? Because you started your journey in AI search.
- [39:00]
G
Yeah, I think in consumer there will be a few, usually monopolies or duopolies. Right. But in enterprise, there's so much open space. Right. There are so many different companies that need up to date information to make their link lems more productive over both web data, but also internal search, internal data. And you need to have all of that be composable as an API infrastructure. And so that's, that's kind of what we are focused on and where we think that is indeed the killer app for Elements is that productivity in enterprise.
- [39:33]
C
Our executive producer Jackie Lopez was talking about how it's just beautiful timing having you on the show today. Let's be honest about it. You know, with the Google decision last night, it's coincidence. I was trying to think what is Richard social thing? And you've always been basically talking about Google in the context that people are building different and better stuff and both consumers and enterprises are more open to using a different technology. I think that's a fair summary of your position. But how has the ruling changed things, you know, against your ideology of recent years?
- [40:05]
G
So in many ways it's a good ruling. Now of course as a startup when this ruling will really come into effect is important. It might, they might appeal the ruling. It'll take years probably for it to really materialize. That's infinity in AI and startup time. So we are still just focused on building the best APIs and also end to end solutions for our customers. And we don't really think this will materially affect affect us over next two or three years. Now of course it will affect other consumer companies but again in many ways this is an index that was built for people to decide which blue link to click on a eyes and people through their eyes and through their agents will search very differently into the three years.
- [40:51]
B
What's interesting is one of your clients that we just showed is DuckDuckGo and it's all about search. So how does its end exposure affect you and how do you think about. About continuing to serve other winners or broadening out to more of the blue chips as well?
- [41:05]
G
Yeah, I think the values of privacy are actually very useful for both consumers and for enterprise. And so we're really excited to keep partnering with companies like that that both want to get search results but also feed those search results into lms and we're doing that over a billion times a month. There's actually no other AI startup I know of that is at that scale a billion times where our answers either are shown directly to a user or are given to an LM to then majorly affect what that says. In fact, it would say that many people underestimate that whole search infrastructure layer. Whereas the LMS themselves are going to get commoditized more and more. There's open source pressure for them, but the search, you can't open source a search index.
- [41:53]
B
We want to thank you Richard Shosha. Wish we had more time. CEO and co founder of you.com fascinating fundraise, fascinating business model. Come back soon. We hope Got to get back to the key story of the day and one of the movers on the back of it. Apple up almost 3%. That says it rises alongside Alphabet. The court of course, ruling that Google can continue to pay partners for keeping Google's search on their operating system. Some more on Alphabet's impact on Apple. Let's get to Mark Gurman. It is a big lift and it's a relief because it helps Apple's bottom line.
- [42:30]
I
It's a relief for Apple, it's a relief for Google, but it's also a relief for the whole technology industry. Right. The US Government is scrutinizing all of them. Metta, Google, Apple, of course you have the European Union involved. Obviously that's separate. But this ruling yesterday set some pretty nice precedent. Don't forget Apple, they're going to trial in a couple of years now for what they've done to consumers according to the US Government. Right. So if Google's getting off scot free for things that probably are much worse than what Apple has done, according, I mean in my viewpoint, I think Apple is going to be okay in a couple of years too. So that long term headwind that's been reduced, but also the short term headwind of losing potentially 20 billion a year from this Google deal, that's also been mitigated.
- [43:10]
G
It.
- [43:11]
C
Well, Mark, just really quick, so I also want to get to a story you broke yesterday. It's the services part of Apple's business that the streets focused on this morning in the context of the Google ruling.
- [43:21]
I
Yeah, that's exactly right. I mean like I said, the Google deal right now brings in over $20 billion a year for Apple and that's just one of two $20 billion per year potential headwinds. The other is the App Store. Obviously the EU is trying to rip up the business model there. You have a judge in California who ruled that developers can spin users towards the web to complete transactions, which obviously means Apple loses its 15 to 30%. So the services business, nearly half of it was potentially under fire over the next, over the next 12 months. Now the Google one's resolved. We'll see what happens with the App Store.
- [43:53]
B
What's interesting is Judge Mehta basically said generative AI has changed the game here. Generative AI is changing the game when it comes to talent. And just talk to us about how we really are seeing Apple lose out in that respect.
- [44:05]
I
It feels like, well, there's a talent war right now and Metta is leading the pack of open air and anthropic in There they're all trying to hire each other's top academics and researchers in the AI space. A little edge can do a lot. The big question for me is how quickly does this stuff all become commoditized? And Apple's bet is well, pretty soon because they are working on some extensive AI partnerships right now and they've been looking at a number of companies to acquire so they believe they're going to play in here too. But for now they're bleeding talent. On an almost weekly basis or every two weeks I have a story coming out between two and five different major AI players at Apple leaving for Metta Yesterday. I had a story about four departures over the last week or so, including the head of AI Robotics research going to Meta to their new robotics department. You also have two people going to OpenAI and another person going to Anthropic. And a lot of the people on Apple's LM team, they're interviewing out. So you're going to see more departures in the near future. But for now, Apple's looking at ways to replenish that talent pool by buying or partnering.
- [45:03]
C
Bloomberg's Mark Gurman on what is a notable move for Apple, up almost 3% on Google ruling. But also check out his reporting on the talent departures. Another story. Open Air is agreed to buy product testing startup Statsic for $1.1 billion in an all stock deal on to bring in Bloomberg's AI reporter Rachel Metz. It's not the biggest deal that OpenAI's done. It's not small either. Why does OpenAI need Statsic?
- [45:30]
J
OpenAI is working to build out its products, its consumer products, also its B2B products. And this is in the company's view, a really good way to do that. They bought this company that helps companies test products. It could do things like AB testings. You can have people trying out different things with features that you might want to launch. And this is something that they see as really valuable to the future of products like Chat GPT.
- [45:57]
B
The CEO moves over, becomes CTO of applications reports into Fiji Simo. Rachel, what did the deal look like from a talent perspective? Because they've been getting more and more extraordinary as time's gone on between AI companies.
- [46:10]
J
Yeah. So as far as talent, as you mentioned, the CEO of statsig is going to take on this new role underneath Fiji Simo. Fiji Simo is in charge of Opening eyes applications at this point. And they also. It also led to a whole bunch of other changes that you see that were announced at the same time open the eyes. Sort of shuffling around a number of people in management. So now the company is going to have two chief technology officers. Previously it had one mirror, Morati. She's been gone for a while, started her own company. Now they will have to one on the consumer side and one on the B2B side. So it's going to be interesting to see how those two people are in charge of different things, how they all work together and what it means as far as growth in their business.
- [46:57]
C
Rachel, lots happened in the last month like GPT5. We have more M and A news, we have a lot of talent news. Could you just update the audience where Open Air currently kind of stands in all the chaos of reorg and news flow?
- [47:13]
J
I mean a lot has been, a lot has been going on and I suspect we will, we will see more. I mean we have to remember that this is a company that's undergoing a lot of change. It's not a young company at this point. I mean it's been around for about 10 years. However, things have been changing very rapidly over the past few years and Chapter GPT is continuing to grow and grow and grow. It's got over 700 million users weekly users at this point. So I would expect to keep seeing things move around as the company continues, try to figure out what's going on and as the industry continues to shift with other companies such as Metta trying to poach people paying extremely large amounts of money for employees. It's going to be an interesting ride.
- [47:55]
B
And we're here for it. As a you Rachel Metz. So good to have you on on the latest bit of M and A at OpenAI meanwhile that does it for this edition of Bloomberg Tech. But Ed, we've got to look into what the market's been up to. It has been a bounce back since yesterday.
- [48:09]
C
Yeah. NASDAQ 100 bounce back whether it's short lived or not. Apple and Alphabet, the main stories Apple I think is kind of big. Like it's a strong reaction on a stock where a standard deviation. Okay, forgive me of that one. One sigma move is 2%. We'll keep track of the top story recap on the podcast. Had some absolutely terrific conversation today on what has been a massive story from San Francisco in New York. This is Bloomberg Tech.
- [48:40]
A
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