WEBVTT - Bloomberg Businessweek Weekend - November 25th, 2022 0:00:01.040 --> 0:00:05.400 This is Bloomberg Business Week Inside from the reporters and 0:00:05.559 --> 0:00:09.200 editors who bring you America's most trusted business magazine, plus 0:00:09.240 --> 0:00:13.200 global business, finance and tech news as it happened. Sloomberg 0:00:13.240 --> 0:00:16.759 Business Week with Carol Messier and Bloomberg Quick Takes Tim 0:00:16.800 --> 0:00:21.239 Stinovic on Bloomberg Radio. Hi, everyone, Welcome to a holiday 0:00:21.280 --> 0:00:25.880 weekend edition of Bloomberg Business Week. A cornucopia of conversations 0:00:25.920 --> 0:00:28.440 you might say as you would cover to match your 0:00:28.480 --> 0:00:32.360 feast this Thanksgiving weekend. In this hour, concerns about charter 0:00:32.440 --> 0:00:36.000 airlines inside one of the world's most influential consulting firms, 0:00:36.120 --> 0:00:39.680 Meta's digital ad dilemma brought on by none other than Apple, 0:00:40.320 --> 0:00:43.160 and at once great pandemic play tries to regain its mojo. 0:00:43.200 --> 0:00:45.080 We're going to speak to the CEO of so No. 0:00:45.400 --> 0:00:47.960 That's the fun conversation. Then in our second hour, some 0:00:48.080 --> 0:00:50.479 lighter fair as you indulge, perhaps in another slice of 0:00:50.520 --> 0:00:53.280 apple or pecan pie. How do you say it? Pecan 0:00:53.400 --> 0:00:58.640 pecan tomato tomato, Carol pecan pie, including speaking of food, 0:00:59.000 --> 0:01:04.039 Bam Emerald Legassi, renowned chef and restaurate tour also grub 0:01:04.080 --> 0:01:06.399 Hub founder Mike Evans, and then we've got the CEO 0:01:06.480 --> 0:01:09.679 b Et Scott Mills on Tyler Perry and Oprah all 0:01:09.720 --> 0:01:11.920 of that to come. We begin, though, with a word 0:01:11.920 --> 0:01:15.040 of caution as travelers take to the air this holiday season. 0:01:15.400 --> 0:01:17.959 In the current double issue of Bloomberg Business Week, Alan 0:01:18.080 --> 0:01:21.040 Levin sheds light on the dark corners of the private 0:01:21.040 --> 0:01:25.080 aviation market, specifically charter flights. This story was also a 0:01:25.120 --> 0:01:28.720 Bloomberg Big Take. Alan is Aviation safety and f a reporter. 0:01:29.040 --> 0:01:31.400 He joined us along with the editor of Bloomberg Business Week, 0:01:31.480 --> 0:01:35.560 Joe Weber. Private aviation has become almost sort of the 0:01:35.680 --> 0:01:40.880 shadow world that is very attractive. You can get places 0:01:41.160 --> 0:01:43.720 far easier, and all you need is a little bit 0:01:43.760 --> 0:01:48.040 more money than flying via normal one. And Alan's reporting 0:01:48.040 --> 0:01:51.560 here reveals that it comes with a host of problems 0:01:51.560 --> 0:01:56.320 and worries. Alan, Yeah, yeah, that's correct, um. And you know, 0:01:57.000 --> 0:01:59.400 in our world today, we can assume when you get in, 0:01:59.520 --> 0:02:01.880 if you call on Uber or you're getting a taxi, 0:02:02.440 --> 0:02:05.360 that it's sort of been vetted by the government. It's 0:02:05.440 --> 0:02:07.760 not perfect, but at least you know they're looking at it. 0:02:08.440 --> 0:02:12.919 And I think that's that assumption carries over into the 0:02:13.040 --> 0:02:15.920 charter world, not least, you know, at least in part 0:02:16.040 --> 0:02:17.640 it's due to the fact that there are lots of 0:02:17.840 --> 0:02:21.639 apps you can get that will get you a charter flight, 0:02:21.680 --> 0:02:23.960 and some people just assume it's the same thing. But 0:02:24.120 --> 0:02:25.920 unless you know what you're doing, it's really hard to 0:02:25.960 --> 0:02:31.880 tell the legitimate operators from the ones who are not licensed, 0:02:31.919 --> 0:02:35.519 and you know, in some cases are really cutting corners 0:02:35.560 --> 0:02:37.799 on safety. I'm sorry, I'm just having like ft X 0:02:37.840 --> 0:02:44.800 flashbacks and your accountability. You assume that parent has a 0:02:44.880 --> 0:02:48.520 fancy app that you know, and that it has ads 0:02:48.560 --> 0:02:51.800 that it's going to be okay. So this is really interesting. 0:02:51.840 --> 0:02:53.840 There's this also this this part in the piece, Allan, 0:02:54.080 --> 0:02:56.760 and you have just some you know, really heart wrenching examples. 0:02:56.760 --> 0:02:58.960 Marcy Wilhelm is somebody who spoke to you for the 0:02:59.000 --> 0:03:03.600 piece tell us about her experience flying privately. Yeah, let 0:03:03.600 --> 0:03:06.360 me just start by saying, I've been covering air crashes 0:03:06.520 --> 0:03:08.560 for a couple of decades now, and this is really 0:03:08.560 --> 0:03:12.880 one of the most heart wrenching ones. Marcy is was amazing, 0:03:13.240 --> 0:03:17.000 had an amazing success story. She had co founded a 0:03:17.000 --> 0:03:19.560 healthcare company and they'd sold it for almost two hundred 0:03:19.560 --> 0:03:24.200 million dollars was back in she'd been hired to be 0:03:24.280 --> 0:03:29.200 the CEO of the successor company, and um, you know, 0:03:29.320 --> 0:03:32.600 she had was going away on a long weekend to 0:03:32.760 --> 0:03:36.400 Nantucket with some friends from her house in Florida. They 0:03:36.640 --> 0:03:41.560 stopped in uh, South Carolina to pick up some some 0:03:41.800 --> 0:03:47.880 folks and the plane essentially did not have breaks. And 0:03:47.960 --> 0:03:53.240 it's a fairly big corporate jet um with high speeds 0:03:53.320 --> 0:03:55.840 compared to some other planes, and it just went screaming 0:03:55.840 --> 0:03:58.000 off the end of the runway down an embankment and 0:03:58.040 --> 0:04:02.000 broke into pieces. Killed both pilots and marsiennor your husband 0:04:02.000 --> 0:04:07.280 were both severely injured. And what investigators came to learn 0:04:07.480 --> 0:04:10.880 very quickly was that the plane never should have been 0:04:11.480 --> 0:04:16.120 in service on many different levels. For one thing, Marcy 0:04:16.160 --> 0:04:19.320 booked the flight on a legitimate charter operator, but they're 0:04:19.360 --> 0:04:23.880 required to put each and every aircraft on their certification. 0:04:23.960 --> 0:04:28.560 This aircraft was not. Beyond that, it had dozens of 0:04:29.279 --> 0:04:32.520 maintenance items that weren't complete. And the most stunning thing 0:04:32.560 --> 0:04:35.559 of all is a mechanic had noticed that the brakes 0:04:35.600 --> 0:04:39.320 weren't working, had put a bright orange placard kind of 0:04:39.320 --> 0:04:42.679 a sticky note if you will, on the brake panel 0:04:43.160 --> 0:04:46.839 right in front of the pilot's faces that said inoperable, 0:04:47.120 --> 0:04:51.360 and they still landed without the brakes and had this accident. 0:04:51.600 --> 0:04:55.600 How is this happening still? What are the blind spots here? 0:04:56.440 --> 0:04:59.000 You know? In the legitimate air charter world, I don't 0:04:59.000 --> 0:05:03.920 want to leave listeners confused. In the legitimate world, there 0:05:04.040 --> 0:05:06.840 is a ton of f A oversight. It's not perfect. 0:05:06.960 --> 0:05:10.680 Occasionally we see flaws, but they're required to everything from 0:05:10.760 --> 0:05:14.719 pilot training to drug testing employees, on and on and on. 0:05:15.440 --> 0:05:20.279 But there's twenty thousand or so private jets that are 0:05:21.000 --> 0:05:25.600 privately owned in the US. And let's say our business 0:05:25.760 --> 0:05:28.200 and you bought this jet and suddenly the costs of 0:05:28.240 --> 0:05:31.120 maintenance are adding up. You might say, well, jeez, why 0:05:31.120 --> 0:05:36.200 don't we just rent it out, you know, to somebody. 0:05:36.360 --> 0:05:40.320 And if you do that, you're not following all those 0:05:40.360 --> 0:05:43.400 safety measures that the legitimate guys do. And from the 0:05:43.400 --> 0:05:46.320 outside of the plane, it's almost impossible to tell the difference. 0:05:46.640 --> 0:05:48.760 What's your advice to folks out there who might be 0:05:48.800 --> 0:05:53.120 interested in chartering. Well, it turns out the f A 0:05:53.240 --> 0:05:56.839 a partly in a reaction to this a few years ago, 0:05:56.920 --> 0:06:00.240 be in publishing a list of all the aircraft are 0:06:00.320 --> 0:06:04.400 legitimately licensed to carry people for hire. So you can 0:06:04.440 --> 0:06:07.279 look that up. If you google f A A Air 0:06:07.400 --> 0:06:10.479 charter safety, you'll find a link to it. There's a 0:06:10.520 --> 0:06:13.719 trade group that has been very involved in this as well, 0:06:13.760 --> 0:06:19.000 and there are also several private companies that do auditing 0:06:19.560 --> 0:06:24.480 of charter companies sort of save the customer the hassle 0:06:24.560 --> 0:06:28.719 of doing that and so so there are definitely ways 0:06:28.760 --> 0:06:31.640 to figure out who's legit and who's not. That was 0:06:31.680 --> 0:06:35.160 Bloomberg News Aviation Safety and A reporter Alan Levin, along 0:06:35.160 --> 0:06:37.440 with the editor of the magazine, Joel Weber. Check out 0:06:37.480 --> 0:06:40.120 Allen's full story in the Business section of the magazine 0:06:40.120 --> 0:06:42.440 and this story it also involves members of the Hollywood 0:06:42.440 --> 0:06:45.200 Carol and political elites. Yeah, names you will definitely know. 0:06:45.640 --> 0:06:47.479 Coming up an inside look at one of the most 0:06:47.520 --> 0:06:51.279 powerful and secretive consulting firms on the planet. We're talking 0:06:51.320 --> 0:06:54.799 about McKenzie Company. You're listening to Bloomberg Business Week. This 0:06:55.080 --> 0:07:07.480 is Bloomberg. This is Bloomberg Business Week with Carol Masser 0:07:07.720 --> 0:07:13.600 and Bloomberg Quick Takes. Tim Stenovik from Bloomberg Radio. Thank consulting, 0:07:13.720 --> 0:07:17.000 and yeah, you think of McKenzie and Company. It's a 0:07:17.040 --> 0:07:19.080 firm that's nearly a hundred years old, with more than 0:07:19.120 --> 0:07:22.440 forty thou employees, a firm with an alumni network of 0:07:22.480 --> 0:07:25.080 more than thirty four thousand working in just about every 0:07:25.120 --> 0:07:28.560 business sector out there in a hundred twenty countries. Speaking 0:07:28.560 --> 0:07:31.200 of those alums, many household names, I mean Carol, We're 0:07:31.200 --> 0:07:34.280 talking people like Cheryl Sandberg, Chelsea Clinton, current CEO is 0:07:34.280 --> 0:07:37.440 all over, including a city group, Alphabet and Morgan Stanley. 0:07:37.720 --> 0:07:40.240 McKinsey itself though a household name, and it's the subject 0:07:40.280 --> 0:07:43.040 of a new book. It's called When McKenzie Comes to Town, 0:07:43.360 --> 0:07:46.560 The Hidden Influence of the World's most powerful consulting Firm. 0:07:46.680 --> 0:07:49.760 The co authors are decorated New York Times investigative reporters 0:07:49.920 --> 0:07:53.760 Walt Bogdanich and Michael Forsythe our conversation began with Walt 0:07:53.800 --> 0:07:56.840 explaining how he managed to gather information about the ultra 0:07:57.040 --> 0:08:00.680 clandestine private firm. Well, when we started, we knew it 0:08:00.680 --> 0:08:04.920 would be a challenge because Mackenzie's entire business model is 0:08:04.960 --> 0:08:09.160 based on secrecy. You know, never disclose our client lists, 0:08:09.280 --> 0:08:13.000 never dispose what they pay us um and and they're 0:08:13.200 --> 0:08:17.680 hugely powerful. I mean they have no accountability um. And 0:08:17.760 --> 0:08:20.760 what we wanted to do was look at the secretive 0:08:20.800 --> 0:08:24.280 company see what we could find and uh and find 0:08:24.280 --> 0:08:27.080 out whether you know they're they're doing good things are 0:08:27.080 --> 0:08:30.960 bad things. That's what journalists do. That's true, right, that's 0:08:30.960 --> 0:08:33.920 what they're supposed to do. UM. Well, you did get 0:08:33.920 --> 0:08:36.480 ahold of that McKenzie client list, which they do hold 0:08:36.559 --> 0:08:38.839 near and dear. So what did it as you went through? 0:08:38.960 --> 0:08:42.120 What did it reveal to you? I think we were 0:08:42.160 --> 0:08:45.839 most interested in the conflicts of interest that emerged from 0:08:45.880 --> 0:08:49.120 that list. These are conflicts of interest that would never 0:08:49.160 --> 0:08:53.360 have been known. What kind of conflicts I'm talking about? Well, 0:08:54.080 --> 0:08:58.840 you know advising you know, the biggest pharmaceutical companies in 0:08:58.880 --> 0:09:02.040 the world at the same time that they're advising the 0:09:02.080 --> 0:09:05.600 Food and Drug Administration. That would seem to be a 0:09:05.600 --> 0:09:09.760 magic problem. They were advising all the big cigarette companies 0:09:10.200 --> 0:09:12.319 at a time when they were advising the Office of 0:09:12.360 --> 0:09:17.520 Smoking in Health or Office of Smoking UM within the FDA. 0:09:17.800 --> 0:09:21.520 So those are glaring examples that we would not have 0:09:21.679 --> 0:09:25.319 learned about until if we had not obtained that list. Well, 0:09:25.440 --> 0:09:27.800 is there any type of work that McKenzie won't take 0:09:30.920 --> 0:09:34.280 these days? I think they'll say yes, Um, But I 0:09:34.280 --> 0:09:37.120 mean I won't know until I see the proof. I 0:09:37.160 --> 0:09:40.079 mean what they did and to their credit, and let's 0:09:40.120 --> 0:09:43.160 see whether they carry through on it. After a lot 0:09:43.200 --> 0:09:45.800 of the expose as that were in the media, mostly 0:09:45.840 --> 0:09:49.560 in the Times, Um, you know, they decided to change. 0:09:49.600 --> 0:09:53.480 They decided to screen their clients more carefully and to 0:09:54.040 --> 0:09:57.760 monitor them to do a better risk assessment. You know 0:09:57.920 --> 0:10:01.640 how well that's working. How you know thoroughly they they 0:10:01.679 --> 0:10:04.960 are engaged in that new policy. I hate to use 0:10:05.000 --> 0:10:08.160 the time will tell, but time will tell. One thing 0:10:08.200 --> 0:10:12.559 I did want to share is that mckensey um has 0:10:12.559 --> 0:10:14.880 actually put out a statement and it's on their website. 0:10:14.920 --> 0:10:17.800 It's in the media section, and it says, quote, a 0:10:17.840 --> 0:10:22.559 recently published book fundamentally fundamentally misrepresents our firm in our work. 0:10:22.880 --> 0:10:25.520 The book also seeks to associate our firm with events 0:10:25.559 --> 0:10:29.120 like the two financial crisis, a Major League Baseball cheating scandal, 0:10:29.440 --> 0:10:32.080 or safety incidents at a theme park that we simply 0:10:32.080 --> 0:10:34.079 had nothing to do with. Perhaps this is why the 0:10:34.080 --> 0:10:36.920 book contains more than a dozen disclaimers across these and 0:10:37.000 --> 0:10:39.559 other issues, acknowledging that our work did not cause or 0:10:39.679 --> 0:10:42.000 was not associated with the trend or event for which 0:10:42.040 --> 0:10:45.040 the authors criticize us. And I would love for maybe 0:10:45.040 --> 0:10:46.800 both of you to weigh in on this, Michael, why 0:10:46.800 --> 0:10:50.360 don't you take it first? So, Um, you know, mckensey 0:10:50.400 --> 0:10:52.760 did put out that statement that they we published the book. Um. 0:10:53.360 --> 0:10:56.160 You know, we in the book look at so many 0:10:56.200 --> 0:10:59.560 issues across the world. You know where mckensey has had 0:10:59.600 --> 0:11:02.160 a very big impact and in many cases very negative 0:11:02.200 --> 0:11:06.640 impact to South Africa, China, Saudi Arabia. UM. You know, 0:11:06.720 --> 0:11:11.120 looking at the opioid crisis, their work with tobacco companies. Um, 0:11:11.160 --> 0:11:14.040 there are so many instances where they did have a 0:11:14.080 --> 0:11:16.080 big impact. I don't think we ever would have written 0:11:16.080 --> 0:11:19.720 this book if we didn't think McKinsey made a difference. Um. 0:11:20.000 --> 0:11:24.200 And of course there are many many projects at McKinsey, 0:11:24.240 --> 0:11:26.840 many things that we never hear about because you know, 0:11:27.000 --> 0:11:29.520 they go fine and they do plenty of good work 0:11:29.559 --> 0:11:32.720 as well. But like well it often likes to say, 0:11:32.840 --> 0:11:35.680 you know, as journalists, we don't write about the aircraft 0:11:35.840 --> 0:11:38.680 that safely take off and land. We write about the crashes. 0:11:39.120 --> 0:11:41.000 And the fact is that a McKinsey, there are so 0:11:41.160 --> 0:11:44.679 many airplane crashes so to speak. And that's what we 0:11:44.840 --> 0:11:47.000 we've compiled in the book. It's it's more than just 0:11:47.080 --> 0:11:49.839 a one off incident. Hey Michael, what did you guys 0:11:49.880 --> 0:11:52.920 find about the company's financials? And you know, I think 0:11:52.960 --> 0:11:55.360 a lot of people hear about, you know, at least 0:11:55.360 --> 0:11:58.800 in my experience, I've learned about and hear about the 0:11:58.840 --> 0:12:01.600 consultants who spend four or five days on the road 0:12:01.760 --> 0:12:06.120 working on secretive projects and traveling to different places for 0:12:06.440 --> 0:12:08.560 a year at a time, for example, and maybe doing 0:12:08.600 --> 0:12:10.120 that for a few years, and then they get into 0:12:10.120 --> 0:12:11.600 their thirties and they go off and they do something 0:12:11.600 --> 0:12:14.160 else and you know, potentially become the CEO of a 0:12:14.160 --> 0:12:16.520 different company. What about the partners who stay there and 0:12:16.920 --> 0:12:20.520 how is their wealth tied to these projects? You know? 0:12:20.640 --> 0:12:23.600 So so they're very well paid, maybe not as well 0:12:23.640 --> 0:12:27.080 paid as a private equity you know partner or you know, 0:12:27.120 --> 0:12:30.080 a hedge fund manager or or the CEO of a 0:12:30.120 --> 0:12:32.520 bank on Wall Street, but you know, we're talking millions 0:12:32.520 --> 0:12:34.679 of dollars, you know, three or four million dollars for 0:12:34.800 --> 0:12:38.559 senior partners at times, so or even more so, they're 0:12:38.600 --> 0:12:42.440 they're well compensated. Um, you know, they also can invest 0:12:42.720 --> 0:12:45.640 there's an internal hedge fund called the McKinsey Investment Office 0:12:46.120 --> 0:12:49.520 where they can make and put their money as well. UM, 0:12:49.600 --> 0:12:52.439 so you know these they're well paid. But as you said, 0:12:52.800 --> 0:12:55.560 a lot of people do leave McKinsey and go on 0:12:55.720 --> 0:12:58.559 to do other things. Uh. And you know many CEOs 0:12:58.640 --> 0:13:01.640 of Wall Street Bank to see of Morgan Stanley is 0:13:01.679 --> 0:13:05.560 a former McKenzie uh consultant. Hey, well, come on back in. 0:13:05.679 --> 0:13:07.560 Tell us about who you talked to, both of you. 0:13:07.640 --> 0:13:09.440 Who you talked to you to do some of this book. 0:13:09.440 --> 0:13:13.360 A lot of I'm assuming right, former McKenzie insiders. I'm 0:13:13.400 --> 0:13:16.960 glad you asked that question, because every mackenzie consultant signs 0:13:16.960 --> 0:13:21.240 a nondisclosure agreement. That's a tall mountain for us to climb. 0:13:21.520 --> 0:13:24.160 We don't have subpoena power, but let me tell you this. 0:13:24.440 --> 0:13:26.840 We kept digging and digging, and by the end of 0:13:26.880 --> 0:13:32.440 it we interviewed nearly a hundred current and former Mackensey consultants, 0:13:32.440 --> 0:13:35.120 which I think is astounding. And the reason we did 0:13:35.160 --> 0:13:40.120 that is because Mackenzie hires by and large responsible, you know, 0:13:40.160 --> 0:13:44.160 idealistic people, the best at the schools where they recruit, 0:13:44.800 --> 0:13:47.240 and when you hire those kinds of people, and they 0:13:47.280 --> 0:13:50.360 see a difference between what they were told when they 0:13:50.360 --> 0:13:56.240 were hired and the McKenzie's actions in the real world. 0:13:56.760 --> 0:14:00.800 They get unhappy. And fortunately they were able to find 0:14:00.800 --> 0:14:03.920 our phone numbers and they called us, well, have you 0:14:04.000 --> 0:14:07.959 heard from more folks at McKenzie are formerly at McKenzie 0:14:08.000 --> 0:14:11.640 since the book came out? I would say, like in 0:14:11.679 --> 0:14:15.720 the last ten minutes, yes, Wow, from around the world. 0:14:16.320 --> 0:14:19.240 And and if they you know, at this point, you know, 0:14:19.280 --> 0:14:20.800 what are we going to do with that? I don't know, 0:14:21.280 --> 0:14:24.360 but we're certainly collecting it. And if after discussing it 0:14:24.400 --> 0:14:27.040 with our editors and we decide there's more to be written, 0:14:27.520 --> 0:14:30.720 we will write our Thanks to New York Times investigative 0:14:30.720 --> 0:14:34.480 reporters Waltoke Danich and Michael forsythe their book called When 0:14:34.560 --> 0:14:37.440 McKenzie Comes to Town, The Hidden Influence of the World's 0:14:37.440 --> 0:14:40.880 most powerful consulting firm, and it's out now, still ahead 0:14:40.880 --> 0:14:43.600 on Bloomberg Business Week. While the world's biggest social media 0:14:43.680 --> 0:14:46.760 company is seeing its digital ad dollars squeeze the hardest, 0:14:47.040 --> 0:14:49.520 there might be kind of the bigger reason that Meta, 0:14:49.560 --> 0:14:52.880 in particular ad business um it has a big hole 0:14:52.960 --> 0:14:55.880 in it and that pole is shaped like Apple. Our 0:14:55.960 --> 0:14:59.320 tech team breaks down Meta's most pressing issues. Next, this 0:14:59.560 --> 0:15:07.840 is bloom Berg Broadcasting from the financial capital of the 0:15:07.840 --> 0:15:11.760 World Bloomberg eleven Rio in New York to Washington, d C. 0:15:11.960 --> 0:15:16.680 Bloomberg to Boston, Bloomberg one O six one to San Francisco, 0:15:16.720 --> 0:15:20.160 Bloomberg nine six to the country Sirius XM Channel one 0:15:20.280 --> 0:15:23.960 nine and around the globe the Bloomberg Business and Bloomberg 0:15:24.040 --> 0:15:28.160 Radio dot Com. This is Bloomberg Business Week with Carol 0:15:28.240 --> 0:15:32.520 Messer and Bloomberg Quick Takes Tim Stinovan on Bloomberg Radio. 0:15:33.760 --> 0:15:36.560 Last year's changes to Apple's privacy policies have shaken the 0:15:36.560 --> 0:15:40.760 foundations of the targeted advertising industry. Meta Platforms has felt it. 0:15:40.800 --> 0:15:43.520 As revenue in the third quarter total Yeah, twenty seven 0:15:43.520 --> 0:15:45.360 point seven billion. That's a lot, but it was four 0:15:45.360 --> 0:15:48.320 and a half percent lower than the same quarter in one. 0:15:48.560 --> 0:15:50.720 In the Technology section of the current double issue of 0:15:50.760 --> 0:15:53.560 Bloomberg Business Week, It's out now, online, on newsstands and 0:15:53.680 --> 0:15:55.960 on the terminal, is a story about how Meta is 0:15:56.000 --> 0:15:58.840 confronting a huge hit to its once mighty ad business. 0:15:59.120 --> 0:16:02.360 We get more from bloom Burg News Technology Reporter Alex Brinka. 0:16:02.560 --> 0:16:05.240 We've heard a lot of anger at the general economic 0:16:05.240 --> 0:16:07.800 conditions from all of the Internet companies like Meta that 0:16:08.080 --> 0:16:11.440 depend on digital ads, blaming the economy for the really 0:16:11.480 --> 0:16:14.000 bad quarters they've had over the last six months or so. 0:16:14.440 --> 0:16:16.560 I'm writing that there might be kind of a bigger 0:16:16.600 --> 0:16:20.400 reason that Meta in particulars ad business. Um, it has 0:16:20.440 --> 0:16:22.880 a big hole in it, and that pole is shaped 0:16:23.000 --> 0:16:26.840 like Apple. About a year ago, Apple changed its privacy 0:16:26.880 --> 0:16:30.640 policies for the iPhone that made ads on social media 0:16:30.760 --> 0:16:34.840 both harder to target specific people and harder to track 0:16:35.040 --> 0:16:37.720 the return on the spend on those ads. And a 0:16:37.800 --> 0:16:40.600 year in Meta has estimated that that's had a ten 0:16:40.640 --> 0:16:43.400 billion dollar hit on its pad business. And you know, 0:16:43.480 --> 0:16:46.080 myself and a lot of the analysts and insiders I 0:16:46.080 --> 0:16:49.560 spoke for this story would also argue that that's what's 0:16:49.680 --> 0:16:53.040 dragging Meta down to potentially it's there. It's third quite 0:16:53.040 --> 0:16:57.120 straight quarter of revenue declines. It's more Apple than the economy. 0:16:57.360 --> 0:16:59.600 Um and I tried to break that down for folks 0:16:59.640 --> 0:17:03.560 this week. Well, there's a stark chart included in your 0:17:03.600 --> 0:17:08.240 piece that shows how other companies are faring or projected 0:17:08.240 --> 0:17:14.280 to fair between two TikTok, according to e Marketer, has 0:17:14.320 --> 0:17:17.720 a projected change of one fifty versus Meta down at 0:17:17.720 --> 0:17:20.800 the bottom of which project a change of negative. Why 0:17:20.880 --> 0:17:23.159 is TikTok able to capitalize on something when you know 0:17:23.240 --> 0:17:26.920 they're using the same hardware in the same operating systems 0:17:26.960 --> 0:17:30.400 to deliver those ads. I think there's two key reasons. 0:17:30.440 --> 0:17:33.320 So Meta, as you mentioned Facebook, Instagram, those are metas 0:17:33.359 --> 0:17:36.920 companies have historically been based on who you know your 0:17:36.960 --> 0:17:40.040 friend graph is how they derive kind of insights on 0:17:40.080 --> 0:17:43.160 you um and plus the information that they were able 0:17:43.200 --> 0:17:45.800 to glean from Apple to make sure that advertisers are 0:17:45.800 --> 0:17:49.119 reaching the people they want to reach. Picktok. On the 0:17:49.119 --> 0:17:52.840 other hand, Um has built out an ai UM kind 0:17:52.840 --> 0:17:57.480 of focused recommendation engine that is derived on our users interests, 0:17:57.520 --> 0:17:59.600 so they know more about you than just who you know. 0:18:00.000 --> 0:18:02.760 They know who you're actually interested in. That is some 0:18:02.840 --> 0:18:05.640 of the information UM. It's not quite apples to apples 0:18:05.680 --> 0:18:08.760 that Meta has lost, So TikTok has been able to 0:18:08.840 --> 0:18:12.320 kind of really lean into this interest based recommendations. Now, 0:18:12.320 --> 0:18:14.720 the one caveat I would give is Meta is still 0:18:14.760 --> 0:18:17.720 an advertising giant. They're still expected to bran about a 0:18:17.760 --> 0:18:20.880 hundred and sixteen billion dollars in rapids this year. TikTok 0:18:21.000 --> 0:18:23.399 is only about a tenth of that. So there is 0:18:23.440 --> 0:18:26.919 some kind of youth in growth there for TikTok. But 0:18:27.040 --> 0:18:29.520 that is kind of the big reason um that folks 0:18:29.600 --> 0:18:33.080 might be looking too platforms where they can target people 0:18:33.280 --> 0:18:36.040 a little bit more effectively than maybe what's been lost 0:18:36.080 --> 0:18:38.119 on Facebook and Instagram. I gotta say, Alex, one of 0:18:38.160 --> 0:18:39.720 the lines I love in your story, you say the 0:18:39.760 --> 0:18:43.880 company has no experience managing decline. There's something to be said. 0:18:43.960 --> 0:18:46.800 I mean, this is a company that has been on fire, 0:18:47.040 --> 0:18:48.760 maybe a little bit of you know, trouble about that. 0:18:48.800 --> 0:18:50.920 I p o initially but figured it out right of 0:18:51.000 --> 0:18:53.119 the ship. But when things start to go wrong, like 0:18:53.200 --> 0:18:54.960 you might not have a playbook or the people in 0:18:54.960 --> 0:18:56.600 place to be like, well wait, how do we fix 0:18:56.640 --> 0:19:00.720 this right? And you'll remember they laid off workforce in 0:19:00.720 --> 0:19:03.600 their biggest layoff ever. So this is a company now 0:19:03.640 --> 0:19:05.919 that's going to be expected to do more with less. 0:19:06.000 --> 0:19:08.000 So this Apple thing is a big problem, But there 0:19:08.040 --> 0:19:10.679 are a lot of other problems that meta. You have 0:19:10.800 --> 0:19:14.680 the economic conditions, you have the scrutiny on the political 0:19:14.800 --> 0:19:18.080 power that Facebook and Instagram have on the world. You 0:19:18.160 --> 0:19:21.840 have this big bet that Mark Zuckerberg is making trying 0:19:21.880 --> 0:19:25.199 to build a virtual reality world called the metaverse and 0:19:25.240 --> 0:19:28.360 funneling ten billion dollars a year into that direction. So 0:19:28.640 --> 0:19:30.840 there's a lot going on there, and now it's going 0:19:30.920 --> 0:19:34.440 on with eleven thousand people, fewer than just two weeks ago, 0:19:34.600 --> 0:19:36.600 so it seems like they're really going to have to 0:19:36.680 --> 0:19:39.400 kind of buckle down. So this will definitely be one 0:19:39.480 --> 0:19:42.120 to watch as they kind of juggle both coming back 0:19:42.160 --> 0:19:46.200 from these changes that Apple forced upon their business, battling 0:19:46.240 --> 0:19:49.640 economic conditions, and trying to paint the future of computing 0:19:49.640 --> 0:19:51.960 in the metaverse. Hey, Alex, kind of want to throw 0:19:51.960 --> 0:19:53.880 a little bit of a curveball at you because it's, 0:19:53.960 --> 0:19:56.400 you know, not necessarily what your most recent pieces about, 0:19:56.440 --> 0:19:58.160 but I know you've done so much reporting about this. 0:19:58.720 --> 0:20:01.320 I'm wondering what small busin this is think of this change, 0:20:01.359 --> 0:20:03.520 because they're the ones who have done a lot of 0:20:03.520 --> 0:20:07.480 advertising historically on meta platforms including Facebook and Instagram, and 0:20:07.520 --> 0:20:10.560 now ostensibly it's more difficult for them to target their 0:20:10.560 --> 0:20:14.280 potential customers. Yep, throw those curveballs away. Um, I will 0:20:14.280 --> 0:20:17.960 say they have been okay um, they've spent more on 0:20:18.040 --> 0:20:21.359 like newspapers or buying ads on TV channel. So the 0:20:21.440 --> 0:20:23.840 big companies can do that because they have the budgets. 0:20:24.000 --> 0:20:26.840 Small businesses have kind of historically been stuck with two 0:20:26.880 --> 0:20:31.320 options basically meta or Google alphabets UM search ads when 0:20:31.320 --> 0:20:34.240 it comes to reaching customers on the Internet. So they've 0:20:34.280 --> 0:20:36.720 been the folks who basically have had to kind of 0:20:37.280 --> 0:20:39.520 go roll with the punches here, and that's also why 0:20:39.560 --> 0:20:42.159 we think there's been such a big decline in overall 0:20:42.200 --> 0:20:45.800 ad spending. That's Bloomberg News Technology reporter Alex Brinka. You're 0:20:45.800 --> 0:20:48.560 listening to Bloomberg Business Week. Coming up next, how a 0:20:48.680 --> 0:20:51.400 high end audio equipment maker is fighting for market share 0:20:51.520 --> 0:20:54.760 amid stiff economic headwinds. The number one way that new 0:20:54.800 --> 0:20:57.719 customers coming to the system is existing customers telling their 0:20:57.720 --> 0:21:00.800 friends and family. So it's a it's a powerful model 0:21:00.920 --> 0:21:02.760 in that way, and we've got a good balance between 0:21:02.760 --> 0:21:05.800 existing and new. So no CEO Patrick Spence joins us 0:21:05.800 --> 0:21:15.919 on the other side. This is Bloomberg. You're listening to 0:21:16.040 --> 0:21:19.920 Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. 0:21:20.040 --> 0:21:24.919 Tim Stinovich from Bloomberg Radio. We'll share. Some Sons traded 0:21:25.000 --> 0:21:28.080 higher right after reporting earnings this past week, stock, though 0:21:28.119 --> 0:21:32.080 still down around forty year to date. Among the quarterly headlines, 0:21:32.080 --> 0:21:35.159 though that stood out. Fourth quarter revenue beat estimates, and 0:21:35.200 --> 0:21:37.560 analysts found the print to be quote solid well. The 0:21:37.600 --> 0:21:41.040 reaction to guidance for three was mixed, with some impressed 0:21:41.080 --> 0:21:43.720 and others seeing it as a little light. We dug 0:21:43.720 --> 0:21:45.359 into all of that and more with the CEO of 0:21:45.400 --> 0:21:49.040 son Nos, Patrick Spence. We've seen things stabilized. So we 0:21:49.080 --> 0:21:51.760 obviously took a hit back in June in terms of 0:21:51.800 --> 0:21:54.240 kind of the trajectory in our business, and so since 0:21:54.359 --> 0:21:57.720 then post pandemic, our continuation of a post pandemic reason, 0:21:57.960 --> 0:21:59.919 I think was more macro economic in terms of just 0:22:00.080 --> 0:22:02.159 generally like what consumers are doing and in the summer 0:22:02.160 --> 0:22:04.200 traveling and all of those things, and so you know, 0:22:04.240 --> 0:22:05.560 we did a bit of a reset at that point, 0:22:05.640 --> 0:22:08.000 and what we've seen in this quarter is we got 0:22:08.040 --> 0:22:10.879 it right. Our business stabilized, and we shared a few 0:22:10.960 --> 0:22:13.359 data points on the call around registrations which are kind 0:22:13.359 --> 0:22:15.800 of like the underlying activations of new son No speakers 0:22:15.800 --> 0:22:18.800 that show in fact, it's kind of we're pretty optimistic 0:22:18.800 --> 0:22:20.280 in terms of where we are right now and what 0:22:20.320 --> 0:22:23.760 we're seeing and so, um, it's stable. Uh, And that's 0:22:23.800 --> 0:22:25.640 kind of the way we we've set our guidance as 0:22:25.640 --> 0:22:28.160 we go forward, and we're not expecting, you know, things 0:22:28.200 --> 0:22:30.800 to get much worse. We're not expecting it to get 0:22:30.840 --> 0:22:32.199