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© 2017 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Tuesday, October 24, 2017 | R1

JOURNAL REPORT

Wal-Mart Takes Aim at AmazonMarc Lore, Wal-Mart’s U.S. e-commercechief, explains its acquisition strategy, R2

Baidu Sees AI as Key to Its FutureCEO Robin Li on the company’s techexpertise, autonomous cars, and the battleagainst fake information, R4

The Thinking Behind Alibaba’s ExpansionExecutive Vice Chairman Joseph Tsai saysthe company can compete with all the techgiants, R4

Is Regulation Ahead for Titans of Tech?Barry Diller says it’s inevitable. He also thinksunicorn valuations are absurd, R5

At Oracle, It’s All About the CloudCEO Mark Hurd says moving to the cloud isin customers’ best interest, R6

GM’s Strategy for the Autonomous CarPresident Dan Ammann on the company’srole, what the timetable is, and what thedriverless car means for the industry, R6

The Outlook for Tech M&APeggy Johnson and Jennifer Nason talkabout the prospect for big deals, R7

The View of an Activist InvestorPershing Square founder William Ackmanexplains why he’s battling with ADP, R8

Self-Flying Plane Wins Startup ShowcaseIsrael-based Eviation was the audiencefavorite at the WSJ D.Live conference, R8

Companies Must Use AI—Or ElseIntel CEO Brian Krzanich says companiesthat don’t use artificial intelligence will beleft behind, R9

In Defense of an Ad ModelBuzzFeed’s Jonah Peretti talks about socialmedia, algorithms and fake news, R9

Where the Money Will Come FromSam Altman, Jenny Lee and Bill Maris onstartup funding, the most excitingtechnologies, and increased regulation, R11

Where Wearable Tech Is HeadedChip Bergh, Levi Strauss’s CEO, says thepossibilities are endless, R12

Qualcomm’s Game PlanCEO Steven Mollenkopf on smart cars and5G technology, R12

The Big Benefits of Smart CitiesCisco CEO Chuck Robbins says cities canno longer do things the way they alwayshave, R13

Facebook Opens Up on MessengerVP of messaging products David Marcus onhow the company’s new channel for advertis-ers works, R14

PLUS: Voices From the Conference

Affirm’s Max Levchin on the dangers lendersface, R2

CrowdStrike’s George Kurtz pleads for betterpassword practices, R4

Paradigm’s Joelle Emerson on tech’s meri-tocracy problem, R5

Uncharted Play’s Jessica O. Matthews onAfrica’s tech rush, R10

Samsung’s David Eun on the integrationbetween hardware and software, R13

INSIDE

women and people? The an-swer is no. Is that becausethere was never a forum, thatI never opened myself tosomebody to be able to havethat conversation? Guilty. ButI’m not going to do it again. Idon’t think our industry is. Ithink you will see in thesecoming weeks and months realaction. We cannot go on thisway.

MR. BAKER: One thing thatwould clearly, presumablychange the culture would be ifthere were a lot more womenin senior positions in media

companies generally, but inHollywood perhaps in particu-lar.MR. KATZENBERG: That’s along-term solution. I’m talkingabout something that has tobring this to a stop immedi-ately.

In movies, in television, inlive entertainment, in Las Ve-gas, on Broadway shows, inthe news industry, actors andactresses, men and women,must audition on an ongoing,regular basis for their work.So the question is: How do weaddress that moment and add

Pleaseturntothenextpage

Some of the biggest names in media and technology as-sembled in Laguna Beach, Calif., last week for The WallStreet Journal’s fourth annual WSJ D.Live conference. Theevent kicked off with Arianna Huffington, founder of theHuffington Post and Thrive Global, discussing corporate cul-ture issues at Uber Technologies, where she is a director.Jeffrey Katzenberg, DreamWorks co-founder and partner atWndrCo, spoke about Hollywood’s “casting couch” problemsin the wake of Harvey Weinstein’s downfall.

Other highlights included Barry Diller, chairman of IAC/InterActiveCorp, discussing the likelihood of more regulationfor tech giants; Marc Lore, Wal-Mart Stores Inc.’s U.S. e-commerce chief, explaining its acquisition strategy; andPeggy Johnson, Microsoft Corp.’s executive vice president ofbusiness development, and Jennifer Nason, J.P. MorganChase & Co. global chairman of investment banking, talkingabout the outlook for tech M&A.

A trio of venture capitalists—GGV Capital’s Jenny Lee, YCombinator’s Sam Altman and Section 32’s Bill Maris—fore-shadowed the future of tech investing, and executives in-cluding Intel Corp. Chief Executive Brian Krzanich and BaiduInc. CEO Robin Li discussed the importance of artificial intel-ligence. Plus there were interviews with BuzzFeed founderJonah Peretti, Oracle Corp. CEO Mark Hurd, Alibaba GroupExecutive Vice Chairman Joe Tsai, and Pershing Square Cap-ital Management head William Ackman. Here are selectedexcerpts.

—Jason Dean

ASPOTLIGHTONMEDIAANDTECHNOLOGY

right now, in the world of so-cial media, companies can nolonger hide behind expensiveads what’s happening in thecompany.

On social mediaMR. BERMAN: What do you

view as the moral responsibil-ity of Facebook, Google, Twit-ter, YouTube, social-mediaplatforms, to the people andthe countries that they serve?MS. HUFFINGTON: I think thereis a moral responsibility, as[Facebook COO] Sheryl Sand-

berg said last week, not to al-low foreign powers to come inand use fake names and beable to infiltrate the platform.She said if these were fromreal accounts, as opposed tofake accounts, they would only

Pleaseturntothenextpage

Arianna Huffington, founder ofthe Huffington Post and ThriveGlobal, spoke with Dennis K.Berman, financial editor ofThe Wall Street Journal, abouta range of topics, from her ex-perience as an Uber boardmember to the perils of aneconomy driven by social-me-dia platforms. Edited excerptsfollow.

Importance of cultureMR. BERMAN: Take us back toyour arrival on the Uber boardin April 2016. What was goingon? What did you see?MS. HUFFINGTON: The growthwas the most amazing thing.Then, though, what I began tosee is that the growth wasalso achieved at the expenseof an incredible burnout in thecompany. Working hard isgreat, but the data is veryclear that working longer andworking smarter contradicteach other.

MR. BERMAN: Was there a mo-ment where you said, “This iscrazy”?

MS. HUFFINGTON: I think therewas a moment when I said,“We need to do somethingabout this culture.”

We produced a series ofworkshops to help everybodyunderstand that even thoughwe claim to be in a data-driven culture, we are forget-ting the data—which is thatwhen you are operating in aculture of burnout and con-stant stress there are going tobe consequences. Burned-outpeople act out again andagain. They make mistakes.

MR. BERMAN: So is there a mo-ment now, where you havevarious board members in liti-gation with other board mem-bers, alliances being struck,chaos reigning, where you say,“This is crazy”?MS. HUFFINGTON: No. We havea great CEO. I chaired thesearch committee and I’mvery, very thrilled with the re-sults. Dara Khosrowshahi isreally somebody who has theperfect combination of talentsfor this time in Uber’s history,

including being unflappable,which I consider the greatesttrait of leadership.

MR. BERMAN: Could Uber havebeen what it became without,to use a term I know you like,a bunch of brilliant jerks?MS. HUFFINGTON: Oh, yes. Oneof the things I said in my firstall-hands when I spoke to theemployees was that withgrowth forward we would endthe cult of the top performer.

This is not just a SiliconValley cult. Why did HarveyWeinstein last that long? Thecult of somebody who deliversresults. When you deliver re-sults, somehow a lot is for-given. And that is particularlyprevalent in the Valley. So Icalled the top performers bril-liant jerks and I said, “We’regoing to have zero tolerancefor them.”

We are recognizing thatwhat’s happening in the cul-ture has direct consequencesto the bottom line. A culture isnot nice to have, it’s abso-lutely essential. Especially

It’s Time to End the Culture of Stress and BurnoutArianna Huffington says that Uber could havebeen as successful without its ‘brilliant jerks’

It has been a difficult periodfor Hollywood, as the HarveyWeinstein scandal has focusedattention on an uncomfortableissue for the entertainmentbusiness: ongoing sexualabuse.

Wall Street Journal Editorin Chief Gerard Baker spokewith industry giant and formercolleague of Mr. Weinstein,Jeffrey Katzenberg. Mr.Katzenberg, a former chair-man of Walt Disney Studios,co-founder of DreamWorksand now partner at WndrCo,spoke about the crisis andwhat it means for Hollywood,as well as his own efforts toexplore new territory in short-form television. Here are ed-ited excerpts of the conversa-tion.

The abuse questionMR. BAKER: I want to start

with a topic that’s on every-body’s mind, what happenedwith Harvey Weinstein. Nowyou, Jeffrey, last week in avery powerful statement spokeout in response to a directcommunication from HarveyWeinstein asking for you tosupport him. You responded tohim in no uncertain terms. Yousaid he had done terriblethings to women, and youwent on to say there appear tobe two Harvey Weinsteins: onethat I’ve known well, appreci-ated and admired, and an-other that I’ve not known atall.

How on Earth could power-ful people, yourself included,not have known that he wasbehaving like this?MR. KATZENBERG: I do a lot ofsoul searching about it. I don’thave a good answer. I’ve hadhundreds of meetings with

Harvey Weinstein—my office,his office, on sets, on loca-tions, the south of France, theSundance Festival, the Penin-sula Hotel. And literally not asingle time had Harvey beenabusive to somebody in mypresence, other than, “Why’sthe car not here?” “I thoughtthat script was supposed—.”You know, that’s not abusivebehavior. That’s why I saidthere are two Harveys, be-cause somehow or anotherthis behavior was maskedfrom me by him, but more im-portant, that these womenmasked it from all of us too,because they were intimi-dated, they were scared, theywere humiliated.

And it literally took theNew York Times and thebravery of these women tospeak out about somethingthat has been around from the

beginning of Hollywood. Thecasting couch has been in Hol-lywood from the beginning.The complicity around the ac-ceptance of it and the silenceabout it is the crime.

Harvey Weinstein, make nomistake about it, he is a mon-ster. The problem is there’s apack of wolves, he is not alone actor in this. That’s thechallenge that I think all of usnow really have to find a wayto deal with.

MR. BAKER: You say in all yourencounters with Mr. Weinsteindirectly, you’ve never seen be-havior like this. But you musthave heard about it?MR. KATZENBERG: Unfortu-nately, the answer is no. From1994 on, I had no business en-gagements or dealings withhim whatsoever. Did I hearstories about Harvey abusing

Katzenberg onWeinsteinThe Hollywood icon also talks about his plan to revolutionize TV

‘The problem isthere’s a pack ofwolves. He is not alone actor in this.’

‘We are recognizingthat what’s happeningin the culture hasdirect consequencesto the bottom line.’

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REPRINTS AVAILABLEVOICES FROM THE CONFERENCE

“It’s a great time to be a lender, but it’salso a terrible time to be a lender ifyou’re overconfident. If you’re not reserv-ing enough, if you’re not thinking of riskmanagement, if you’re not consideringscenarios of your losses doubling or tri-pling, which is a rare event but it doeshappen, as we saw in 2008.”

Max Levchin,Founder and CEO, Affirm

a level of protection for whatis an imperative part of thecreative process?

The short-form futureMR. BAKER: Let’s move on to ahappier topic, which is the fu-ture of TV. You’ve got a planto revolutionize TV, WndrCo.Tell us why there’s space foranother major initiative in theTV field.MR. KATZENBERG: We’ve hit amoment in time in whichthere’s a fantastic opportunityto innovate storytelling and toevolve it.

Ten years ago, two thingshappened. One, everybodynow has a television withthem all the time. At the sametime, a little earlier than that,there was a platform calledYouTube. And out of YouTubecame this amazing new formand format. Short form, under10 minutes.

And in a very short periodof time, that platform gets asize and a scale that is un-precedented as a media plat-form. And Google comesalong, buys it, does a fantasticjob investing in the platformitself and the creators in it,creates a business model formonetization. Out of that, theplatform evolves. There starts

Continuedfromthepriorpage to be professionally producedcontent there, some of it in-credibly imaginative, verycompelling.

MR. BAKER: Without being tooflippant, isn’t it all skate-boarding, ducks and puppies,falling down stairs, and allthis kind of stuff?MR. KATZENBERG: No. It’swhat people can afford tomake. I believe that if youcreate short-form contentthat can be consumed in thesechapters of under 10 minutes,it will revolutionize the story-telling opportunity.

I’ll point to another me-dium where somebody capi-talized on this. Traditionally,a chapter in a novel is 20 to40 pages long. Fifteen yearsago, two great authors camealong and realized that as asociety and a world we’reADD. James Patterson andDan Brown changed the archi-tecture, the formatting, of theway in which they told astory. So “The Da Vinci Code”was 464 pages long, 105 chap-ters.

Now the quality of thatstory, the arc of the story, thequality of the characters, therichness of it, the excitementof it, it was one of the greatreads. What he did is, he al-

lowed a different consump-tion habit, which is if you had10 minutes you could read achapter or two. If you had anhour you could read five orsix.

MR. BAKER: Give us a sense ofhow it’s going.MR. KATZENBERG: This is ashard as anything I’ve everdone for many reasons, notthe least of which is that any-time anybody has started anew media platform, at itsfoundation was library con-tent. The challenge for newTV is there isn’t any. Every-thing has to be created fromscratch, because you cannottake an episode of “Game ofThrones” and cut it up intosix 10-minute pieces.

It’s a Catch-22. For peopleto pay for a subscription ser-vice, there needs to be notjust supreme quality but therealso needs to be quantity. Youhave to deliver on both ofthose.

So I have spent the lastyear in conversations with allof the major suppliers of tele-vision and created a businessmodel, a licensing model. I’vetalked with many of the bestshow runners to talk aboutcreatively how they’re goingto interpret this.

Katzenberg on Weinstein

MR. LORE: It will be interestingto ask that question 50 yearsfrom now, or 20, because Wal-Mart has some really uniqueassets that no one else has. Todate, we haven’t fully lever-aged the scale of Wal-Mart,specifically its 4,600 storeswithin 10 miles of 90% of thepopulation. Fresh, frozen, over100,000 general-merchandiseskews are in that proximity.

That product gets there infull truckloads—not cases andpallets—and those 4,600warehouses are profitable.They’re already covering theirentire fixed expense. So eachmarginal dollar that ships outof there comes out at an in-credible profit.

Already, [customers can

pick up online orders] of freshgrocery at 1,000 stores. We’rerolling that out to over 2,000stores next year. And fromeach of those stores, we willhave the ability to deliver. Weare testing grocery deliveriesnow in 22 stores, using a com-bination of our own associ-ates, Uber drivers, Deliv, and abunch of other players.

MR. ANDERS: There is a bigarms race under way rightnow with groceries. Certainly,Amazon and Whole Foods aregetting a lot of attention. Upto now, Wal-Mart has beenbanking heavily on its vastphysical store network andmaking that better.MR. LORE: The hard part is

done. We have forward-de-ployed inventory, full truck-loads, warehouses makingmoney. We have pickup capa-bility for online orders at1,000 stores, which will be2,000 stores by the end ofnext year and eventually 3,000and 4,000 stores. Now, it’s justabout that last-mile deliverypiece, and there are plenty ofpartners we can work with todo that.

MR. ANDERS: Amazon hasplowed a ton of money intothe logistics side. Are you say-ing that Wal-Mart can gohead-to-head with Amazonand offer the exact same ser-vices that they’re offering?MR. LORE: We have a little bit

of a second-mover advantage.We were able to build a logis-tics network from scratch.We’ve got the warehouses inplace at the right size, withthe right amount of automa-tion. And today, we can hit87% of the country overnightand 99% in two days, viaground shipping.

Over the next two years,you’ll start to see dramatic im-provements. You’ll see the newdesign rollout at Walmart.com.You’ll start to see more same-day and two-hour delivery.You’re going to see a lot ofchanges.

And I think two years fromnow, it will be interesting toask the same question to seehow people think.

Wal-Mart Stores Inc. hasbeen on a buying spree overthe past year, seeking to betterposition itself for an intensify-ing e-commerce battle withAmazon.com Inc.

Leading the effort is MarcLore, who became Wal-Mart’sU.S. e-commerce chief lastyear after the Bentonville,Ark.-based retailer acquiredhis startup, Jet.com, for $3.3billion.

Mr. Lore sat down with TheWall Street Journal’s JasonAnders to discuss the megare-tailer’s plans for e-commerce.Edited excerpts follow:

Elevating the brandMR. ANDERS: Wal-Mart re-cently acquired ShoeBuy,Bonobos, ModCloth, Moosejawand delivery company Parcel.But you aren’t done shopping,right? There’s more to come?MR. LORE: That’s right. We’relooking at a lot of differentthings right now. Everythingin every sector—technology,retailers, digitally nativebrands. We’re looking a lot.

MR. ANDERS: The brands youbought are all established,well-known names. What’s theoverall strategy? Do you planto integrate these thingsclosely into Walmart.com orkeep them as their ownbrands?MR. LORE: There are two dif-ferent strategies that we arepursuing simultaneously. Theretail specialists such as Shoe-Buy and Moosejaw—webought those companies to re-ally help us accelerate in thelong tail. They have an amaz-ing assortment, amazing rela-tionships with brands. Theteams are great, product con-tent is much better than whatwe had before. So being ableto take that product contentand those relationships andbring that to Walmart.com andJet is really the reason to doit.

We’ve also empowered theleaders of these companies tobasically run the categoryacross the entire entity. Wedidn’t just buy them and say,

“Just keep doing what you’redoing.” Instead we told them,“We want you to run and man-age this category.” It’s workedout really well.

MR. ANDERS: Are these typesof brands helping to elevateWal-Mart overall, make itcooler?MR. LORE: It’s about bringingin a better, more unique, spe-cialist assortment to the site.We’re working on a couple ofpartnerships now that will beannounced in the next fewmonths to help bring an evenmore premium assortmentonto the site. We’re also rede-signing the website, investingheavily in vertical experiencesin both home and fashion, tomake it less about transactionand more about browse anddiscovery. So yes, we’re defi-nitely making a push to ele-vate the brand.

Importance of scaleMR. ANDERS: Wal-Mart is fa-mous for paying attention tothe bottom line. Jet.com cameup not having that same sortof restraint. Can you do this ina way on Jet.com that is ulti-mately profitable?MR. LORE: Absolutely. E-com-merce is a scale game. And thegreat thing here is that we getto combine the scale of bothWalmart.com and Jet togetheron a common infrastructure.So it isn’t looking at each ofthem in isolation. We actuallyget the ability of each one toleverage from the other.

MR. ANDERS: When do youthink Jet.com will becomeprofitable?MR. LORE: I haven’t talkedabout profitability, although atthe analysts’ meeting lastweek, I did say that this yearwould be the peak in losses.We expect a slight reductionof losses next year.

MR. ANDERS: When we polledaudience members aboutwhich company they think isgoing to dominate e-commercein five years, they didn’t pickWal-Mart.

Wal-Mart TakesAimatAmazonMarc Lore, the company’s U.S.e-commerce chief, explains itsacquisition strategy

‘We get to combinethe scale of bothWalmart.com andJet together on acommoninfrastructure.’

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Chasing AmazonIn an e-commerce market projected to grow by nearly 50% over the next four years, Wal-Mart is chasing market leader Amazon

Amazonsites

eBay Wal-Mart

Applesites

Target HomeDepot

Etsy Kohl’s BestBuy

Wish2017 ’21’20’19’18

Unique monthly visitors to the most popular retail websitesin the U.S. as of March 2017, in millions

200

0

50

100

150

Projected retail e-commerce salesin the U.S., in billions of dollars

Leading e-commerce retailers in theU.S. in 2016, in billions of dollars

Source: Statista THEWALL STREET JOURNAL.

Amazon$46.66

Wal-Mart$12.73

Liberty Interactive$4.89

Home Depot$5.37

Apple$6.11

$700

300

400

500

600

have taken them down if thelanguage was violent or hate-filled. Otherwise, they, on thegrounds of free speech, wouldhave kept them up. So that’sthe question that we need todiscuss, in terms of platforms.

For me, the more signifi-cant question has to do withwhat’s happening with the hijacking of people’s attention. Ithink in the attention econ-omy, companies like Facebookor YouTube, especially, thepart of Alphabet that is di-rectly about people’s atten-tion, the goal is to get asmuch of your attention aspossible through an enormousamount of persuasive tech-niques.

If you look at the “like,” it’sa way to keep you hooked, tokeep you returning to see howmany likes the picture of yoursalad got. And among teenag-ers especially, and collegekids, this has become a sym-bol of validation.

It cannot be in our interestto have persuasive techniqueshijacking our attention insuch a way. And I think that’sgoing to be the big, existentialissue we need to discuss.

And if you think, “Oh, don’tworry, I have incredible willpower and I’m only going to

Continuedfromthepriorpage spend as much time as I reallywant on this,” think again.

MR. BERMAN: In your testing,what is the average social-me-dia consumption?MS. HUFFINGTON: Stunning.There are people who are to-tally addicted and they spendover 10 hours [a day]. Butnormal people, who are notcompletely addicted, mayspend seven hours on Insta-gram or Facebook a week.

MR. BERMAN: Should a 12-year-old have a smartphone?MS. HUFFINGTON: The closeryou get to the Valley, to peo-ple who are part of thesecompanies and actually pro-ducing this product, the laterthe kids get the phones andthe stricter they are abouthow much time they allowthem on their phones. Over70% of people sleep with theirphones. With the best willpower, if you wake up in themiddle of the night and youcan’t go right back to sleep,you are going to be temptedto look at your phone, to lookat texts. And then your wholesleep cycle is interrupted.

None of us would be herewithout all that technologyhas brought us. It’s basicallyabout setting boundaries and

reconnecting with ourselves.

Gender issuesMR. BERMAN: Based on yourexperience on the Uber board,what are some practicalthings that a company shouldbe thinking about as it relatesto gender in the workplace?MS. HUFFINGTON: When work-places are fueled by this cul-ture of burnout, where peoplewear this like a badge ofhonor, it disproportionatelyaffects women.

First of all, women inter-nalize stress differently. Thenumbers show that women instressful jobs have a 40%greater risk of diabetes and a60% greater risk of heart dis-ease. So that’s something weneed to be working on our-selves. Also, there’s more sex-ist behavior when people areburned out. They act out. Weall know that when we arerunning on empty, when we’reexhausted, we operate at ourworst.

MR. BERMAN: If you were togive mindfulness training inthe White House, what wouldbe your prescription?MS. HUFFINGTON: To take thepresident’s phone away atnight. That might change thecourse of world history.

Ending Stress and Burnout



THEWALL STREET JOURNAL. Tuesday, October 24, 2017 | R3

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I CAN KNOWTHOUSANDS OF

WWith IBM Services andWWatson, customer serviceaggents canít exactly readmminds, but they can knowwwhich customers toheelp ˇrst and how to helpthhem better. This helpedonne company to reduce callreesolution times by99%annd saved another company$111.2 million a year. Findouut more at ibm.com/youThhis is customer servicetoo the power of IBM.




data. If you lose that trust,why would anybody want touse your service the next day?

That’s the basic principlethere. It’s very, very importantthat those that preside overthese large troves of data, thecompanies, are very mindful ofthat consumer trust, the dif-ference between the trust andnontrust is a very thin wall.So, we feel like we’re treadingon thin ice all the time.

MR. DEAN: Alibaba founderJack Ma told President Trumpin January that Alibaba wouldcreate a million jobs in theU.S. over five years. Thatpledge was met with someskepticism. Can you tell uswhat you’re doing to makethat a reality?MR. TSAI: We take our Chinaexperience. There are over 10million small merchants thatare selling on our platform.Whenever you try to help amerchant to sell more, growtheir business, it creates jobs.We have studies that showthat the Alibaba platform hascreated over 30 million jobs inChina just from merchants hir-ing people. The logistics in-dustry is hiring a lot of peo-ple.

We believe that we canbring the same idea, create aplatform here to let Americancompanies, especially smallbusinesses, sell to Chineseconsumers.

Remember, we have accessto 500 million consumers inChina. That is a huge job-cre-ation opportunity.


China’s Alibaba has growninto one of the world’s biggesttech giants. As it has grown, ithas spread into many differentareas of tech and has begun tobump against U.S. tech giantslike Amazon and Google.

The Wall Street Journal’sglobal technology editor, Ja-son Dean, discussed Alibaba’sstrategy with Joseph Tsai, thecompany’s executive vicechairman. Here are edited ex-cerpts.

What now, what next?MR. DEAN: Let’s talk aboutyour ambition. You started offin e-commerce. You’re now di-rectly or indirectly in cloudcomputing, media and enter-tainment, logistics, paymentsand others as well. Your visionis that customers will meet,work and live at Alibaba,which is pretty much every-thing. Where does the ambi-tion end, and what’s the unify-ing vision?MR. TSAI: Since 1999, westarted the company with amission to make it easy to dobusiness anywhere. We wantto make sure we help busi-nesses, companies, especiallysmall companies, to be able toreach their markets and reach

consumers.Today, we run the largest

retail platform in China. Thereare over 500 million consum-ers on that platform. Andmost of them are mobile. Sowhenever we think about ex-panding into a new space, weask ourselves, “Is that consis-tent with our mission? Are westaying true to that mission?”

MR. DEAN: You’ve been calledthe Amazon of China. You’vecompeted in China againstthem and won. But increas-ingly, you’re competing head-to-head globally, particularlyin the cloud business. What isthe strategy there? Are youtrying to take them on outsideChina, as well as Microsoftand Google in the cloud?MR. TSAI: If you look at Ama-zon and Alibaba, the two com-panies grew up in very differ-ent environments. We grew upin China. Amazon grew up inthe United States. We startedas e-commerce companies. Youcan say that we’re from thesame genus but grew up astwo different species becausewe have our own environment.

China is a developing econ-omy. It’s an environmentwhere the economy is shifting

from investment and exportsto consumption.

If you look at China today,it exhibits a lot of the develop-ing-economy characteristics,whereas Amazon is in a verywell-developed economy. E-commerce is actually very,very tough. It’s not about justdoing an app or launching awebsite. It’s about figuring outthe entire supply chain. Wehave to worry about puttingmerchants together. We haveto worry about logistics. Wehave to worry about payment.

There is going to be somecompetition at the fringe. Butin China today, the cloud mar-ket is probably what the U.S.was like maybe seven, eightyears ago. It’s about to takeoff. We’re very excited by it.

We’re very happy to con-tinue to grow our business inChina. Our international ex-pansion really focuses on ourcustomers, who are doingbusiness in China, as they ex-pand abroad. We help themexpand.

We also have an effort in,for example, Southeast Asia,outside of China, where a lotof Southeast Asian companiesare looking at cloud solutions.So that’s where we are.

The push for AIMR. DEAN: In that world, youhave to be going up againstthem head-to-head, at least insome cases. And you’re target-ing multinationals as well,you’re advertising in the U.S.What’s your competitive ad-vantage against Amazon whenyou go head-to-head withthem?MR. TSAI: In the cloud you re-ally compete on technologyand products. And we have ar-eas we feel we are excellent in.We’re very good in database,we’re very good in middlewareas well as security. We’re notjust competing with Amazon,we’re competing with Google,we’re competing with Micro-soft, great, great technologycompanies. But we feel like wehave both the wherewithal andthe technology and the peopleto compete.

MR. DEAN: You announced lastweek you’re ramping up R&Dspending to a total of $15 bil-lion over the next three years.What’s driving that?MR. TSAI: As a percentage ofrevenue, historically, we’vebeen spending roughlyaround 10%, 11% of our reve-nues on R&D. So with this ef-fort, $15 billion over threeyears, roughly on averageabout $5 billion a year, you’relooking at midteens revenuepercentage spending. I don’tthink that’s a huge stretch.

This just shows our com-mitment to put more re-sources into the talent as wellas the technology develop-

ment as we see the future.With this effort we’re going

to be focused a lot on very ad-vanced areas like quantumcomputing, machine learning,computer vision, voice recog-nition, natural-language pro-cessing.

MR. DEAN: Several of thosecategories that you mentionedfall under the rubric of artifi-cial intelligence. It’s hard toseparate the hype from the re-ality. Where do you have anadvantage in AI technology?MR. TSAI: I have a cigar theoryon AI; you look at Cuba, C-U-B-A. Those are the four impor-tant elements. C stands forcloud computing, which meanslow-cost computing to trainthe machines and managemassive amounts of data. Umeans use case. We serve hun-dreds of millions of consumersevery day. We’re seeing theirbehavior. We have fresh dataevery day. B means big data. Ais algorithm. You need to havesmart people, the scientists,the mathematicians, to de-velop the good algorithms.

We are one of the top com-panies that have all those ele-ments in place.

A question of trustMR. DEAN: You and Google andFacebook have an enormousamount of data on people.Why should people trust thebig tech companies to treatthat data responsibly?MR. TSAI: It’s because it’s goodfor business to be a responsi-ble custodian of consumer

The Thinking Behind Alibaba’s ExpansionExecutive Vice Chairman Joseph Tsai says thecompany can compete with all the tech giants

ogy, and we can provide youdata too.

MR. DEAN: How are you goingto make money on this open-source autonomous-drivingplatform?MR. LI: We can sell simulationsystems, and we can sell data.We can sell high-definitionmaps. We can even in the fu-ture write insurance policies.There are lots of things youcan do. It’s a very large mar-ket. I think auto representsabout one-sixth of the totalChinese GDP, and it’s growingfast, too.

Getting there firstMR. DEAN: The BAIC deal, isthe goal to be first with thelevel-four autonomous car? Doyou think you’ll beat the com-petition to delivering that tomarket?MR. LI: That’s not the firstlevel-four vehicle we’re work-ing on. We issued another an-nouncement with King Long,which is one of the larger busmanufacturers in China. We’regoing to deliver a fully autono-mous bus by the end of nextyear. It’s going to be run indesignated areas, but it’s go-ing to be fully autonomous.

MR. DEAN: Fake news has beena big issue in the U.S. It’s beenan issue in China, too. You re-

cently took some measures toaddress them that stirredsome controversy. How do yousee the role and responsibilityof big internet companies likeyourself in balancing the needto safeguard against bad in-formation versus the risk ofcensorship?MR. LI: We want to provide thebest way for people to find in-formation, and that means weneed certain kinds of controlover information so that weprovide people with true in-formation instead of fake in-formation or fake news. Thefake-news issue became moreand more serious as social me-dia became more popular.

There’s no fact checking.There’s no editorial control.

We recently set up a plat-form to clarify a lot of thingsin collaboration with the gov-ernment and quite a few othercompanies. We also integratedin our existing products fea-tures like Baidu Encyclopedia.It’s one of the most authorita-tive information sources inChinese.

From time to time, thereare things that are unverified.People are curious about theauthoritative explanation ofthose kind of topics. We useour technology to extract themain topics from every articleand provide a Baidu Encyclo-pedia entry right after thenews text.

MR. DEAN: The concern inChina is that partly what isfake news can be dictated bythe government. How do youbalance that into your equa-tion?MR. LI: The government caresmore about politically sensi-tive content. But we, as a gen-eral information provider,need to do a lot more with ru-mors about scientific issues,rumors about entertainment,all kinds of things.

We need to do a lot morework, and we’re doing that,using technology, using edito-rial control.

Baidu is the search titan inChina, but with its mobile ef-forts, it stumbled relative tothe competition.

The Wall Street Journal’sglobal technology editor, Ja-son Dean, spoke with the co-founder, chairman and chiefexecutive of Baidu, Robin Li,about the company’s plans forreclaiming its advantage, aswell as its push into autono-mous vehicles. Here are editedexcerpts.

The search futureMR. DEAN: You’re placing ahuge bet on artificial intelli-gence. Why do you think thatcould help you regain youredge?MR. LI: First, every companyhas its own DNA. Baidu is atechnology company. Duringthe desktop age, in order toserve the users better, you justneeded to come out with thebest technology to rank con-tents on the internet. I thinkthat’s what we are good at.But when the world movedinto mobile, the landscapechanged. The market involve-ment changed. For mobile, youneed to build your own eco-system. You need to enablepeople to create content foryou, and we don’t have accessto that content anymore.

We’re still dominating inmobile search, but we need tofigure out what’s next. Luckily,we have entered the age of AI,and technology is importantagain. You need to have thebest natural-language process-ing technology, the best voice-recognition technology, thebest image or computer-visiontechnology. You need to ana-lyze a lot of data.

I think we are good at that,and there are a lot of new op-portunities for AI. If you thinkabout search, it’s the mostnatural AI application. Whenyou type in a keyword orquery, we will try to guesswhat you mean and providethe best answer for that query.That’s pretty much the defini-tion of AI. Let computers un-derstand humans and provideanswers or provide services.

MR. DEAN: A big part of whatyou’re doing related to your AIis your autonomous-drivingprogram. You just announceda new deal with BAIC, which isone of the biggest Chinesestate-owned auto makers inBeijing. Tell us about thatdeal.MR. LI: We have a very solidplan. The plan is to mass pro-duce level-three cars by 2019and mass produce level-fourcars by 2021.

Asleep at the wheelMR. DEAN: Level-four autono-mous is where the persondoesn’t need to be awake, ba-sically, and the car drives it-self. What is your involvementin this?MR. LI: We don’t manufacturecars. They do. We providetechnologies so that they candrive automatically. We alsoprovide technology and con-tent for people to be enter-tained in the car. When a pas-senger gets into the car, ourvision is that you will neverneed to touch your phone any-more. The car can provide allthe things—the screen, thesongs, the microphone. Every-thing can be better than themobile experience.

MR. DEAN: Where would yousay your technology ranks inautonomous driving againstWaymo [the driverless-car di-vision of Google parent Alpha-bet Inc.]?MR. LI: It’s a question of openversus closed. Apollo [Baidu’sautonomous-car software sys-tem] is a very open system,and the first day, we hadabout 50 partners join us, in-cluding companies like Fordand Daimler, Bosch, Continen-tal and many in China. I thinkhistory has also proved thatan open system has better mo-mentum.

We published Apollo 1.0 inJuly, and we published 1.5 inSeptember on GitHub. If yougo there and check it out, it’s avery active community. Lots ofpeople are contributing to theApollo technology, because theworld believes we will be mov-ing into an autonomous-driv-ing society.

I think a lot of people areparticipating, and they areproviding signals to us. Theyare providing data to us. Theyare providing requests or de-mands for us. We know moreabout the real market demand.That gives us an edge.

MR. DEAN: So if I’m a potentialpartner to you, and thenWaymo’s coming over andthey want to talk to me, whywould I go with Baidu overthem?MR. LI: Because you will havemuch better control over yourdestiny.

Apollo is open, and you cansee everything, and you cancontribute data to us, and wecan provide you simulationtechnology, security technol-

BaiduSeesAI asKey to Its FutureCEO Robin Li on the company’s technologyexpertise, its autonomous-driving program andthe battle against fake information

‘We’re going todeliver a fullyautonomousbus by the endof next year.’

‘Our internationalexpansion reallyfocuses on ourcustomers, who aredoing business inChina, as they expandabroad.’

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Growing SmartlyProjected growth of the artificial-intelligence market

Source: Statista

THEWALL STREET JOURNAL.

2017 ’18 ’19 ’20 ’21 ’22 ’23 ’24 ’250

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$60 billion

VOICES FROM THE CONFERENCE

“We’re still dealing with crappy passwordsover the last 25 years. Literally every con-ference, we talk about all this crazy securityand big-data analytics, and we still can’tget the passwords right. So, as a consumerone of the biggest things that seems sim-ple is at least have a different password foreach site.”

George Kurtz,Co-Founder and CEO, CrowdStrike




Barry Diller, after a long andsuccessful career in traditionalentertainment, has reinventedhimself as chairman of IAC/InterActiveCorp, owner ofsuch popular digital propertiesas Angie’s List and Expedia.Wall Street Journal Editor inChief Gerard Baker spoke withMr. Diller about the fiercecompetition and harsh reali-ties in today’s digital businessworld. Edited excerpts follow.

MR. BAKER: You’ve created tre-mendous value for sharehold-ers by acquiring or developinginternet businesses and thenspinning them off. Tell us howthat model works.MR. DILLER: How it happenedoriginally was we owned Tick-etmaster, and one day the guywho ran Ticketmaster came inand said he would like to makea greater investment the nextyear. And therefore, he wouldtake his earnings way down.And he said, “So can I do it?”

And I said, “So you’re, like,coming to Daddy to ask?

You’re in a false environment.”It occurred to me that compa-nies, once they got up to beinga substantial business, shouldnot rely on a corporate forcapital or for telling themwhat’s right or wrong.

So we started spitting thesecompanies out. I believe thatcompanies that have multipleand disparate operating divi-sions are really suboptimal.

MR. BAKER: What was thethreshold at which you—MR. DILLER: There is none.

MR. BAKER: There is none?MR. DILLER: No. It’s feel. Everyone worked better when theywere independent. If you reallywant a company to continue toinnovate, they’ve got to be ontheir own melting ice cube.

MR. BAKER: What do you thinkof the virtues of going publicversus going private? You’vespun off a lot of companiesthat are now public.MR. DILLER: They’re all public.

MR. BAKER: But they are con-fronting all of those challengespublic companies face: tougherregulation and scrutiny andreporting requirements. Whatwould your advice be to anUber or an Airbnb as they gothrough this process?MR. DILLER: If you don’t haveto, don’t do it. Meaning thereason that you would take acompany public is liquidity, forall the obvious reasons. How-ever, unless you need capital,there’s utterly no purpose solong as you can provide someliquidity to people who needit. I’ve never sold a share ofmy company.

By the way, I think that thepressure of venture capital toforce companies to go publicbecause they’ve got to returnmoney to shareholders isn’t avery good process.

MR. BAKER: These valuationsfor so-called unicorns, do youthink that the aura of being atech company somehow be-stows on them some kind of

IsRegulationAheadForGiants ofTech?Barry Diller says it’s inevitable. Also: He talksabout the absurd valuations put on ‘unicorns.’

magical valuation?MR. DILLER: Well, yeah. A com-pany isn’t dealing with basicswhen VCs in a room withthree or four people make upa valuation when they do addi-tional rounds of financing.

It has no reality. It’s just abunch of guys saying, “Oh, wewere worth $300 million. Oh,let’s make it $700 million.”And if they get enough peopleto buy it, “Let’s make it $5 bil-lion.” Or in Uber’s extremecase, “Let’s make it $65 bil-lion.”

MR. BAKER: How do we dothat? Can you give us a clue?MR. DILLER: Let me tell you,it’s very easy. You and I sit ina room and say, “We’re goingto get this dope over here toput some money in. Let’s justmake up a good figure and ifhe’s going to buy it, fine withus.” These valuations don’tbear reality.

MR. BAKER: Being dependenton advertising in the currentenvironment, unless yourname is Google or Facebook,is pretty challenging, right?MR. DILLER: There’s no hope.

MR. BAKER: No hope?MR. DILLER: If you’re going tobuild a business based uponadvertising, purely advertisingis your sole source of revenue,I would say go home.

MR. BAKER: Really?MR. DILLER: It isn’t possible.There’s no pricing power. Youhave two monopolists. One, re-ally. Google is the true monop-olist in terms of advertising.No one is going to enter it andtake share away from that. It’sjust not possible. Not thatthere won’t be other forms ofadvertising channels.

MR. BAKER: So you don’t thinkanything can be done aboutthe duopoly or the monopolyas you call it?MR. DILLER: Eventually.

MR. BAKER: You think regula-tors are going to tackle it?MR. DILLER: As we now seethese companies, these four orfive, having more hegemonyover more areas, inevitably, ithas to bring regulation. Thetrack is so clear. This is a dif-ferent situation than the stan-dard fear that down the street,in a garage somewhere, will beyour competitor that will de-stroy you. These main trackshave been laid now. And thedominant companies in themdo not really have fundamen-tal competition.

MR. BAKER: What about video?MR. DILLER: Everybody andtheir mother is trying to dovideo. Mostly, defensively.Two companies are doing itoffensively, Netflix and Ama-

zon, interestingly, with twodifferent business models. TheNetflix model is very clear.They have 100 million sub-scribers. Their next closestcompetitor has 35 million or40 million. They are so farahead of everyone else, it’s im-possible at a mass communi-cation scale to compete withthem. And it’s unlikely they’regoing to lose it, becausethey’re overprogramming waybeyond the water line.

The other model, which iscompletely weird if you’re inthe program business, or en-tertainment, is Amazon, be-cause Amazon isn’t particu-larly in the business of saying,“We’d like you to like our pro-gramming for its sake.” Mean-ing, to the degree that peoplewatch it, you do well. Amazonis doing it to build Prime, be-cause they want to sell youmore things. That’s a businessmodel entertainment hasnever had to compete with.

From the beginning of time,incumbents never invent any-thing new. Incumbents protecttheir ground. Other peoplecome in with new ideas. Andup until the last couple ofyears, the methodology wasthat HBO would be created byTime Inc., a publisher, andwould eventually be bought.

Guess what? They are notbuying Amazon and they’renot buying Netflix.

‘Google is thetrue monopolistin terms ofadvertising.’

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“We know that bias prevents us from beinga meritocracy, but research shows thatwhen you say you’re a meritocracy, whenyou design an organization and you saythat it is meritocratic, it leads to spikes inbias. It leads you to be more biased. Be-cause basically it frees people up fromthinking that they have to try hard to befair in their decision making.…And I thinkthat’s one thing we’re seeing going on intech.”

Joelle Emerson,Founder and CEO, Paradigm

To learn more, visit netjets.comor call a Private Aviation Concierge at 1-866-JET-0065.

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MR. AMMANN: It’s still beingformulated, but I think thepromise of what the technol-ogy can do will help from aregulatory perspective. Everyyear 40,000 people are killedin traffic accidents in the U.S.Regulators will tell you 95% ofthose fatalities are caused byhuman error.

So if we can make a signifi-cant impact by replacing thehuman driver with a betterdriver, then it almost becomesan obligation to deploy thistechnology for the bettermentof society.

Industry impactMS. HELLER: Let’s say you suc-ceed and we’re all gettingdriven around by robots. Isthis going to be good or badfor the car industry long term?Will we just need fewer cars?MR. AMMANN: We think bymaking transportation moreaccessible, lower cost, safer, weactually create the opportunityfor more vehicle miles to betraveled. We think transporta-tion becomes more readilyavailable in general to people.So total vehicle miles traveledor total passenger miles trav-eled probably goes up.

While autonomous cars areseen out on the road in test-ing, what we still haven’t seenis what we’re aiming toachieve, which is a truly driv-erless car deployed in largecommercial scale. But onceyou’ve deployed, the technol-ogy will only continue to im-prove. So we view that on-offswitch of the beginning ofcommercial deployment as justthe beginning of a really inter-esting journey, and changingthat total customer experience.

MS. HELLER: The big questionis when that on-off switch getsflipped.MR. AMMANN: We and othersare working on this as fast aswe possibly can.

MS. HELLER: You said the lastprediction was five years from2016. Are we still in that time-table?MR. AMMANN: I think inside ofthat time frame we will seesome pretty interesting devel-opments.


issues with everything in thecloud, having all of that valu-able data in one place?MR. HURD: I don’t think so.Equifax to me was an abso-lutely perfect target. I don’tmean this to be derogatory to-ward them, but they’re a rela-tively small company, their re-sources are aligned to the sizeof company, and they have anincredible treasure trove of in-

formation.To be able to fight every

day, you need the best to fightfor you. We do things thatother people can’t do. Simplethings, like all of your data, ifit was in our cloud, would beencrypted. We wouldn’t evenhave your data. So if anyonegot through, what they wouldget would be a set of en-crypted files.

Will auto makers or tech com-panies lead the way to the eraof the autonomous car?

Dan Ammann is helpingchart General Motors Co.’scourse. The company’s presi-dent for nearly four years, hespoke with Jamie Heller, TheWall Street Journal’s businesseditor, about the company’sstrategy of developing thewhole autonomous-car ecosys-tem and whether the new erawill benefit auto makers. Hereare edited excerpts of theirconversation.

Ready to scaleMS. HELLER: About a decadeago, GM’s CEO was talkingabout leading the way in au-tonomous cars. And history in-tervened—the financial crisis,GM’s struggles. Why should webelieve now is the time for GMto succeed in robot cars?MR. AMMANN: No. 1, the tech-nology is here today to enablethis to happen. No. 2, we thinkthat with the advent of trans-portation as a service, and thechange in consumer behaviorthat we’re seeing with ridesharing and so on, that now isthe time for autonomous tech-

nology to move to a pointwhere it can be deployed incommercial scale.

MS. HELLER: So it’s a technol-ogy play, and Google’s beenout there with Waymo, andhas logged many more hoursof test-driving on public roadsthan GM. Why do you thinkyou can succeed as the leader?MR. AMMANN: A demonstra-tion-level capability or small-scale deployment doesn’t havethe impact on the world thatwe think this technology can.Our goal is to get to the pointwhere we can launch a trulydriverless car, with all of thesafety validation and every-thing that needs to go withthat, at large commercial scale.

We’re making sure we havecontrol of all of the capabili-ties necessary to do that, fromthe advanced software-engi-neering capability for the self-driving brain of the car, all theway through the integration ofthat into all of the sensors onthe vehicle, the electrical ar-chitecture, the automotive-grade safety validation, andthen the ability to reliablybuild these cars at large scale

once we believe we’re ready todo that.

That all lets us think aboutthis as one big integrated sys-tem, rather than just workingon one piece of it or another.So we can move quickly and it-erate the entire system contin-uously through development.

MS. HELLER: You played withsome partnerships, and thereseem to be a lot of frenemy re-lationships between Detroitand Silicon Valley. Is the newmessage “We got this”?MR. AMMANN: The message isthat this technology willchange the world for the bet-ter in a really significant way.It will have a huge impact onsafety and our roads. It willhave a huge impact on theconsumer experience. It willcreate time for people.

So we think therefore wehave an obligation to work asfast as we can, to bring it tocommercial reality as quicklyand as safely as we can. Sothat’s what we’re working on.

MS. HELLER: You just said inThe Wall Street Journal thatyou’re now going to be testing

in lower Manhattan.MR. AMMANN: We’re currentlytesting in San Francisco, inScottsdale, Ariz., and in Michi-gan. There’s a different rate oflearning and a different expe-rience operating in each ofthese environments.

As you would expect, down-town San Francisco is a signif-icantly more complex environ-ment than Scottsdale, forexample. As a rule of thumb,our cars experience about asmuch in one minute of SanFrancisco driving as they do inone hour of Scottsdale driving,just given the number of inter-actions with other players, be-tween pedestrians, cyclists,other vehicles, and things go-ing on.

In the more complex envi-ronment, our cars can learnmore quickly, and we learnmore quickly about the prob-lems we need to solve. Nowwe’re taking that a step fur-ther, to Manhattan, whichmost of us would agree is themost complex and difficultdriving environment in the U.S.

MS. HELLER: Is that just a tech-nical thing, or is there also amessaging and branding ele-ment in taking it to New York,where Wall Street is?MR. AMMANN: It’s all aboutgetting the technology readyas fast as we can. Until we’retesting in the most complex

environments, which are thesame environments in whichwe ultimately think the tech-nology should be deployed, wewon’t get the level of perfor-mance that we need.

Attracting talentMS. HELLER: A lot of peoplehere talk about competing fortalent. How are you attractingthe people you need to GM?MR. AMMANN: When we beganto see the change in the trans-portation landscape a fewyears ago, we saw we weremissing some of the specificsoftware-engineering capabil-ity that we needed, particu-larly in the self-driving area.So we learned what was outthere, and we ended up ac-quiring a company calledCruise Automation, which wasa very small but very talentedengineering team.

And with that team we notonly bought capability at thetime, but we bought the abil-ity to recruit more talent. Peo-ple see what we’re doing, andoften reach the conclusionthat if you want to come tothe place where your technicalcontribution will actually becommercialized in large scale,then this is the place to come.

MS. HELLER: What’s happeningon the regulatory front? Howmuch of an impediment orhelp is that going to be?

GM’s Strategy for the Autonomous CarPresident Dan Ammann on what the companyis doing—and what the timetable is

that fixes another piece ofcode. We would fix it immedi-ately in our cloud. But by thetime it rippled its way throughour on-premise customers, itwould be one year.

This is now becoming an is-sue for CEOs, for boards.

‘Really flipping hard’MR. BERMAN: Have we sort ofgotten over that psychologicalbarrier where a CEO says, “I’mwilling to risk myself and myreputation and my companyby doing all this work in thecloud”?MR. HURD: Do you want to bein front of the U.S. Congressand say, “Listen, I put all thissoftware and my IT staffmissed a patch”? Or do youwant to say, “I did exactlywhat Oracle said.”

If I’m a CEO, not Oracle’sCEO, I like the second talktrack. I’d much rather say,“Listen, I got the best guys inthe world doing this for me”as opposed to, “I tried to do itmyself.”

This patching thing, while itmay sound trivial, when youhave tons of configurations,tons of operating systems andtons of databases, this is re-ally, really flipping hard.

AUDIENCE MEMBER: Aren’tthere a lot of serious security

Business software giant Ora-cle Corp. is in the midst of amassive transition, taking onAmazon.com Inc. and othersin selling cloud-computing ser-vices. Helping lead the shift isMark Hurd, the company’schief executive officer.

In an interview with WallStreet Journal Financial EditorDennis K. Berman, Mr. Hurddiscussed Oracle’s strategyand why shifting software op-erations to the cloud is incompanies’ best interest.

Edited excerpts follow.

Generational changeMR. BERMAN: Let’s talk aboutyear-end compensation, abouthow you are being incentiv-ized. That has changed at Ora-cle, and I think that says a lotabout the company.MR. HURD: The compensationhas always been about stockoptions, and people wouldonly make money if the com-pany was performing.

The problem with thatmethodology—low salaries,low bonuses, lots of stock op-tions—has always been thatwhen you do a Black-Scholesmodel against that, it gets youto crazy numbers, but youdon’t get anything unless thestock performs. What we havedone is tried to evolve that.We’re sticking with the men-tality of options-related comp,but aligning it to performanceincentives, some of which arearound our transition to thecloud. It’s a big deal.

MR. BERMAN: So the way youare paid is changing simplybecause you need to push thecompany to the cloud?MR. HURD: Yeah. Our industryis going through a secularchange that’s generational.

This will be a 10- to 15-yearrun to get there. And what’shappened over the last 20 to25 years in tech is all beingchallenged now. So for us,we’re cannibalizing ourselves.

MR. BERMAN: Was there a mo-ment inside when you werelike, “We’ve just got to do thisdifferently? We have to makea change?”MR. HURD: No. Nothing likethat. It took us a bit to figureout where the market isheaded. So we started with,“Here’s where this thing is go-ing to land.” And if we areright, there’s a possibility thatthere isn’t a data center that acompany owns in 2025. Thereis a possibility that all of de-velopment testing, which is athird of the IT market, will bedone in the cloud. These num-bers are gargantuan.

If you don’t prepare for thatnow, you won’t get there. Youhave to internalize that andsay, “I can kick this can downthe road for a couple of yearsor I can go do what we de-cided to do.”

MR. BERMAN: Right now,you’re doing a blend of cloudservices, on-premise systems,all kinds of custom brew forcustomers. What will that looklike in 2020?MR. HURD: Right now, SiliconValley does a good job of pro-viding a bunch of individualparts—servers, operating sys-tems, databases—all of thisstuff. You send it all to thecustomer basically a la carte.The customer creates a hugeIT staff and then tries to put ittogether like a Lego set. Thestuff that they put togetherlike a Lego set is really hard toupgrade, it’s really hard to

maintain, and frankly, it’s re-ally hard to secure. All of thisis going to move toward asimpler, more flexible, morevariable market.

MR. BERMAN: Is the future re-ally a fully vertically inte-grated IBM of the 21st cen-tury?MR. HURD: That’s a great ques-tion. If you went back into the‘80s, there was a rebellionagainst exactly that model,which was, “We want to pro-cure our way to more leveragewith all of these vendors.” Ithink what has happened isyou’ve gotten a lot of that, andwhat you’ve gotten in return isa very complicated, very diffi-cult environment out there. Ithink you’ll see a rotation to adegree back to more optimiza-tion, more integration. Thecloud is a lot of that.

MR. BERMAN: Isn’t there sortof a great kind of Greek myth-ological irony that the IBM de-stroyer becomes IBM in theend?MR. HURD: I’m going to stayout of mythology. But the en-vironment in IT today isn’tsustainable. Forget anything todo with IT’s performance. Thesimple risk from a securityperspective has to change. Itisn’t sustainable.

MR. BERMAN: What do youmean by that?MR. HURD: Let’s pretend wegot attacked. Oracle would seesomething today in the mar-ketplace that would try topenetrate something. Wewould create a piece of soft-ware to fix that. That’s calleda patch. You’ll hear this term“patch” used a lot. A patch issimply a new piece of code

AtOracle, It’s AllAbout the CloudChief Executive Officer Mark Hurd says themove is in the customers’ best interest

‘There is a possibilitythat all of developmenttesting, which is a thirdof the IT market, willbe done in the cloud.’

‘I think thepromise of whatthe technologycan do will helpfrom a regulatoryperspective.’

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Getting CloudierProjected global public cloud services market

Source: Gartner THEWALL STREET JOURNAL.

Advertising

Systeminfrastructureservices (IaaS)

Management andsecurity services

Applicationservices(SaaS)

Applicationinfrastructureservices (PaaS)

Business processservices (BPaaS)

2017 2018 2019 2020 2021

0

50

100

150

200

250

300

350

400

450

$500 billion

Share of globalmarket in 2024

Speedy GrowthForecast size of the market for self-driving cars

Source: Variant Market Research THEWALL STREET JOURNAL.

t

Asia-Pacific

Rest of worldEurope

North America

2017 ’20 ’21 ’22 ’23’18 ’19 ’24

0

5

10

15

$20billion

2.2%

27.3%

29.7%

40.8%




MS. NASON: Yes, there aremany examples. But the bighardware of the future is go-ing to be the autonomous ve-hicle, and the networks thatare going to those vehicles,the software, all the technol-ogy, the content.

MS. KIM: Which companies arein best position?MS. NASON: I would never un-derestimate the big OEMs[original equipment manufac-turers], so Ford and GeneralMotors. We know there’s a lotgoing on there. Thousands ofcompanies are trying to raiseprivate equity for elements ofthe autonomous vehicle.

MS. KIM: What is Microsoft do-ing in this space?MS. JOHNSON: We’re enablingthat space. We’ve come outwith our connected-vehicleplatform, which takes care of alot of the plumbing, if youwill, that the car needs to gothrough; the aggregation ofdata from all of the differentsensors, off-loading it, and an-alyzing it in the cloud. We’velooked at a set of tools thatcan enable OEMs in the space.

MS. KIM: What is Microsoft’snext big growth opportunity?MS. JOHNSON: We have a bigfocus in AI. Just over a yearago we announced a reorgani-zation. We’ve had AI on ourcampus for about 25 years, sowe’ve put a lot energy intothat, and this reorganizationwill help refocus even more.

MS. KIM: You are both rare fe-

male senior leaders in your in-dustries. What can companiesdo to promote more womeninto senior roles?MS. NASON: Well, if they couldjust send an email out tomor-row, and promote a bunch ofpeople. (LAUGHTER) I hopeJamie Dimon is listening.

I’ve invested more time andeffort in diversity committeesand panels, and generally it’s

women talking to otherwomen about how to fix it. Ithink that’s been a big tacticalmistake on our part to talk toeach other, rather than to in-volve the men, and particu-larly the men who are typi-cally in power at a lot of theseorganizations.MS. JOHNSON: I’m an electricalengineer, and when I firststarted out, there was nobodywho looked like me out there.I worked at Qualcomm, and Iremember coming into meet-ing rooms, and I could neverget the floor. I could never getmy opinion across. And Ithought at one point, “I’m justgoing to drop out.”

My manager at the timesaid, “Don’t do that. How canwe fix things?” And I said,“Well, just throw me the ball.I have something to say, butit’s hard to interject.” And hestarted doing that. That’swhen my career really tookoff. So I’ve tried to do thatover and over, you know, go-ing forward with any team orgroup of people, make sure ev-erybody is heard. It’s very im-portant, whether you’re aquiet man, or a quiet woman.

Tech companies aren’t stickingto their bread and butter whenit comes to acquisitions. In2016, Microsoft Corp. sur-prised the market with its $26billion acquisition of LinkedIn.And this year, Amazon.comInc. purchased Whole Foodsfor more than $13 billion. WallStreet Journal Senior EditorYun-Hee Kim talked aboutmergers and acquisitions andstrategic investments withPeggy Johnson, Microsoft’s ex-ecutive vice president of busi-ness development, and Jenni-fer Nason, global chairman,investment banking at J.P.Morgan Chase & Co. Editedexcerpts follow.

MS. KIM: What is the outlookfor big acquisitions?MS. NASON: I am bullish about2018 for activity. Money is stillvirtually free. The equity mar-ket has been very responsiveto M&A. Prices are still high,so we’re seeing very high valu-ations. That is tough. But in-creasingly companies are look-ing at assets and saying, “Thisis just strategic for me. I needto make a move.”

MS. KIM: Peggy, one of yourpartnerships came as a sur-prise this year: the partnershipwith Amazon on digital assis-tants. You have Cortana andAlexa working together.MS. JOHNSON: They’re talkingto each other.

MS. KIM: What was the logicbehind that deal?MS. JOHNSON: It started with aconversation that Jeff Bezosand Satya Nadella had at ourCEO Summit about how we’rereally operating in differentspaces.

Jeff’s all about shopping,and that experience. We’re allabout productivity and thatexperience. I think there was arecognition that there will be

a multitude of personalagents, and could ours talk toeach other?

When it was handed off tothe engineering teams, thenthe hard work began. They fig-ured out how you can have aseamless experience betweenyour two devices. I think you’llsee more of that going forward.

MS. KIM: Are you open toworking with companies likeApple and Google in the AIspace as well?MS. JOHNSON: We are. We trynot to look at everythingthrough a competitive lens. Isthere some shared value thattogether we can build morefor our joint customers?Rather than fighting over apiece of the pie, can we growthe pie, is really our model.

MS. KIM: This partnership is anexample of a potential expan-sion in the AI space?MS. JOHNSON: Yes, AI is a bigarea for a lot of people rightnow. If we can take out someof the friction in the develop-ment process, I think we’llstart to see some of the out-comes that we’ve all been talk-ing about and envisioning.

MS. KIM: Jennifer, a lot of ri-vals in tech are partnering andworking on emerging technolo-gies. Will this be a trend?MS. NASON: It’s certainly morecapital efficient. Sometimesyou just can’t go out and buyeverything. M&A is hard, time-consuming, and it doesn’t al-ways work. So some of thesepartnerships can be a goodway to have a bet in a certainarea and see how it plays out.

MS. KIM: We’re seeing a lot ofsoftware companies going af-ter hardware, and hardwarecompanies going after soft-ware. Jennifer, will that trendcontinue in the industry?

TheOutlook for TechM&APeggy Johnson and JenniferNason talk about past dealsand the prospect for more deals

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It's a DealMerger, acquisition and buyout activity involving venture-backedinformation-technology companies headquartered in the U.S.

*2017 figures are for first three quarters of the yearSource: Dow Jones VentureSource THEWALL STREET JOURNAL.

2008 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17* 2008 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17*0

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Number of deals Total amount paid

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$40 billon

Jennifer Nason (left) and Peggy Johnson


We’re taught in school, “If you listen,your patientwill tell youwhat they need.” The truth is, patients

share a lot of valuable information that cannot be captured. That’swhy I’m collaboratingwith health

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Join the AMA in unleashing a new era of better,more effective patient care through the IntegratedHealth Model Initiative at ama-assn.org/ihmi





Activist investor William Ack-man, the founder of PershingSquare Capital Management,has spent the past few monthslocked in battle with Auto-matic Data Processing aftertaking a stake in the human-resources software firm andhaving his request for boardseats rebuffed.

In an interview with TheWall Street Journal’s businesseditor, Jamie Heller, Mr. Ack-man laid out his case forboard changes at ADP and forshareholder activism in gen-eral. Edited excerpts follow.

Replacing the foundersMS. HELLER: What do you thinkabout this new proposal out ofSilicon Valley for a new U.S.stock exchange, where the lon-ger you hold a stock, the morevoting rights you get? And noearnings guidance. Is that aworld you would welcome?

MR. ACKMAN: I think a lot ofcompanies make the mistakeof giving guidance to theirshareholders on earnings.When you have companiesvery focused on meeting num-bers, it causes them to missopportunities.

ADP is the classic exampleof a company that has met itsnumbers but missed the mar-ket. We’ve heard stories fromformer employees that ADPhad an opportunity to build acompetitive product to Work-day, but there just wasn’troom in the budget for it.They couldn’t make the num-bers if they had to make a bigcapital expense on a new pro-gram. That decision has costthem tens of billions of dol-lars, and created competitors.

You get the shareholdersyou deserve. If you have earn-ings guidance, you’re going tohave shareholders who are

very focused on the shortterm. If you don’t, you’re go-ing to attract investors whotake a longer-term view.

MS. HELLER: You haven’t donethat much investing in tech, sohow did you pick ADP?MR. ACKMAN: ADP is sort ofthe classic example of a com-pany started by a founder,built up over decades to be-come the dominant companyin payroll processing. It wasan innovative company thathelped with an important task.

Then, the founder dies andthe stock gets disseminatedout to children, and estates,and foundations, and then tothe market, to the governmentto pay taxes. And then theboard becomes comprised ofwhat I call professional direc-tors. If you look at the boardof ADP today, only one direc-tor in the last 14 years has

EVIATION, A STARTUP devel-oping self-flying, electric pas-senger planes, was crownedthe audience choice for themost promising startup at TheWall Street Journal’s D.Livetechnology conference.

The Israel-based startup ishoping to build a company itdescribes as “Uber meetsTesla in the sky,” using self-pi-loting, lightweight aircraftthat can whisk up to nine pas-sengers each at 280 miles anhour on demand.

With the aircraft still inplanning, it is an ambitious vi-sion that would require rapidchanges to U.S. aviation, ahighly regulated and crowdedindustry where self-flying andelectric planes are stillthought by many to be far off.

Eviation won out in the au-dience choice over five otheryoung companies that madeup the Startup Showcase atthe conference.

Founders from each of thestartups faced off in pitchesbefore three judges—LeviStrauss & Co. Chief ExecutiveChip Bergh; Philip Krim, CEOof mattress seller Casper; andJenny Lee, managing partner

at venture-capital firm GGVCapital.

Sitting on director’s chairson an outdoor stage overlook-ing the Pacific Ocean, thejudges peppered the founderswith questions on their busi-ness models.

Judges choose LaughlyIn the end, the judges unan-

imously went with a differentchoice than Eviation, all threefavoring Laughly, a comedy-streaming service that claims30,000 monthly active userswho pay for something akin toa Netflix of stand-up comedy.

But Eviation, helmed byOmer Bar-Yohay, won over thecrowd.

Mr. Bar-Yohay spoke aboutthe plane in epoch-shiftingterms, comparing it to theshift from horses to highways.Highways, he said in a slidepresentation “gave us traffic,and they gave us the sub-urbs…is this the last paradigmshift?”

Eviation’s planned aircraft,shaped similar to many mili-tary drones, is designed to beabout 36 feet long, and verylow-cost, Mr. Bar-Yohay said.

Other contendersOthers in the Startup Show-

case included:KinTrans, a sign-language

translator that aims to readsign language made by a hu-man, transcribe it, and play itback with voice.

Hurdl, which makes low-cost, wirelessly connected LEDwristbands meant for concertsand other live events, aimed atallowing more ways for musi-cians to interact with the audi-ence.

Bounce Imaging, a com-pany that makes throwablecameras for law enforcementto see into rooms or aroundcorners.

My Jomo, which makessmall, round digital screensworn by retail salespeople thatcan flash discount promotionsor a person’s name to helpdraw in consumers.

Self-Flying Plane WinsStartup ShowcaseEviation was the audience choice, while thejudges favored a comedy-streaming service

In fact I think it is danger-ous not to have opposingpoints of view in a boardroom. ADP is operating in aworld that has changed dra-matically in the last five or sixyears because of technology,because of cloud-based soft-ware. And they’ve missed themarket as a result.

Risk of disruptionMS. HELLER: You recently saidthat as an investor, you needto be looking at what the ven-ture capitalists are looking at,and what the startups are do-ing because you never knowwho is going to come in andblow up your business. Yetyou’re investing in a businessthat seems to be on the defen-sive from rivals like Workdayand Paychex. How did you de-cide to make that leap?MR. ACKMAN: I’m a pretty ac-tive small investor in venturecapital personally. It helps methink about the risk of disrup-tion. The most importantthing a long-term investorneeds to think about is therisk of someone in a garagecoming out with the next newthing.

ADP has some of thosekinds of risks. But we think aslong as ADP is open to change,it still has a strong enoughmarket position, a strongenough balance sheet, enor-mous resources, that it canmitigate competitive threats.

What’s fascinating is, ADPhas a $50 billion market cap.It spends $860 million a yearon systems development andR&D. They have 9,000 devel-opers, technologists, workingfor the company. They spendmore than the entire industrydoes developing products andsoftware. And much smallercompetitors, with a fraction ofthe resources, have betterproducts than ADP.

[In response to Mr. Ack-man’s comments, ADP said ina statement that while it un-derstands the value of diverse

perspectives on a board, noneof Pershing Square’s nomineeshad the “relevant technology”experience or skills to “be ad-ditive” to ADP’s board. It alsosaid the company had transi-tioned 83% of clients to thecloud and was delivering long-term value for shareholders.]

MS. HELLER: Does this meanwe’re going to see more of BillAckman in tech?MR. ACKMAN: The reason wehaven’t been an investor intechnology generally is thatmost true technology compa-nies are so dynamic that it’shard to predict the future. If abusiness is dynamic and sub-ject to so much change, I can’tpredict what it’s worth. And ifI can’t predict what it’s worth,I’m not going to be an investorin the company.

ADP’s business model is alittle bit different. It’s really abusiness service company. Ittends to have very long-termrelationships with its custom-ers, as switching costs arevery high.

MS. HELLER: Let’s go back tothis idea that more companiesin Silicon Valley are movingaway from one vote, oneshare. Is that a good trend?MR. ACKMAN: I think supervoting is dangerous unless it’sin the hands of an incrediblytalented entrepreneur. Look atwhat Uber Technologies isgoing through now, where Tra-vis Kalanick was the greatestCEO of all time, and then all ofa sudden the board soured onhim. But by virtue of owner-ship, he’s got enormous influ-ence and ability to elect peo-ple to the board.

Fundamentally I prefer onevote, one share. But if it’sSteve Jobs, you can probablygive him control. The risk isreally in the next generation.If a company goes public withsupervoting stock, after thefounder retires, it should con-vert to one vote, one share.

bought a share of stock.Owners are willing to make

bold decisions. Once theowner is gone, there is a realrisk that a company will loseits innovation. So activism issort of a replacement for thefounders. Because we own 8%of the company, we’re seekingrepresentation on the board.Once we’re there, we can thinklike an owner. We can helpmake decisions like an owner.

MS. HELLER: One of the criti-cisms of your ADP campaign isthat there aren’t specifics. Itsjust “let’s improve margins.”What’s your response to that?MR. ACKMAN: What companiesdo when they want to defendagainst activists, and theydon’t have a good response, isthey will attack the activist.They say that bringing the ac-tivist on the board is ex-tremely risky.

TheViewofAnActivist InvestorWilliam Ackman explains why he’s battling with ADP

‘Once the owneris gone, there is areal risk that acompany will loseits innovation.’

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Eviation co-founder and CEO Omer Bar-Yohay at The Wall Street Journal’s D.Live conference

Eviation describesits vision as ‘Ubermeets Tesla in thesky’

TheWall Street Journal would

like to thank the sponsors of

D.LIVE Laguna 2017 for their

generous support.

For more information, please visit DLIVE.wsj.com.

© 2017 Dow Jones & Co. Inc. All rights reserved. 3DJ6029





inside there? And you can lookat those speeds.

What we’re talking abouthere is being able to do thosemuch faster, but it isn’t onlyabout speed. It’s going to bethe amount of data that wecan look at.

Look at things like weatherprediction. One of the biggestthings that limits accuracy isthe amount of data that can beabsorbed into the systemwhen you look at all of thetemperature measurementsand wind speeds and all. Whatwe’ll do is massively expandthe amount of data that can beused by these systems.

The big playersMR. ANDERS: Who besides Intelis doing things that you findabsolutely are just blowingyou away?MR. KRZANICH: The placewhere we see probably themost innovation is with thecloud-service providers. That’sthe Googles, the Facebooks,the Amazons, the Alibabas.Those companies, because of

their large access to data, arereally helping drive. They’vebeen great partners back tous, saying this is the kind ofengine that we need.

Nervana’s a good example.We’re partnering with compa-nies like Facebook. They’reone of the people who arestarting to take a look at it inits early phase and saying,“Hey, this really could changethe way we think about artifi-cial intelligence, and help ussteer how we develop the soft-ware and the hardware.”

MR. ANDERS: Any company youtalk to, any startup you talkto, any established companyyou talk to, they’re all an AIcompany. How do we tellwho’s really doing stuff, ver-sus who’s just talking aboutdoing stuff?MR. KRZANICH: I think it comesdown to, can you show a casethat is genuinely shifting howthat company does something.

Let me give you a real-lifeexample within Intel. Intel’sone of the largest manufactur-

ers in the world. We produceabout a million chips a day,roughly. For each one of thosemillion chips we take about 1.6million pictures as it pro-gresses through the produc-tion line.

Why didn’t this chip work?Well, we have to go backthrough the 1.6 million photosin order to try and find wherethe defect is. We now use arti-ficial intelligence to compareagainst known images, andwhat that image really is, togo through those 1.6 millionimages. What used to takethree weeks, now takes a cou-ple of hours. And so our abil-ity to shift how fast we cansolve issues.

I think when you ask a com-pany, are you an artificial-in-telligence company, you haveto ask them, what’s your use?What have you shifted? Whathave you changed? What haveyou improved? What’s runningmore efficiently? Or, what areyou delivering to the customerthat shifts what makes theirlife better?

‘Now that we haveenough data, wecan start to thinkabout artificialintelligence.’

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The world of online news is influx, facing any number ofquestions. Where’s the moneygoing to come from? How doyou attract readers who haveso many options? And howcan you keep inaccurate newsfrom taking hold? For insightinto these issues, The WallStreet Journal’s deputy tech-nology editor, Christina Pas-sariello, spoke with thefounder and chief executive ofBuzzFeed, Jonah Peretti. Hereare edited excerpts.

Who pays for it?MS. PASSARIELLO: Barry Dillersaid that anybody who wasbuilding an ad-based businessshould go home. What are youdoing to make BuzzFeed lessreliant on ads?

MR. PERETTI: If you’re reachinga really large audience, adver-tising is a good model. Wereach more than half of themillennials in the U.S. I agreethat diversification of revenueis also important. We, like alot of media companies, haveexpanded into areas like mer-chandise, show development,commerce, a bunch of otherareas.

MS. PASSARIELLO: You’re verydependent on social-mediaplatforms. Do you see it as acrutch to be so reliant on plat-forms that can change theirstrategy?MR. PERETTI: When BuzzFeedstarted, Facebook was howyou hooked up with friends togo places. The iPhone hadn’t

launched yet. We were tryingto understand, “What does itmean for content to becomesocial?” We didn’t realizethese platforms were going toget so huge.

We saw these three trendscome together: digital video,mobile and social. That hascreated the largest audiencethat the world has ever seen.You’re able to reach literallybillions of people.

We feel like we’ll be able tobuild on top of these plat-forms and reach many morepeople and build a great busi-ness by reaching people wherethey’re consuming media to-day.

MS. PASSARIELLO: Does it givePlease see PERETTI page R10

InDefenseofanAdModelJonah Peretti of BuzzFeed talks about socialmedia, algorithms and fake news

Artificial intelligence is the lat-est Holy Grail for the tech in-dustry. What is the potentialfor this technology? And howclose are companies to achiev-ing it?

To get a report on the stateof play, The Wall Street Jour-nal’s chief news editor, JasonAnders, spoke with Intel ChiefExecutive Brian Krzanich.

Here are edited excerpts oftheir conversation.

The smart revolutionMR. ANDERS: AI is everywhere.You’ve had a front-row seat tosome of the biggest innova-tions in computing. How big isthis moment?MR. KRZANICH: We’re just atthe beginning of a transforma-tion. Artificial intelligence isgoing to be similar to what theinternet was back in the ’90s.

You remember back in the’90s everybody said, “If you’renot going to be an internetcompany, you’re not going tobe around.”

The same thing is going tobe true. Almost every com-pany you can think of, everyapplication, it’s going to be af-fected by artificial intelligence.You’re going to be using artifi-cial intelligence, or you’re go-ing to be outpaced by peoplewho are.

MR. ANDERS: What are the realapplications that you’re mostexcited about today?MR. KRZANICH: Today I thinkyou already see it in some ap-plications and social media,where your news feeds, orwhat you’re shopping for, or ifyou listen to one of the musicsystems, they’ll send youweekly suggestions.

What they look at is thingslike what you listen to, whatare the word patterns, thingslike that. But where you’restarting to see it breakthrough that’s really excitingare things like health care.There’s already data that sug-gests that using machinelearning, looking at MRIs, theycan detect Alzheimer’s years

earlier than what humans candetect. So imagine the trans-formation if Alzheimer’s,which can be slowed down bydrugs, could be detected five,10 years earlier.

MR. ANDERS: To be able to dothat, you have to be a com-pany that has both the AI tech,but also access to the MRIs?MR. KRZANICH: You’d be sur-prised at how many companiesactually have access to databut don’t put the investmentin place.

I went to the National Re-tail Federation in January. Italked about how brick andmortar needs to think aboutone of the differences betweenbrick and mortar and onlineshopping. Online shopping hasall the data about you. Theysee what you searched, they

see what you put in your bas-ket and then don’t buy. Theyunderstand what colors youchoose. All of that data is thentuned to what they send toyou. Brick and mortar shouldbe doing that same thing.They have cameras in there al-ready, they can put in small[radio-frequency identificationtracking tags].

We did a project withLevi’s. They can now trackwhat goes into the changingroom and never comes out,never goes out of their store.Do you pick up red things, butyou only buy white things. Allof that data could really trans-form brick-and-mortar retailas well.

MR. ANDERS: You have a newNervana platform, a differentway of designing chips. Whatis different about this?MR. KRZANICH: In industry,five, seven years ago, peoplestarted saying, artificial intel-ligence is going to take off, re-ally it’s the advent of thecloud. The cloud allowed ag-gregation of data. Now thatwe have enough data, we canstart to think about artificialintelligence.

We started to think aboutwhat we call neural process-ing, which is that you’re start-ing to look at very large datasets with a very different ar-chitecture that allows formuch larger data sets to beworked on at one time.

We have a goal by 2020 tobe 100 times better than thebest artificial-intelligence sys-tems out there today usingthis neural processing.

MR. ANDERS: How do you mea-sure 20 times better than thebest artificial intelligence, or100 times better? What’s themetric?MR. KRZANICH: There are algo-rithms that you can testagainst. So you show it a setof pictures, or a set of datasets that are large, and yousay, how long does it take tofind the five patterns that are

CompaniesMustUseAI—or ElseIf a company isn’t using artificial intelligence,says Intel CEO Brian Krzanich, it is going to beoutpaced by another company that is

‘We try to not thinktoo much about thealgorithm. We’realways looking at,what is the actual jobthe content’s doing?’

Source: Responses from 1,476 data andanalytics decision makers whose firms areplanning to use or currently use AItechnologies, surveyed in Forrester's GlobalBusiness Technographics Data and AnalyticsSurvey, 2017

THEWALL STREET JOURNAL.

What's It Good For?Some of the ways surveyedcompanies are using or plan touse artificial-intelligencetechnology

37% | Improve efficiencies in IToperations

34% | Improve data, analyticsor insights platforms

33% | Improve businessautomation

33% | Mitigate security risk

32% | Test new products

31% | Gain better customerinsights

30% | Innovate product designand development

30% | Create and deliver abetter customer experience

30% | Improve efficiencies inbusiness operations





tion and ability to switch plat-forms and to connect with au-diences in a deeper way.

Meeting the audienceMS. PASSARIELLO: How do youtweak your content based onchanges to the algorithms onFacebook or Google thatchange how content appearsin search or the news feed?MR. PERETTI: We try to notthink too much about the algo-rithm. We’re always lookingat, what is the actual job thecontent’s doing? How do wemake content that actually isserving a job in someone’s lifein a deep and meaningful way,and gives them a reason toconnect with other people?

Facebook or Google or who-ever is building these algo-rithms, they’re trying to sur-face great content, get more

user engagement, get peopleto spend more time on theplatforms. But the algorithmsare always flawed, and they’realways changing. If you are acompany that’s trying to fig-ure out the algorithm or gamethe algorithm, you’re going tohave whiplash, as you saidearlier. The best thing is tonot think that way, to thinkabout the user and consumer.

MS. PASSARIELLO: What is yourprediction of what’s going tobe performing well six monthsfrom now?MR. PERETTI: I think that allgreat companies go back tothe customer or the consumeror the audience and they tryto understand them in a deepway. Facebook had a programwhere they had people look attheir news feed and then an-swer survey questions, andthen they could use that datato improve the algorithm.

There are a lot of weirdthings. For example, we doD.I.Y. content. We have a brandcalled Nifty, all about hacksand things you can build. Peo-ple will see a Nifty video, thena large chunk of them willspend their entire weekendbuilding a project. Or withTasty, a food brand that wecreated. People will watch,make the thing and post theirversion of it.

Then we’ll post somethingthat maybe is a fun piece ofentertainment that gets thesame number of views, butpeople see it and then theyforget about it. It doesn’t havea longer impact. The algorithmmight see the same number ofshares, the same amount ofengagement, but not be ableto tell that someone did aproject with their kids orcooked a meal with their fam-ily. There’s a lot of things thatare hard to measure.

When we see those signals,of people actually posting re-sponses of them making orcooking it, we know we’re onto something and we knowthat’s a deeper, more meaning-ful thing. We know that willdrive brand affinity, so peoplewill start to associate thebrand with things that reallymatter in their life, which willcause more page likes, andstart to show up in the met-rics. Even if the algorithmcan’t measure it, we stay on itand keep pushing toward it.

The fake-news problemMS. PASSARIELLO: You’re com-peting against fake news, sohow do you approach that?MR. PERETTI: The dystopianview is that The Wall StreetJournal and the New YorkTimes and the WashingtonPost will prioritize subscrip-tions and move behind a pay-wall. A very small percentageof elites will get the qualityjournalism that those organi-zations produce.

If you’re thinking about anelectorate and people being in-formed, the subscriptionmodel in media doesn’t helpinform the public. If Facebookcan’t find ways to supportquality content in their newsfeed, that would be bad for de-mocracy. Facebook is going tofind more ways to allow pub-lishers to generate revenue ontheir platform.

It’s a huge question for so-ciety and democracy. If Googleand Facebook take all of therevenue but don’t want to payfor the fact checking, report-ing, more-intensive investiga-tions, who does that work? Ifit’s only subscription services,that’s a big challenge. Googleand Facebook are going tohave to fix that. It isn’t tena-ble that the only people get-ting quality news will be 2% or5% or even 20% of the public.

MS. PASSARIELLO: Is there away that tech platformsshould be solving fake newsmore aggressively with algo-rithms?MR. PERETTI: The challengewith the big tech platforms isthey’re places where peopleare getting news and enter-tainment. And they’re kind ofthe telephone company, wherepeople communicate withtheir friends. It’s hard to doboth. We don’t want the tele-phone company interrupting aphone call when someone sayssomething fake or incorrect onthe phone. Speech should beopen.

Big tech platforms need tolean more on organizationswhere we have brands that westand behind. They’re going toneed more help from mediapartners to say, “OK, differentmedia sources can vouch forthe information that’s circulat-ing.” They’re not necessarilygoing to be able to do thatthemselves.

you whiplash when one ofthese platforms suddenlychanges, like away from livevideo news content to focus onsomething else?MR. PERETTI: BuzzFeed startedas a lab. We’re continually in-novating. The more changethere is in the media industry,the better it is for us. I worryabout the opposite, whichwould be if Facebook andGoogle became the only twoplatforms, and they decided tostop innovating and they losttheir paranoid fear of otherpeople taking share fromthem, and they just did thesame, boring thing. ThenBuzzFeed would get less of abenefit from all of our innova-

Continuedfromthepriorpage

PerettiVOICES FROM THE CONFERENCE

“I think what’s going to define Africa’s techrush is whether or not it is controlled bythe people of Africa or it’s simply happen-ing to the people of Africa. Ultimately,what’s going to yield the most synergy is ifwe’re taking advantage of all the resourcesand the untapped opportunities of the con-tinent, which includes the individuals on theground as well. And the way that they’rethinking about building businesses thereand building businesses that not only ad-dress the needs of the continent, but theglobal diaspora and I think, honestly, hu-manity in general.”Jessica O. Matthews,Founder and CEO, Uncharted Play N

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Ideas about investing and poli-tics were bubbling as WallStreet Journal reporter RolfeWinkler met with Sam Altman,president of the acceleratorand seed-money investor YCombinator, Jenny Lee, man-aging partner at GGV Capital,and Bill Maris, founder of theventure fund Section 32, andthe founder and former CEO ofGoogle Ventures. Edited ex-cerpts follow.

MR. WINKLER: Sam, are youconsidering running for gover-nor of California next year?MR. ALTMAN: No.

MR. WINKLER: Willie Brown,the former California Assem-blyman and San Franciscomayor, wrote back in May [inthe San Francisco Chronicle]that you are “looking at run-ning for governor in 2018.”What did you and WillieBrown talk about?

MR. ALTMAN: A lot of peoplehave suggested that I run. ButI love my current job. Thestate is extremely, badly bro-ken and it would be good totry some new ideas. But thereare so many important thingsto do right now on my list thatare higher than that, I am notgoing to do it.

MR. WINKLER: Let’s talk aboutY Combinator: Is it now 250companies a year that you in-vest seed money in?MR. ALTMAN: In our main pro-gram, it’s probably about 280.But we started this online ver-sion. We did 3,000 companies.We did an online version of YCombinator that we calledStartup School this spring. Upto that date, Y Combinatorhad funded, let’s say, 1,700 or1,800 companies ever, and ad-vised that many too. We ad-vised 3,000 companies at oncein this one thing.

MR. WINKLER: That’s a lot.MR. ALTMAN: It worked reallywell. We used our alumni toadvise them. We had compa-nies all around the world, wehad meetups all around theworld. It worked so well thatwe’re going to expand that.

MR. WINKLER: Is it too many?How do you sort through all ofthese companies?MR. MARIS: I don’t think it’stoo many. We can’t invest ineverything. Sam has a differ-ent mission and job, which iscoming at this startup ecosys-tem from a different place. I’mlooking for 15 to 20 companiesa year that I feel like I or mynetwork can help grow.MS. LEE: I spend time talkingto a lot of companies. But theway we play is, if you are ahunter who’s looking for ele-phants, you have to have theskill set to identify, “Is this anelephant, or is this a zebra?”

We have to have partners whoknow how to identify, have theright skill sets, and the re-sources and tools to go huntthem down and then helpthem to grow.MR. ALTMAN: There is somelimit of how many good com-panies there are to fund. We’renot anywhere close to that.And until we get there, I’drather figure out how to struc-ture our organization so thatwe’re not spread too thin.

MR. WINKLER: What are thebest companies right now? Thetechnologies you’re most ex-cited about?MS. LEE: We think technologyis going to come back aroundand bring with it new inven-tions in the form of new prod-ucts, new planes, new autono-mous cars, hardware.MR. MARIS: It wouldn’t sur-prise me if the sun is settingon the golden age of SiliconValley. I mean, the companiesthat used to be fun and dis-ruptive and interesting andbenevolent, that were largelyviewed that way, now we’reconcerned that they’re dis-rupting our elections.

They’re hoarding our per-sonal information and using itfor profit, and so forth. And Ithink the tide, the populismthat sort of helped get Trumpelected, may be turningagainst the concentration ofwealth that’s happening in Sil-icon Valley in a similar way.

MR. WINKLER: Do you guys seea coming wave of regulationthat’s going to break up thesebig tech companies?MR. MARIS: I wouldn’t be sur-prised. These companies aremore powerful than AT&Tever was. If you think the sys-tem is broken, the people withpower and money are the onespeople will look to to say, “Weneed to disrupt that. This isn’tworking for us.”MS. LEE: I have a different

perspective. Entrepreneurs outthere, don’t focus on the poli-tics. Your world should beconsumed with trying to fig-ure out a way to deliver valueand services to your target au-dience. It could be consumers,it could be enterprises. Andthat world doesn’t have to bein the U.S. If it isn’t going towork here, look elsewhere.

MR. WINKLER: SoftBank GroupCorp. is an 800-pound gorilla.Bill, what impact is it having?MR. MARIS: Turbulence. I thinkit’s unprecedented to have afund that size [the tech-fo-cused Vision Fund has close to$100 billion]. It creates someturbulence and probably com-presses returns over time be-cause you have a large fundthat needs to do large deals athigh prices to deploy capital.

MR. WINKLER: Why did youleave Google Ventures soabruptly?MR. MARIS: It wasn’t abruptfrom my point of view. I wentin there kind of voluntarily todo an experiment for a year.And by the time I got to al-most 10 years, it felt like itwas time to go do somethingnew, learn something new.

MR. WINKLER: Were you tryingto raise money for Section 32,your new venture-capital fund,while you were still at GV?MR. MARIS: No. I left GV think-ing I was going to become amagician. I didn’t know what Iwanted to do. I was really justenjoying taking a break.

Where theMoneyWill ComeFromSamAltman, Jenny Lee and Bill Maris offer theirthoughts on startup funding, the most excitingtechnologies and increased regulation

Sam Altman


Jenny Lee

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Bill Maris




Qualcomm Inc. isn’t a big con-sumer name, but it’s one of thecompanies most responsiblefor what consumers can dowith their smartphones and in-creasingly smart cars.

The company’s chief execu-tive, Steven Mollenkopf, spokewith Jason Anders, The WallStreet Journal’s chief news ed-itor, about what’s around thecorner for Qualcomm and con-sumers as technology contin-ues to shake things up. Hereare edited excerpts.

MR. ANDERS: Last fall you an-nounced one of your biggestdeals, to buy NXP Semicon-ductors, a Dutch company, forsomething like $39 billion plusa fair amount of debt. Thiswould be not only a huge dealfor Qualcomm, but also a re-ally big push deeper into auto-motive technology. How’s thatgoing? Regulators are stilllooking at it, right?MR. MOLLENKOPF: We’re ontrack to close this year. I thinkit’s the second-largest techdeal in history. NXP has astrong footprint in Europe andother places, so it’s naturalthat people ask a lot of ques-tions. But nothing unusual.

MR. ANDERS: How will thisdeal change Qualcomm? Whatwill you be able to do that youcan’t do right now? And doesit fundamentally change themission of the company?MR. MOLLENKOPF: The missionof the company has alwaysbeen to take technology, investin it ahead of the industry, andthen put it in a way that it canbe used at scale. And for thepast 30 years, we’ve been do-ing that in the cellphonespace. That’ll continue—youhave 5G [wireless technology]on the horizon.

The NXP deal acceleratesour strategy of driving themobile road map into new in-dustries at the time when theindustry is being disrupted bythose new technologies. Esti-mates are that 20% of the eco-nomic value of 5G will accrue

Qualcomm and Apple arelocked in an epic battle rightnow. You’ve both sued eachother, and lots of allegationsare flying around. Can this re-lationship be saved?MR. MOLLENKOPF: This is fun-damentally a discussion aboutpricing over the fundamentaltechnology that makes thephone the phone. We have along history of providing valueand settling these issues.Sometimes they get more pub-licity than others, but I thinkwe’ll get through it. We have avery strong product relation-ship with them.

MR. ANDERS: Let’s talk about5G. You had a bit of a mile-stone yesterday [Oct. 16] onthis front, which was the firstcall. You made the first call?MR. MOLLENKOPF: We had anevent in Hong Kong where wemade the first call on a realchip. Not a prototype, but areal chip.

MR. ANDERS: Who did youcall?MR. MOLLENKOPF: It was adata connection—everything’sin data these days. But it’s amilestone. All of the thingsthat have to be done to sup-port 5G products in 2019 arehappening.

MR. ANDERS: What exactly willI be able to get in 2019?MR. MOLLENKOPF: You will geta device, a phone in yourpocket, that will access 5Gnetworks, in addition to de-vices that I think you’re goingto start seeing in the homeand in cars that get access to atremendous amount of data atlower latency.

You’re also going to see tre-mendous capacity for the dis-tribution of video. Part of thatis coming from 5G. Part of thatis coming from access to newspectrum. And I think that’sgoing to be disruptive not onlyto the cellular industry, but tohow the cable industry deliv-ers data over the top or how itis delivered.

to the automobile industry—which may seem unusual atfirst glance, but in reality, ifyou think about the connectedcar and all its implications it’simmense.

MR. ANDERS: NXP is in a lot ofthe parts of the car, and a lotis not about autonomous driv-ing—it’s in a lot of core techsystems that make cars high-tech today in ways most of usdon’t fully appreciate.MR. MOLLENKOPF: Our portfo-lio, independent of NXP, is al-ready pretty strong. If youlook at our position in tele-matics, in infotainment, we’veshipped hundreds of millionsof devices into cars in the past15 years. Now, what’s happen-ing in the car space is thatthere’s a big change in the ar-chitecture of the car.

The car is getting smarter,so all of these distributedsmarts in the car, it’s essen-tially consolidating into a num-ber of smarter subsystems thatare all connected in a coherentway. And they’re all being con-nected to the internet. And soour goal—and we’ll be able todo this quite well with NXP—isto have a piece of all of thosesubsystems.

If you look at the combina-tion of those two portfolios—the computing power and con-nectivity from Qualcomm withall of the other parts of the carcoming from NXP—we’re in apretty strong position.

MR. ANDERS: Do you see Qual-comm being a major player inself-driving cars?MR. MOLLENKOPF: We do. Firstof all, it’s probably a 30-yearnext wave. If you look atwhere the car is going, we arejust starting to scratch thesurface. My guess is the indus-try isn’t thinking far enoughahead in terms of the implica-tions to transportation, ofhaving the car connected andsmart.

MR. ANDERS: Let’s changegears and talk about Apple.

Qualcomm’s Game PlanCEO Steven Mollenkopf talks about smart carsand 5G technology

about how Levi sells. Do youget access to that data?MR. BERGH: Some of it. I’msure we don’t get all of it. Butwe try to have a productiveworking relationship, and notjust with Amazon here in theU.S. I met with Alibaba thismorning. We’re working withWal-Mart as well. All of thesee-commerce players are col-lecting a lot of data, and Ithink we can partner togetherto do a better job of targetingconsumers.

MS. PASSARIELLO: Amazon haslaunched a lot of its own linesto compete with others, andnow they have all this dataabout how well they sell yourproduct. When do you expectthem to go head-to-head withyou with their own denim line?MR. BERGH: I would be thefirst to argue that theyshouldn’t go there, but a lot ofour customers have their ownprivate label and we’ve beendealing with this for 30 years.I don’t want to say it’s inevita-ble, because they’re reallyhappy with our business andthey’ve got other brands aswell. But if they launch a pri-vate label, competition’s agood thing. It will make ustake our game up to the nextlevel.

Levi Strauss & Co. has 164years of history behind it—andthe challenge of remainingcompetitive in the digital ageahead of it. The company isaddressing that challenge inpart by using big data to bet-ter understand its customersand cater to them. But it’s alsotaking a higher-profile tackwith cutting-edge wearabletechnology, an internet-con-nected jacket it developed withAlphabet Inc.’s Google unit.

The Wall Street Journal’sdeputy technology editor,Christina Passariello, sat downwith Chip Bergh, Levi’s presi-dent and chief executive, todiscuss high-tech clothing, theblending of Levi’s and Google’swork cultures, and the prosand cons of working with Am-azon.com Inc. Edited excerptsfollow.

Wearing the internetMS. PASSARIELLO: Levi’s justunveiled its first connecteditem of clothing, this $350

jacket that you’re wearing.How are consumers starting touse it?MR. BERGH: We have a line ofproduct called Commuter,which really is for bike riders.It’s a little bit niche, but get-ting more mainstream. So wedecided to use the Commuterline. This allows cyclists to getdirections, listen to their mu-sic, change their playlist with-out ever needing to look attheir phone.

MS. PASSARIELLO: How do yousee the use of the productevolving?MR. BERGH: Where this specificproduct goes and how muchmore functionality we buildinto this is one question. Theother big question is wheredoes wearable technology go?

Right now devices kind ofcontrol our life, and the pic-ture for the future is thattechnology is embedded in ourlife, into the clothing that wewear, perhaps into the sheets

in our bed at home, and any-thing that’s a fabric will beable to have conductive fiberin it that can do just aboutanything.

MS. PASSARIELLO: Do you planto roll this fabric out acrossmany other products in yourlineup?MR. BERGH: Yeah. We have alot to learn from the con-sumer. What other kinds offunctionality do they wantbuilt into this? And then we’llgo there. We’re already work-ing with Google on 2.0.

MS. PASSARIELLO: What do youhave in mind already for 2.0?MR. BERGH: If you think aboutall the different ways or timesyou need to take your phoneout to use an app, imagine re-placing more of that. Scrollthrough your phone and lookat the apps and say, “Do I re-ally need to look at the screenfor this?” And if not, if I cancontrol it with a swipe, it’s

something that we’re going tobe able to build in from afunctionality standpoint.

Learning from GoogleMS. PASSARIELLO: Tell usabout working with Google.Different cultures. What’s itlike to go through this innova-tion process with them?MR. BERGH: We’re perfection-ists. Everything we sell hasgot to have quality embeddedin it. It’s got to be perfect be-fore we launch something.When we launch a new fit, theteam travels around the worldto make sure it fits all the dif-ferent body types around theworld.

We really focus on perfec-tion and really failure is notan option. Google embracesmistakes.

We had one instance wherethe sleeve actually caught fire.That’s not a good thing for aconsumer, right? But theyloved it. They were like, “Thatgives us a problem to solve.”And so it was two very, verydifferent cultures coming to-gether trying to solve a com-mon problem. And I think welearned a lot from it. We’renow embracing failure a lotmore readily, willing to failfast, fail early, but just keepmoving forward because

there’s no such thing as a realfailure. It’s just an opportunityto learn.

Working with AmazonMS. PASSARIELLO: You’ve hadan official supplier relation-ship between Levi’s and Ama-zon for several years. What doyou gain from having Amazonas an official supplier?MR. BERGH: They’ve got enor-mous scale in the online space.They attract the most eyeballsfor consumers who are shop-ping.

We do have our own web-site. We do work with ourother wholesale customers likeMacy’s, like J.C. Penney, likeKohl’s on their e-commercesites.

We’re trying to innovate inthe e-commerce space, so wejust launched a chat bot thatis a virtual stylist. If you go tolevi.com, you can experiencethat.

As we develop these capa-bilities and prove them out,we’re willing to share themwith all of our online partners.But Amazon’s one of our big-gest customers globally.They’re one of our fastest-growing customers.

MS. PASSARIELLO: Amazongathers a lot of information

WhereWearable Tech IsHeadedChip Bergh, Levi Strauss’s CEO, says thecompany wants to see what new functionsconsumers want. But the possibilities are endless.

‘Anything that’s afabric will be ableto have conductivefiber in it that cando just aboutanything.’

‘All of the thingsthat have to bedone to support5G products in2019 arehappening.’

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The big push at networking gi-ant Cisco Systems Inc. thesedays is to create “smart cit-ies,” where wireless networkswith enough sensors and com-puters to process the data willattempt to make services moreefficient and lower costs. CiscoChief Executive Chuck Robbinsspoke with Jason Anders, chiefnews editor of The Wall StreetJournal, about how it’s going.Edited excerpts follow.

MR. ANDERS: Why do we needsmarter cities?MR. ROBBINS: Some statisticssay that 30% of traffic is cre-ated by people looking forparking, so that’s a problemthat technology can solve andis solving. We have 70% of theworld’s energy usage in cities;20% of global energy usage islighting, so connect to LEDlighting and leverage technol-ogy to actually make themmore efficient. You can cut50% to 75% out of it. There areenvironmental opportunities.There are efficiency and citi-zen-service opportunities.There are lots of great oppor-

tunities.

MR. ANDERS: Where exactly doyou come in? How does thisget off the ground?MR. ROBBINS: It does requireinfrastructure. Security has tobe dealt with up front. Thepartnerships required to actu-ally make this work are prettysignificant.

MR. ANDERS: Some of this isn’tquite Jetsons-level stuff. Gar-bage pickup doesn’t soundthat high tech. But what’s thefuture of waste management?MR. ROBBINS: We’ve donethings the same way forever.Waste-management vehiclesleave, they have a route. Theypick up receptacles, and theyempty receptacles even ifthey’re empty. The ability toput sensors inside those—there are applications thathave been written now thatactually understand wherethat needs to occur. You canactually put sensors in thatmeasure the presence of toxicmaterials so safety issues canbe addressed.

MR. ANDERS: What are some ofthe big cities that you’re in-volved in?MR. ROBBINS: We’re involvedin 120 around the world today.Hamburg has gone all in, par-ticularly in the port. Collabo-ration between their employ-ees running the dock,communicating to vehiclesthat are waiting, managing thetraffic congestion—every-thing’s connected, all the sen-sors, so that they can actuallymake that seamless.

They’ve increased the pro-ductivity of the port and im-proved the efficiency by 20%just by implementing thistechnology.

Every city has differentthings going on. In 2016, I wasin Davos and the party secre-tary of Guangzhou, China,said, “I’d like Cisco to comepartner with us to build asmart city in Guangzhou.” And15 months later, we had shov-els, shoveling dirt for theCisco Guangzhou Smart CityProject. We’re building innova-tion centers. We’re partneredwith universities.

TheBigBenefitsOf Smart CitiesCities have long been doing things the same way.No longer, says Chuck Robbins, CEO of Cisco.

MR. ANDERS: Cities are ulti-mately businesses, and somearen’t well run. I assume thepitch is the technology is goodnot only for society but for thebottom line and budget. But atthe end of the day, someonehas to write the check.MR. ROBBINS: Yeah. I was in amajor city last week talking tothe mayor, and the discussionquickly got to, “The first-usecase has to really create harddollar savings so that we canthen invest those in some ofthe other things going on. Butwe need to create money andthen show people.”

So investing in, perhaps, re-duction of lighting cost tothen fund the fundamentalchange in how citizen servicesare delivered is how they tendto think about these things.

MR. ANDERS: How does tech-nology bring the city together?MR. ROBBINS: Chicago’s an-other example where they’veaggregated lots of datasources, and they bring thatdata together and they’re en-couraging these hyperlocal ap-plications. We create opportu-nities for people to live moreefficiently, to get to wherethey’re trying to get to more

efficiently, to engage in differ-ent conversations aboutwhat’s going on locally. Andthat can extend to social is-sues, social opportunities.

MR. ANDERS: Is the primarygoal of a smarter city to em-power me as the citizen or tomore closely manage and con-trol and observe me as a cus-tomer of city services?MR. ROBBINS: In general, Ithink it’s the former, becauselower cost should result inlower taxes or at least moreefficient use of your taxes orgreater services.

Guangzhou obviouslymoved people out of this loca-tion when they created thisspot for us to go in with someChinese partners and buildthis smart city. But one of thecommitments they made tothe citizens was that we weregoing to move them back tothis city afterward and theywere going to have a betterlife as a result of it.

MR. ANDERS: This is a hacker’sdream. Now, everything frommy garbage can to my Wi-Fito literally the way I’m drivingmy kids to school is in a data-base somewhere and for some-

one to access.MR. ROBBINS: It is a pressingissue. We’re moving to thismassively distributed virtual-ized world of technology as-sets. The network has to actu-ally play a very deep,defensive role. So we’ve beeninvesting in new technologies.We’ve created technology thatcan determine when malwareis present in encrypted trafficwithout decrypting it, thenyou can quarantine it. We haveto build more of those applica-tions, I think, for this to cometo life. But it’s very much aforefront ambition.

MR. ANDERS: Do you worrythat you’re creating targets?MR. ROBBINS: Every day weare. But the way we operatewith mobile phones in the en-terprise today says that we, asa society, will take the benefitof the technology at a prettysignificant risk. The benefitsand the productivity enhance-ments from that technologywere so great that we justkind of tried to operatearound that and build andwork around. I think we’re go-ing to build defenses here, andthen, we’re going to quicklyadapt as we see things.

‘Lower cost shouldresult in lowertaxes or at leastmore efficient useof your taxes orgreater services.’

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thing, but we’ll see. TheWhatsApp team is really start-ing to enable businesses to beon the platform, and they’redoing it in a very deliberate,thoughtful way.

MS. PASSARIELLO: Russian en-tities have used Facebook andFacebook platforms to try toinfluence the American elector-ate during the election. Whatis your best understandingabout how Messenger wasused by these Russian actors?MR. MARCUS: The narrativeabout Facebook as of late hasnot been super positive. Theimpact Facebook has in theworld, we don’t talk about itanymore. It’s completely over-shadowed by all of this.

If you look at the impactwe’re having every day, likewhen you see people who havean orphan disease and theycan’t find other people to talkto, even their family can’t re-late to what they’re livingthrough, on Facebook you canfind other people from theother side of the world thatare living the exact same thingand groups that are so mean-ingful for people. We’ve raisedmore than $17 million on theplatform for Harvey victims.

We’ve been able to use SafetyCheck that we activated 600times since we launched it,and sent one billion notifica-tions around the world to letpeople know that people aresafe. And I could go on and on.

Clearly when you design aplatform that reaches two bil-lion people every month,sometimes bad things happen.And we shouldn’t toleratethose things, and theyshouldn’t happen. Mark Zuck-erberg and Sheryl Sandbergoutlined a clear plan abouthow we’re going to ensurethat this isn’t going to happenagain, and we’re going to hirethousands of people, we are,actually, hiring thousands ofpeople to review ads and re-view all activities around, no-tably, elections around theworld. We tend to do well atthose things. We tend to actu-ally take those things very se-riously and execute plansruthlessly and get to reallygood outcomes. So I’m actu-ally confident that we’re goingto be able to deal with this.

The way the platform wasused is still being investigated.But traditionally if you’re a[Facebook] page, for instance,you cannot message people.

David Marcus, vice presidentof messaging products forFacebook, is head of Messen-ger, one of the company’s twomessaging products. He spokewith Wall Street Journal Dep-uty Technology Editor Chris-tina Passariello about the in-troduction of ads in Messengerthat offer the advertisers achannel for direct communica-tion with consumers. He alsotalked about Russian use ofFacebook accounts to influ-ence U.S. elections. Edited ex-cerpts follow.

MS. PASSARIELLO: Messengerrecently introduced advertis-ing. What did you test in termsof monetization that didn’twork before you settled on ad-vertising?MR. MARCUS: It isn’t like wetested a lot of things, but wethought about a lot of things.If you turn to Asia and youlook at different messagingplatforms that are thriving,they tend to use a completelydifferent approach to moneti-zation. They use sticker-pack-age sales, game monetization.All kinds of different things.

We decided that we wantedto take a completely differentstance, because the setup, no-tably in places where Messen-ger is the preferred messagingapp, is really different. Youhave apps for almost every-thing you do daily, and weneeded to find what problemwe could actually fix for busi-nesses and people alike to ac-tually generate a decent reve-nue stream for Facebook.

We started trying to figureout how we could completelyreinvent interactions betweenpeople and businesses. Sixty-five percent of the interactionswe have with companies areover the phone, which is athing I never want to do. Youcan’t put the phone down, goabout your life and wait for

someone to respond, becausethey’ll hang up on you. And itbasically doesn’t preserve con-text of all past interactions.

Messaging [in Messenger]has those two abilities. It’s in-stant and preserves the con-text of all past interactions.We talked about customercare, but if you expand intocustomer acquisition, leadgeneration, businesses thatbuild a really great experienceinside of Messenger are seeingmassive uplift if they redirectpeople from an ad on NewsFeed, on Instagram, and nowmore and more on Messenger,into a conversation, versus amobile website.

And the reason for that isbasically that the conversationremains forever, and you havethe context of all your past in-teractions, and you can retar-get and re-engage because wehave ad products that enableyou to do that if you’re an ad-vertiser.

MS. PASSARIELLO: Isn’t there arisk that we are so inundatedwith advertising in all of ourdifferent feeds that consumersdon’t want to see it anymore?MR. MARCUS: Well, I think thatit’s different. First, you cannotget contacted by a business.You have to start conversa-tions. We have plug-ins thatenable businesses to get youin a conversation. We havem.me/your-business-brandURLs that you can deploy inemails and everywhere. Wehave click-to-Messenger ads. Ifyou’re buying advertising onFacebook now you can buy, ba-sically, conversations as an ob-jective, messages. And nowwe’re testing ads inside ofMessenger. But we’re doing itin a way that’s the least possi-ble disruptive path for people,because we never want to getin the way of people getting totheir messages and doing

what they want to do. Messag-ing is very transactional.

MS. PASSARIELLO: Have youhad any feedback from userswho are resisting seeing ads inMessenger yet?MR. MARCUS: The way we mea-sure this is by measuring en-gagement. We’ve rolled outads inside of Messenger in anumber of countries and cer-tain percentages of people.And what we’re trying to trackis where there are any dropsin engagement, as in peoplenot going to Messenger as of-ten, not messaging as often, etcetera. And so far, so good.

MS. PASSARIELLO: How are yousharing best practices in mon-etization with WhatsApp?MR. MARCUS: We both have 1.3billion monthly active users:1.3 billion people using Mes-senger, 1.3 billion people usingWhatsApp. But it’s generallyvery different people. If youlook at North America, it’smainly Messenger. WesternEurope is kind of split. All ofLatin America and India ismostly WhatsApp. The mar-kets and when the markets gotto free unlimited texting hasdetermined whether you’re us-ing WhatsApp or Messengeras the preferred platform.

What we’re trying to doright now is really demon-strate that there’s a playbookfor monetizing messagingplatforms in the West.

WhatsApp is testing differ-ent things as well, enablingsmaller businesses to start ex-perimenting with messagingon WhatsApp. We’ll seewhether the paths convergeover time or not.

MS. PASSARIELLO: Have youshared your experiences withthe new rollout of advertisingon Messenger with WhatsApp?MR. MARCUS: We share every-

People have to message you.We’re collaborating with thespecial counsel and Congress.And we’ll figure out what hap-pened, we’ll get to the bottomof it, we’ll learn from it, andwe’ll make sure that we buildsystems to prevent what hap-pened from happening again.

MS. PASSARIELLO: On the 470accounts that Facebook hasalready identified, how manyhave also been using Messen-ger to communicate?MR. MARCUS: My understand-ing at this stage is it’s a smallnumber.

MS. PASSARIELLO: Facebook’sapproach often has been to bereactive to these kinds of waysthat people are using its prod-ucts in malicious ways. DoesFacebook need to be more pro-active in anticipating thesekinds of uses?MR. MARCUS: Now that weknow that we have a lot of ac-tors that are trying to dothings, we need to continue tobe more thoughtful when webuild new product experi-ences, new ad products, to tryto overthink how it can beused in ways that the platformwasn’t designed for.

FacebookOpensUponMessengerDavid Marcus on how the company’s newchannel for advertisers works, and why hethinks consumers won’t be put off by it

‘We never want toget in the way ofpeople getting totheir messages.’

NIKKI

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