It's South by Southwest week on MarketFoolery. Dylan Lewis of the Industry Focus: Tech podcast talks about some of the tech breakouts he's been to and what they had to say about some of the biggest companies and trends. Voice assistants are changing the technology game, and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is scrambling to get a handle on it before it gets a handle on Google.
Facebook (NASDAQ:FB) may not have monetized WhatsApp just yet, but be patient -- that's very likely part of Zuckerberg's master plan. Also, malls are struggling, but they're not doomed, and the operators that succeed will integrate some unexpected linchpins into their floorspace. Find out more on MarketFoolery.
A full transcript follows the video.
This video was recorded on March 13, 2018.
Chris Hill: For Tuesday, March 13th, this is MarketFoolery from Austin, Texas. We'll get to our exact location in a minute. It's South by Southwest Week all week here on MarketFoolery and on our Industry Focus podcast. Speaking of which, it's one of the hosts of Industry Focus joining me today. It's Dylan Lewis. Thanks for being here.
Dylan Lewis: I'm happy to be here. I don't know if you're happy to have me.
Hill: [laughs] I am happy to have you. Let's talk about where we are, because later in the week, we're going to have episodes from the Media Lounge. Yesterday's MarketFoolery was in the Media Lounge. We have another one coming. Tomorrow's episode is going to be from the Washington D.C. House, very super cool location on East 6th Street in Austin, Texas. If you know anything about Southwest, if you've seen any of the coverage, great scene for music, for movies, for interactive. Where we are, however, may be the least glamorous location possible.
Lewis: Yes. We are at a VRBO on Waller Street in East Austin. [laughs]
Hill: You didn't have to give our exact location. Yeah. We're being a little thrifty this year, we're all bunking up. You, me, and producer Dan Boyd. You host the Friday episode of Industry Focus. It's the Technology episode. Without delving too deeply into what you're going to be talking about later this week, let's talk about some of the sessions that you've been going to. You've been going to a lot more sessions than I've been going to. I know that one of the ones you went to was certainly a topic near and dear to my heart, which is voice and audio. This was, I'm assuming, the smart speaker breakout?
Lewis: Yeah, primarily smart speaker, but also just a look at different voice technology out there. The representative from Amazon (NASDAQ:AMZN) video, this guy Oliver Messenger. There was also a representative from Comcast. This really centered on, how are different people thinking about the tech behind smart speakers? And I think Oliver Messenger did a really good job of summing it up when he talked about how most of the tech that we've interacted with over the past two decades, it's primarily been on the user to learn how to use it. The interface is there, but you need to know what buttons to push, you need to know how to nav everything. With voice, it's supposed to be intuitive. It's supposed to be a conversation, and that makes it a little tougher, because there's so much nuance in how we search for things.
Hill: Right. And I think anyone who's had any interaction with voice-activated stuff, whether it's Siri or whoever it is over the last five years, it's not always 100% perfect. It's hopefully getting better. It's interesting, because one of the things I was thinking about was how, just in where our place is located, the path that we walk to get from here to the convention center to downtown Austin where so much of South by Southwest is concentrated, we go right near Google's installation. Google has taken over, I think, a couple of houses. And it is clear that Google, which, Alphabet is involved in so many different businesses, and it's clear when you walk by their house what their focus is at South by Southwest this year. It's 100% about the Google Home device.
Lewis: Yeah. What's the tag line? "Make Google do it"?!
Hill: Make Google do it. You go by their house, and in huge letters outside. And I haven't been inside the house, but there's no doubt what that company is focusing on this year.
Lewis: And they're pushing that in the convention center in some installations around the convention as well. I went to something where they have these four telephone booths set up, and the point of each one is to get you to interact with their Google Assistant in some different way. In one way, it's communicating with someone and pulling up a conversation. In another way, it's booking and trying to set up some travel plans. It's very clear they're trying to familiarize people with the technology, and hopefully people will find that it's very useful and that it's intuitive. I say hopefully because, as it stands right now, they are not the leader in this space. And I think one of the biggest risks to them as a business is that Amazon has made so much progress here.
Hill: Amazon has made so much progress. And as you and I were talking about yesterday, let's just go ahead and include Apple in this as well because they have the HomePod, which, I get the sense they're going to be pushing that in a bigger way throughout 2018 and presumably beyond. But if you think about the basics of Apple's business versus Amazon's business versus Google's business, Google's bread-and-butter is advertising. And if, in fact, there begins to be a dramatic shift away from searching online the way we've done it since the internet was born, to just asking our device a question, that's going to make it so much harder for Google to monetize.
Lewis: Yeah. I think two big things with the current state of voice that are threats for Alphabet and Google. One is voice search becoming more popular means there's going to be less desktop and mobile search. And that's where they're serving up ads -- hyper relevant ads, at that. It's not as easy to monetize those types of queries on voice. What is it going to kick back to you? "The answer is 1956, and oh, by the way, if you want these Tide Pods, go ahead." [laughs] It doesn't make as much sense. You can have the visual clutter with ads, but it's going to be so much more invasive if it's a voice spitting out an advertisement. So, there's that. More search queries are going to voice.
Also, they're not the leader in this space, like I said. If you go back to 2017, I think Amazon's market share of smart home speakers was something like 70-80%. Now, Google picked up more than they had in 2016. They're inching their way up. But you look at Amazon's strategy here, they have deliberately gone super low with their pricing. They want to be in people's homes. And really, I think that's a big risk for Apple in this market, too. Most of their products are high-priced products, and it's tougher to get a really big installed base when you have a major tech provider like Amazon coming in with massively discounted Echo Dot products.
Hill: Speaking of major tech, let's move on to Facebook, because they had a breakout session where they were sharing some of their internal insights. What did you pick up from that?
Lewis: There were two folks from Facebook IQ. This is their insights and research division. The theme of their conversation was, what does 2020 look like? So, how can we start preparing as businesses for what the world of tech looks like in 2020? And I think one of the biggest stats that came out to me in this conversation was, by 2020, more people will be online than offline in the world. That is to say, there will be more than 3.5 billion people. And currently that's not the case. Where most of those people are coming online is in developing markets. And very often, that experience, that onboarding, is going to look a lot different than it did in the United States.
Hill: It's always interesting to me how particularly larger companies approach these sessions, whether it's at South by Southwest or the Consumer Electronics Show, any sort of major event like this. They essentially can share as much as they want to. There's no real business advantage to tipping their hand, so to speak. Was there anything that you picked up at that session that even hinted in that direction, or even something where you were like, wow, I hadn't even thought of that before?
Lewis: A little bit. They talked about the rise of messaging in particular. That was one thing they hit on. There was some stat, I might need to fact check this later on--
Hill: We don't do that on this show.
Lewis: [laughs] I'm sorry, is that Industry Focus only?
Hill: Maybe that's Industry Focus, yeah. We don't do that on this show.
Lewis: I believe the stat was, there are two billion messages sent between individual users and businesses per month using Messenger. And you think about Facebook's roadmap as a business and really where the opportunity lies for them. Facebook, their namesake platform, is pretty monetized at this point. The ad experience in the ad load is there. They're not going to be able to increase the inventory. Instagram they're rolling more ads out onto, and they're midway through the monetization process there.
They have two humongous properties, WhatsApp and their Messenger service, that are largely unmonetized at this point. Mark Zuckerberg has a pretty clear blueprint for what that looks like. He's talked about it plenty on his conference call. It's, get people used to interacting with businesses, then worry about monetization. So, when you hear a figure like, two billion messages a month being sent between users and businesses, you can see the wheels turning a little bit in Facebook corporate, and understanding that that's getting the traction they want it to.
Hill: So, even though they haven't come out and said specifically, "Here's how we're going to get our $19 billion back for what we paid for WhatsApp," you at least look at it and think, no, they're not going to tip their hand, but at least we have something to benchmark against for later in the year.
Lewis: Yeah. I think understanding where the growth lies for them, and how methodical they've been in monetizing these platforms, you have to look for signals. There's really not a whole heck of a lot else you can do. And I see that and I think, that has to be a good signal.
Hill: Last thing before we wrap up, retail, which is always an industry that I'm interested in. What did you find at the retail breakout you went to?
Lewis: I went to a retail breakout. Actually, we're going to get more information on this on the Tuesday Consumer Goods show, which is going to drop the same day as the show that we're recording right now.
Hill: So, finish listening to this one, or not. You can just drop out now and go ahead and check out Industry Focus.
Lewis: But, one of the main points that was made was, malls need to be more responsive to what's going on with consumer tastes. If you're looking at mall operators and you're looking at businesses that are in malls primarily, a lot of these chains, what you want to see is mall operators that have some form of wellness or a gym or a bar studio, maybe a yoga studio, in there. That's the new linchpin of the mall. It's not the Sears, JCPenney and Macy's, as it was a decade ago.
Hill: When you think about that type of transformation that can work, and we have seen work in individual examples, certainly in the greater D.C. area, we've seen malls undergo transformation and they become more like dual living spaces, where there's some level of apartment living or condo living, that kind of thing, on top of retail restaurants, etc. Does that at all get you interested in publicly traded companies that are involved in the construction space? Because it really does seem like there are opportunities there. And I'm just going to put aside anyone who's currently doing construction in San Francisco and Seattle, because those are probably No. 1 and No. 2 in terms of micro bubbles, certainly, for housing markets. And I don't own any construction stocks -- and by the way, the fact that we've been in Austin, Texas for the last few days, where for the third year in a row, there's just tons of construction going on in the city.
Lewis: Truthfully, Chris, that space is a little out of my wheelhouse. But, I think, you look at a lot of big macro trends, people are a lot more interested in infrastructure and construction development than they might have been a couple of years ago. I know this is something that Sarah Priestley has touched on a couple times on Industry Focus. I do not have a personal take on it, but I'm sure there's some shows there. If anyone wants some content on that, email@example.com.
Hill: Alright. Check out today's Industry Focus for a deeper dive on retail. Again, all week, we're talking South by Southwest here on MarketFoolery and on Industry Focus. Dylan Lewis, thanks for being here.
Lewis: Thanks for having me on.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening, we'll see you tomorrow!
[Vandoliers -- Rolling Out]
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon. Dylan Lewis owns shares of Alphabet (A shares), Amazon, Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.