Wrapping up South by Southwest week on Industry Focus, today's Tech show is all about the biggest trends we saw at this year's conference.
- Elon Musk has plenty to say about electric cars, but he's also got strong opinions on artificial intelligence and legislation for it.
- Investors and companies alike aren't fully appreciating the rapid rate of progress that's sweeping through China. And while America went through a desktop stage before shifting to accommodate a mobile market, China is skipping straight to mobile.
- Finally, voice technology is starting to take off, but it's only just scratching the surface, and could see some massive improvements in the years to come.
Click play to find out about these topics and more.
A full transcript follows the video.
This video was recorded on March 16, 2018.
Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, March 16th, and we're wrapping up South by Southwest Week with some tech takeaways. I'm your host, Dylan Lewis, and I'm joined on Skype by Simon Erickson of Fool Premium. Simon, how's it going?
Simon Erickson: Dylan, it's awesome. I've had a great week in Austin. The perfect finale is getting to chat with you here on Industry Focus, thanks for having me.
Lewis: Oh, you're too kind. You're way too kind. Going to Austin is kind of a homecoming for you, you're a UT man. So, what do you do when you're in town?
Erickson: Gosh, man, there's a zillion places to go in Austin. We went out to a couple of the saloons that have outdoor volleyball and pet friendly, have a beer outside. Went to some live music. I had breakfast burritos with blues music. I really wanted to go see Ready Player One, the premiere of that one from Ernest Cline. Didn't get tickets to that. That was a tough one to get into. But, overall, it's a fantastic city, it has something for everybody.
Lewis: I guess, instead of being Ready Player One, you just had to settle for sitting down with possibly the most innovative man in the world right now, Elon Musk. Do you want to talk a little bit about sitting in a session and getting to hear him talk? I know you did for Market Foolery on Monday. Give me one cool detail that can queue up listeners that are interested in that.
Erickson: It was fantastic, Dylan. They had it ACL Live, which is a big music venue that Austin loves. Of course, when Elon Musk is there, it packs the entire place, not for a concert but for Elon. So, that was kind of special, to even see that.
Chris and I talked a lot about this on Monday for the Market Foolery episode, like you said, but one thing we didn't talk a whole lot about was Elon's interpretation of artificial intelligence. He talks a lot about this. He says this is one of the things that takes up most of his time, is figuring out what the future is going to look like for AI. And my takeaway from that, in Elon's own words, was that Elon thinks narrow AI is actually a very good thing. He thinks it's going to make a lot of processes out there more efficient, just tuning the bots and getting machine learning to do things better than human beings can. But he's really most focused in this 20 years out, maybe more than that, general AI. He's really concerned about a super intelligent computer that's going to really need to be regulated, and what those regulations should look like. Everyone talks about Skynet as a joke. Elon is dead serious about this stuff, and he's really focusing in on that.
Lewis: Yeah, he always seems to be pretty good for a great quote when he's speaking at some of these major conferences. When you say narrow AI and broad AI or general AI, just to define that for listeners who aren't as familiar with the topic, you're talking about artificial intelligence that's geared toward a very specific use versus AI that can be broadly applied. Right?
Erickson: Yes, absolutely. Narrow AI or specific AI is something like, you're a doctor and you want to diagnose what you think is cancer, a cancerous tumor in a patient. You can use narrow AI, which has been trained to see zillions of pictures of cancer to identify that in a patient's x-ray or something like that. That's a specific use that machine learning is very optimized for. But a general AI would just be like, taking everything that requires a decision in any field and letting the computers take control of all that.
Lewis: Simon, one of the things that I think was really unfortunate about both of our times in Austin is that we only really saw each other for the member meet up. We were both attending a bunch of different sessions. You got to see Elon Musk. I, unfortunately, did not, but I was very thrilled that you got some detailed notes for listeners.
But even though we attended different sessions, it seems like our takeaways are actually surprisingly similar. I know one of the big focuses for me is the relationship between e-commerce and mobile. One of the things that really stuck out to me in attending a session run by Facebook IQ, which is their research and insights arm of the business, is the stat that by 2020, more people will be online than offline in the world. And they talked a little bit about the differences that will force in the mobile landscape, in the e-commerce landscape. I see that being particularly impactful with China and the way e-commerce is moving there.
Lewis: And one company in particular, this is a Fool favorite, is Alibaba (NYSE:BABA). This is piecing two different sessions together here. I attended something on retail, and the speaker there, who was interviewed for Tuesday's Consumer Goods show, was talking about how Alibaba has this strength where in China, the mobile market is everywhere. People are so accustomed to doing almost everything through their phones that they've built these stores, they're kind of these test concept stores very similar to Amazon and their supermarket ambitions, where you need the phone in order to do anything in the store. That's how you're paying for everything, that's your vehicle for doing everything. And to take a step back and understand what that means for them as a business, you're getting extremely rich data and customer profiles. And I see that as a huge benefit to a business that's looking to maybe push coupons, maybe give some super tailored promotions to customers. It seems like there's a lot of possibilities there.
Erickson: Absolutely, Dylan. And you should remember, too, that China didn't go through the same desktop obsession that the United States did when we first got the internet. A lot of websites have tried to tailor their desktop experience and say, "Okay, now we're going to have a mobile-friendly site so people can start using this on their smartphones, too." China actually never went through most of its people even having a high-speed internet connection for desktop. They just built from the ground up from mobile. So, as a result, the vast majority of transactions done online in China are with mobile devices, either through something like Amazon, an internet platform, an e-commerce platform like you're talking about with Alibaba, or even just using the phone to pay at a retailer in person. All of that is generating data, which is very useful.
Lewis: And to think about this next wave of people coming online in a lot of these developing markets, it's going to be mobile first. It's going to look a lot like what we've seen in China over the last five years, 10 years, and that's going to continue in that country as well. When you think about players there, I think one field in particular that's poised to benefit from that is the mobile payments industry. I think that's definitely one of the spaces to watch, particularly in developing markets, but also, there's a lot of lessons there from the United States. You think about the strength of Venmo as brand and how it's become this verb for people exchanging money. PayPal loves that. I don't think that's going away any time soon.
Erickson: I completely agree.
Lewis: You had some slightly different takeaways when it came to China, but you still thought it was an important note coming away from the festival.
Erickson: Yeah, that was one of the days that I spent at South by Southwest, just trying to figure out what's going on over there in China. We talk about it a lot, but I think it's under-appreciated by Western investors and Western companies just how quickly things are moving. We kind of know that China is a big country that's almost five times the population of the U.S., but I don't think we spend as much time thinking about how they're developing out what was, 20 years ago, just kind of a supply chain for Western companies to get lower labor costs and a better return on their investment.
Now, they have 67 million people in South China that are all within a one-hour radius of one another, so they're getting very good at getting all these components that they've been manufacturing for 20 years to interact together. That's the layer on top of the supply chain, is the design. They're very efficient final devices, because they've been working together to develop these components for so many years. So, you're starting to see Chinese smartphone companies, mobile companies, the Huaweis and Xiaomis of the world getting these beautifully designed devices that are at the forefront of technology. And the layer on top of that is that they're really starting to bring over some good IP, some good, talented businessmen. Anecdotally, I was hearing at South by Southwest that they're hiring people for 7X the salary that they're making in San Francisco.
Lewis: That's pretty compelling. [laughs]
Erickson: And you know San Francisco is not a low-paying area, you know?
Lewis: Yeah, that's certainly a compelling price point for talent. Reading between the lines here, it sounds to me like a lot of tech manufacturers have leaned on China very heavily to help them out with manufacturing and do things a little bit more cheaply. That has been great for the past 20 years, but looking forward, we basically gave them a playbook on how to do a lot of this stuff, and if talent is willing to go there, it sounds like innovation might be changing a little bit and where it's coming from.
Erickson: I definitely agree. I think that's underappreciated right now. I wouldn't say that I'm going short Apple or any other Western smartphone maker. I think they have plenty of good users that still love that brand, still love that product. But I think it's getting harder to justify the premiums that the iPhone has commanded out there. From the perspective that I saw at South by Southwest, a lot of the tech that's going into the phones is being developed and actually focused on over in China.
Lewis: Yeah. I think you might have some slightly more price-sensitive consumers over there. I think there's going to be the luxury cachet of Apple in foreign markets. And I'm not too worried about that. But, we talk about this big wave of people coming online, and they might be looking for cheap mobile devices to do that. A lot of these Chinese manufacturers are a lot more well-suited to do that.
Erickson: Yeah. It's definitely something to keep an eye on. I think you nailed it when you said Alibaba, JD.com is another one that I like, too, these are the e-commerce platforms. You can get both of those companies in America on the American exchanges. But, I think there's going to be a wave of really cool stuff coming out of China, and we can't ignore that as investors.
Lewis: One other things that I think was really impressive to both of us this year at South by Southwest was the presence of voice. This is another thing that plays into the long-term theses for these big tech businesses. Walking around, at least anecdotally, I saw Google stuff everywhere. They're trying to get people to interact with Google Assistant. I think they're trying to make up ground, frankly. What did you see with voice?
Erickson: Dylan, I enjoyed your takeaway, where you were saying, lean on Google to do everything. Right?
Lewis: Yeah, the tag line there was, "Make Google do it," basically. They want people to be wholly reliant on this tech. And that's kind of how a lot of people that are developing this technology are expecting to react with it. The idea with voice is that it's this very conversational thing. It's something that's intuitive. And it's slightly different than maybe some of the tech that we've seen over the last couple years, where it's been on you to learn how to navigate the platform and understand how to use it. The goal, if you're a developer with voice, is to be able to have a conversation.
Erickson: Yeah, absolutely. The take that I had, which I think aligns with what you're saying, is, I think the next thing is going to be voice prints. Which is kind of a new word. You're not really used to reading about that in tech media yet. But, just like a fingerprint, a voice print identifies who you are, can tell from the nuances of your voice where you are, if it actually is you in the first place. And I think that's replacing passwords that we've gotten used to typing in with our fingers for authorization, for identification of apps. Now, you don't even have to take a smartphone or whatever device is out of your pocket. You just talk to it and say, "I really want to book an Uber to get to the airport, and then I want to book a hotel in Seattle that's a Marriott." And it says, "Okay, Simon, I know it's you. The Uber is going to cost $30 and the hotel is going to cost $200. Do you want to proceed?" Boom. I've done transactions. Those two companies got paid. Someone is collapsing all of the behind-the-scenes software and applications into something that makes it super easy for me as a user.
Lewis: Yeah. Thinking about the rise of this voice identity technology, you also look at what's been going on with face ID, specifically at Apple, but plenty of other tech companies are pushing the idea of facial recognition. It'll be curious to see which one of those technologies wins out, or if we're in this multi-factor personal identification world where you're leaning on your voice and your face in order for your devices to recognize you.
Erickson: Yeah, absolutely. The form factor of these devices is changing, again. It might not be a smartphone device, it might be a Google Glass device, it could be a different-looking mobile device than what we're used to. But, all the cool features, the bells and whistles, I think they're still going to be there.
Lewis: And as a gadget guy, I absolutely love that. Simon, anything else before I let you go?
Erickson: It was another interesting South by Southwest, Dylan. I think there's so fast of a pace of innovation right now in the tech world, it gives us plenty of things to talk about. We just have to embrace that AI is going to happen, it's going to collapse a lot of software into something that's more user-friendly and efficient, and we have to look globally, I think, as tech investors. I think a lot of the cool stuff that's going on out there is overseas. It was a really great conference again this year.
Lewis: It always is. It's always a blast hanging out with you and the other Fools who go. It's also a blast meeting up with listeners who come to our listener meetup. It's always at Guero's Taco Bar. We're always hanging out there. Before we wrap up, I want to give one listener that we met a shout-out. He's Daniel Folber. We met him, and he sent in possibly the greatest listener email of all time. I'm going to let producer Austin Morgan give us a little rundown on what came in.
Austin Morgan: He basically sent an email wishing that he met Austin in Austin, which I thought was fantastic.
Lewis: He also managed to misspell, intentionally, my name and Chris Hill's name. Which, we talked about this at the restaurant, we were like, "Send this in, Austin will love this email." And we didn't give anyone on the Industry Focus side any heads up that this was coming in.
Morgan: It was a very well-crafted email. Kristine forwarded it to me and said, "I'm not sure what to make of this, but I think he likes you."
Lewis: Yeah, he was hoping that he'd meet you. Another funny thing that came out of the listener meetup was, I was standing next to Market Foolery producer Dan Boyd, and one of our listeners came up to me and was like, "Is that Evan? Is that the guy that you talk to you most of the time on Fridays?" It's funny to me that people put their own faces to the voices they hear on the podcasts. But, it's always great to meet folks and learn what they take from the show.
Morgan: I will definitely be at the podcast meet up when it's in Alexandria for FoolFest. I will be there.
Lewis: You hear that, listeners? So, if you're in the area, please come. If you're out of town, maybe you have a reason to visit now.
Morgan: There you go. I'll be there. My following is growing.
Lewis: That does it for this episode of Industry Focus. If you have any questions or you just want to reach out and say hey, maybe get a sense of what we look like, maybe we'll send you a picture, email@example.com. I would be happy to send along a picture of Austin Morgan to our listeners. If you want that, you can also tweet us @MFIndustryFocus. Of course, if you want more of our stuff, you can subscribe on iTunes or check out The Fool's family of shows over at fool.com/podcasts. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Shout out to Austin Morgan for all his work behind the glass over here in Alexandria, Virginia, not Austin, Texas. For Simon Erickson, I'm Dylan Lewis, thanks for listening and Fool on!
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. Dylan Lewis owns shares of GOOGL, AMZN, AAPL, and FB. Simon Erickson owns shares of AMZN, AAPL, FB, and JD. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, AAPL, FB, JD, and PYPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends MAR. The Motley Fool has a disclosure policy.