The implementation date for Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) new algorithm is approaching, but could the tech giant be behind the curve on this move? Tune in to find out what the change will mean to advertisers, and to investors. Meanwhile, Twitter (NYSE:TWTR) unveils a streaming app to boost engagement. Could this solve the Twitter problem?
Finally, find out why Sean O'Reilly is so excited by Facebook's (NASDAQ:FB) F8 announcement regarding Messenger, and the possible implications for WhatsApp. Does this latest move give investors a glimpse at Mark Zuckerberg's master plan? Could this be the first step toward monetizing WhatsApp? Join us to find out!
A full transcript follows the video.
Sean O'Reilly: Facebook and Twitter are making big moves, on this tech edition of Industry Focus.
Greetings Fools, I am Sean O'Reilly here, joining you at Fool Headquarters in beautiful Alexandria, Virginia. To my left is the one and only Nathan Hamilton. How are you today, sir?
Nathan Hamilton: I'm good, and to my right is Sean O'Reilly. How are you?
O'Reilly: Oh my gosh, here we go! I'm doing well. I got out yesterday. It was 70°, took the son for a walk. Good times all around.
Hamilton: Yes, it's been some beautiful weather out here in D.C.
O'Reilly: Fingers crossed that temperatures are only going up.
O'Reilly: Twitter, Facebook, Mark Zuckerberg; everybody's making big moves and I definitely want to get your thoughts on them. I'm sure our listeners are very curious what the investment ramifications for these companies are.
O'Reilly: First and foremost, we've got a Google mobile update. What is going on?
Hamilton: Not so much new news, as maybe it's becoming more relevant as the deadline nears. On April 21, Google will be updating their algorithm. We're an investing company ...
O'Reilly: Is this a Y2K kind of a thing?
Hamilton: Some SEO people might look at it that way! It could have big ramifications, so I'll explain a little bit about what's going on and why it matters for anybody that's interested in actually investing in Google.
Essentially, Google is going to be weighting mobile friendliness factors into their rankings. This means for SEO or people trying to rank higher on the page, for any search engine marketers that are trying to get their ad ranked higher than somebody else on the page, Google is going to take into account your landing page, your website. Is it mobile friendly or not?
If it is, you get a higher ranking factor, and of course that determines where you land on the page.
O'Reilly: Local restaurants, ignore this at your own peril! I was just thinking what I use Google on my phone for, when I'm out and about: Restaurants? Stores? Coupons? I don't know.
Hamilton: You have to look at this in the broad context of it, and really linking it up to what it means as an investor. For those following Google, you've seen over the last 1-2 years, a pretty consistent trend; cost per click is going down significantly, but the actual volume of clicks is going up, offsetting that decline.
Where it's coming from is mobile. Mobile is the future when it comes to how anyone surfs the web, how advertisers seek out customers. It's really where the industry is going, so Google is making this change; some could even argue a little bit slow to implement this.
O'Reilly: That was exactly what I was about to say to you, because that's the highlight of every Facebook earnings release.
Hamilton: "Here's what we did in mobile."
O'Reilly: Yes. To their credit, they're minting money. They've got this cash register out back, and it's got "mobile" written all over it.
O'Reilly: That was my question, is Google late to the game on this one?
Hamilton: They're not late to the game, because it's Google!
O'Reilly: Yes, that's true. They've got container ships full of God knows what.
Hamilton: Well, that failed tremendously.
O'Reilly: What was that? Was that a paintball course or something?
Hamilton: I can't recall what it was. I'll have to look back at it.
O'Reilly: It was this big mystery for a while, and then we were all sorely disappointed, whatever it was.
But do you imagine a world where a Google conference call rates like a Facebook one, with the mobile highlight?
Hamilton: With the focus on mobile?
Hamilton: No, because they're different companies. Google does focus on different things. The one thing they have in common, of course, is advertising revenue so I think that aspect of it, no doubt you'll see the same sort of trend.
Facebook focuses on monthly active users, mobile advertising. Google's going to be looking at, "Our CPCs are declining, but our volume is rising because it's mobile."
You look at the overall effect to Google; their revenue is up in the last quarter, what was it, I think about 15%?
Hamilton: Even with this dynamic taking place, the company is still generating a huge amount of revenue.
You have to look at what the big thing is. About 40% of time spent for retail consumers comes from the desktop, 60% is from mobile. That goes back to the trend which we were talking about.
But the actual dollars spent are predominantly weighted toward desktop, so we know people are discovering on mobile. They're not spending money on mobile, as a consumer.
Hamilton: But as advertisers figure out how to flip that dynamic and get mobile, how to monetize it better, that's a huge tailwind for Google. Even Facebook and Twitter and so forth, as well.
O'Reilly: Yes, that's a trick.
Moving on to Twitter here, they're rolling out Periscope, which is a streaming app for Twitter, and a company they acquired for, what $100 million a few months ago?
O'Reilly: What's the deal here? What are your thoughts?
Hamilton: To give some background, I'm sure anyone on Twitter ...
O'Reilly: Did they buy this for stock, by the way? Do you know?
Hamilton: I don't know. I never came across this acquisition originally.
O'Reilly: It's just, every time I see Twitter or somebody like them buys something I'm like, "How did you buy it?"
Hamilton: All stock, I wouldn't be surprised.
But essentially Twitter rolls out Periscope, which goes beyond just a normal tweet. It's actual live streaming -- I guess tweeting live streaming of some sort.
It really gets at the problem of what many see on Twitter as the engagement issue. If you look at the two and contrast: Facebook, engagement's high. Twitter, engagement sucks.
Hamilton: That's really affected the investment thesis. If we go for the past two weeks or so, we've seen a huge rise and the falling of Meerkat, which is another app that essentially does the same thing as Periscope.
O'Reilly: But it has a crazier name, and is therefore better.
Hamilton: Exactly! But the first impression -- and here's why I think it could be meaningful for Twitter investors and the company as a whole -- is the first impressions for Periscope are far better than what Meerkat has, and Meerkat was getting a huge following on social media.
You have to look at it for the engagement issues. I think this is a step in the right direction for Twitter.
O'Reilly: Does this solve the problem with Twitter, do you think?
Hamilton: I don't think any single thing solves the problem. You have to look at it. For investors it's all these small steps to fixing the problem.
Hamilton: I think this is a move in the right direction, and of course Twitter knew it. That's why they acquired the company for $100 million.
O'Reilly: Naturally, yes. What's the experience there, before we move on? Is it live streaming of the plane crash in the Swiss Alps? What would it look like?
Hamilton: To relate it to that, maybe a reporter could live stream from the actual site.
O'Reilly: Okay, got it.
Hamilton: As opposed to just sending out a hundred 140-character long tweets.
O'Reilly: I can see that being particularly useful in getting me on Twitter during ... like when Obama announced that they got Osama bin Laden in 2010 or '11. Just stuff like that; the State of the Union, or stuff like that. That's interesting. I wonder if Twitter can pull a rabbit out of their hat here.
Hamilton: Maybe they could monetize it somehow. If it's opened up to third parties and advertisers ...
Hamilton: Throw an ad out there. Instagram is doing it, Facebook is doing it. Why not Twitter?
O'Reilly: One of our analysts here had this great line. I knew it, but it just puts it so succinctly. "To Facebook and Google and all these social media companies, the product isn't the site. You're the product."
Hamilton: Oh, absolutely.
O'Reilly: I was like, "Oh my gosh. Facebook isn't the product. I'm the product."
Hamilton: Yes. We think it's a place to socialize, but in reality it's advertising.
O'Reilly: You're a product. This is the Matrix.
Hamilton: It's funny, you relate that back to Zuckerberg or Facebook; before they became public, they downplayed the advertising angle of it. But once they became public they started getting calls from Wall Street, "You guys have got to monetize this. Go after it."
That started a shift a little bit and they're saying, "Absolutely."
O'Reilly: I can remember, even very recently, like two years ago everybody was like, "Oh, Facebook. There's no way they'll monetize things," and all this stuff -- and then they just started killing it; consistently, the billions upon billions of dollars that they're making, on just mobile alone.
Hamilton: Yes, when you have a platform that big and expansive, you have to think when they flip the switch on a quality offering, it will generally do pretty well.
O'Reilly: Right. Moving on, and this is the big news that I was really excited to talk about, is Zuckerberg at the F8 conference. He said a lot of cool stuff and we're going to talk about this in a minute, but it actually could relate to WhatsApp.
With that, what did Zuckerberg have to say at F8?
Hamilton: I'll let you talk about WhatsApp, but some of the things which I came across which I believe are the biggest stories; one was on Messenger.
Specifically, if we look back I believe it was approximately a year ago, Facebook took the Messenger app, separated it from the native app on your phone or mobile device. Essentially, it's a separate app at this point. It's all part of a bigger strategy to help monetize Messenger better.
About a month or two back, they introduced Payments, and recently what they announced at the conference is they're opening up Messenger to third parties.
O'Reilly: That is the big news, to me. Dun-dun-dun!
Hamilton: This is really a big move. It opens up their -- who knows how many daily active users they have at this point -- but it opens up ...
O'Reilly: We need sound effects, like a normal radio show.
Hamilton: I know. We can't do the Cramer thing, though.
O'Reilly: No. That would have been nice!
What I was getting at was, we were talking up on the floor above us here. It was me and Dylan Lewis, one of the other Motley Fool analysts. We were talking about this, and he brought up this point. I don't know where he heard this or what, but what if -- because they're opening up to third parties and making Messenger a part ...
For Comcast customer service, I'm sure you've gone to a website for your water bill or Comcast, or your cell phone bill. I set up my cell phone service partially on their chat function on their customer service over T-Mobile (NASDAQ:TMUS). Imagine doing that with Facebook Messenger or -- dun-dun-dun -- WhatsApp. Is that how they can partially monetize WhatsApp?
You could be traveling abroad and be able to chat with the customer service for your water if your main blows up or something, I don't know. Point being, that would be so cool, because I love chatting with utilities or whatever, instead of calling them and waiting and pacing around, and all that stuff.
That was a big deal to me.
Hamilton: Yes. If you look at the whole argument for why that could be beneficial, you've got the monetization side of it. You've also got the whole thing of Facebook is just this huge ecosystem and has billions of users on it. Well, I shouldn't say "billions."
Hamilton: But any sort of service for a consumer that makes it easy to communicate with a company ...
O'Reilly: Anywhere on Planet Earth!
Hamilton: Yes, makes that process a lot easier, there's a benefit to that. You bring up the customer service example. Absolutely, a company could go on there and have broad reach to a lot of their consumers, all in a centralized location. That's really a beneficial aspect of it.
It may not have the huge monetization capabilities and drive Facebook's revenue and so forth, but it is definitely a benefit.
O'Reilly: I feel like we got a minor glimpse into Zuckerberg's "evil plan," with the breaking apart of Messenger from Facebook, and then we hear this, and the customer service, opening up the third parties thing. I was like, "Oh my gosh."
Hamilton: Yes, they mentioned some interesting things in retail, too. I would encourage our listeners to go look up some of the news stories there. There's really some interesting stuff going on with it.
O'Reilly: Were you considerably more bullish on Facebook after the F8 conference?
Hamilton: No. This gets back to no single thing really changes an investment thesis considerably. I've owned Facebook shares for a while now, still continue to own them, will own them for the next few years and probably beyond that. But that's my personal opinion, ultimately.
There are a lot of tailwinds behind the company. This is a positive move in the right direction, just like Twitter's.
O'Reilly: Yes, the most interesting thing, man. I could not believe Zuckerberg came out with that. I really couldn't. Very good. Thank you for your thoughts, Nathan.
O'Reilly: That's it for us, Fools. Before we go, I wanted to make our listeners aware of a special offer available to all Industry Focus listeners for a subscription to The Motley Fool's top performing Stock Advisor newsletter. Head over to focus.fool.com to learn more about this special offer.
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That's it for us, Fools. Thanks for listening, and Fool on!
Nathan Hamilton owns shares of Facebook, Google (A shares), and T-Mobile US. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.