Is Facebook's Latest Move a Shot Across Twitter's Bow?

In today's fast paced, technological social spaces, everyone wants instant access to the information they need wherever they go.

On today's edition of Industry Focus, we'll hear -- among others -- how Facebook (META -0.52%) is taking iOS to the next level by making news available instantly, without leaving the comfort of your social media page. 

A full transcript follows the video.

Sean O'Reilly: We're talking old Internet and new Internet on this edition of Industry Focus.

Greetings, Fools! I am Sean O'Reilly joining you here from beautiful Alexandria, Virginia, just south of the nation's capital, Washington D.C. To my left is the incomparable Dylan Lewis. How are you today, sir?

Dylan Lewis: Doing all right, Sean. Ready to talk some big tech.

O'Reilly: Yeah, a couple of big deals coming up. Actually before we get into -- if you're just joining us we're going to talk about the AOL (NYSE: AOL) / Verizon (VZ -0.53%) buyout and then of course, recently it was my Facebook and its quest for domination. But before we sat down here we got a notification that Carl Icahn himself, the formerly '80s buyout titan now just hedge fund guy is investing $100 million in Lyft.

Lewis: Yeah. Interesting move.

O'Reilly: Icahn is notoriously loud. So, I'm interested to see what he does starting tomorrow about Uber's...

Lewis: Yeah, I feel like Uber had a big enough target on its back before Carl Icahn invested in Lyft. Now it's going to be really interesting to watch that space.

O'Reilly: Every day he's going to be tweeting "Uber is the worst people in the world."

Lewis: Yeah.

O'Reilly: I got -- did you catch what Lyft got valued at then? Because they raised $150 million and he was $100 because Uber just got valued at $50 billion. That's a five, followed by a zero, followed by nine more zeroes. Anyway. So, late last week, AOL finally managed to sell themselves.

Lewis: Yeah. 15 years after the merger.

O'Reilly: Fun fact, they're selling to Verizon for $4.4 billion in stock and this in considerably smaller than the first AOL merger back in the '90s when they merged with Time Warner (TWX) and that was $165 billion.

Lewis: Yeah, it's amazing how they're business has changed quite a bit since then.

O'Reilly: Very much so. So, what did you think when you heard this?

Lewis: It's tough because I forget about AOL all the time. It is that old Internet.

O'Reilly: Yet, it was how we first got in the Internet.

Lewis: Yeah, and you made that joke that Verizon really wanted the two million dial up customers that AOL still has.

O'Reilly: Yeah, I don't know if our listeners know this, but there are 365 million Americans, and two million of them still have AOL dial up. I don't know where they are, but yeah.

Lewis: We're guessing remote areas of the country.

O'Reilly: Yeah, like upper Maine or something. Anyway. Fun fact, the investment bankers working on this deal for Verizon -- had the codename of Project Hanks, a nod to the '90s romantic comedy You've Got Mail.

Lewis: I guess you have to have some fun when you're working on that.

O'Reilly: Somebody find out what Meg Ryan thinks about all this.

Lewis: so, if they're not going after the dial up customers, what is the play here with this deal, Sean?

O'Reilly: So, they interviewed Tim Armstrong, the CEO of AOL. Kudos to the guy. This stock was at $20, not it's at $50 and he actually made $200 million because he kept buying the whole time. He said "If you look at AOL over the last five years, we've turned the company around. We [...] the S&P, and we made AOL as big as it possibly could be in today's landscape. But if you look forward five years you're going to be a in a space where there is a massive global scale network.

So, there's no better partner to go forward than Verizon. Basically it's about content. Obviously it's a little bit different than Comcast (CMCSA -0.37%) buying NBC. This is an instance of distribution buying content. That's where the future is.

Lewis: What exactly do they have in terms of content?

O'Reilly: Huffington Post, of course. No, it's basically -- the real reason, in my opinion, that Verizon's doing this -- AOL's basically made a new business, not out of dial up customers -- but off of being really good at ads. They own a bunch of media properties and they are very good at targeting the ads. I read one analyst saying this is basically Verizon's way of getting really good ad technology.

Lewis: Okay. So, are they going to be pushing that then to wireless subscribers? Is that the play?

O'Reilly: Yeah. That's the evil scheme, I think. AOL's really perfected their ad technology over the last five years. That's what the company was able to turn around. I don't think they'll keep a couple of the media properties, but the ad technology and the patents and stuff, that's what Verizon's after, and that's what they paid $4 billion for.

Lewis: Yeah. The market was obviously happy with people holding AOL. There was a nice little pop there, right up to about what the acquisition price was going to be. Do you see anything in terms of what the reaction was for Verizon?

O'Reilly: The stock was down negligibly. Like, 1%. It didn't even matter. But, Verizon's CEO likes it. He was like "Verizon's vision for our customers is a premium digital experience based on a global multi-screen network platform. This acquisition supports our strategy to provide a cross screen connection to our customers, creators and advertisers to deliver a premium customer experience. If you look at the industry going forward five or ten years, the Internet and what people were allowed to do with content was going to be increasingly commoditized.

We could spend -- let's say you and I both lived to 90. We could spend the rest of our lives watching content on Amazon and Netflix and stuff like that. You can just go nuts. And they need to differentiate themselves and really have a great experience, and that's what Verizon's trying to do.

Lewis: Very interesting.

O'Reilly: Moving on to the big news of the day. Oh, man.

Lewis: Well, I guess this is kind of a content play, too.

O'Reilly: Yeah. It's -- OK. Why don't you tell us what Facebook is doing.

Lewis: So, on Wednesday of this week Facebook rolled out its instant articles feature to mobile.

O'Reilly: when you sent this to me, the imperial march just popped into my mind. I pictured Darth Vader flipping through his phone on Facebook.

Lewis: Yeah. This is specifically for iOS. There isn't any Android functionality at the moment. Basically, Facebook is always looking to be more efficient, provide a better use experience -- realized that linking out to stories -- so clicking on one of their lovely, presented icons and linking out to CNN or something like that would take an average of 8 seconds to load on a mobile experience. It's the slowest single content type on their platform.

So, they wanted to create a more seamless user experience and they partnered up with content providers. Currently nine -- mostly news networks -- some other more Internet content stuff like BuzzFeed and stuff like that -- and they have what they're calling Instant Articles, which are Facebook hosted and they're in the skin of the content provider.

So, New York Times, National Geographic -- they have full control over that. But it is hosted on Facebook.

O'Reilly: When you first told me this I immediately realized this is bad for Twitter (TWTR).

Lewis: Yeah.

O'Reilly: Because that is the one thing Twitter had on all the other social media networking apps. People like to scroll through their Twitter and get a feel for what's going on in the world.

Lewis: Yeah. That's pretty much what I use it for. I don't know that this is going to be an overnight news revolution. There's still quite a bit of a ways to go. I know that most of the partners that are involved with this -- just to give you a feel for some of the big names -- New York Times I mentioned, National Geographic, BuzzFeed, NBC News, The Atlantic, Guardian, BBC News, a couple others.

O'Reilly: When something happens on planet earth, those portals pretty much know.

Lewis: Yeah, and they are -- New York Times is nation's paper record.

O'Reilly: Right.

Lewis: So, it is the major players in the news space that you want to have involved. I'll get to the Twitter impact in a bit, but I think it's important to note that in order to court these nine partners, Facebook gave up a lot.

O'Reilly: really?

Lewis: Yeah. So, they approached about 20 content providers in August.

O'Reilly: So, Zuckerberg knocks on New York Times' door and says what?

Lewis: "Hey, this is what we're looking to do. We want to provide content on Facebook."

O'Reilly: And the New York Times said "Okay, but it's going to cost you."

Lewis: So, I have the most insight from their meetings with BuzzFeed. BuzzFeed said "yeah, we're on board. This is something we're interested in." And they basically gave them seven points that they needed to hit for this to make sense for BuzzFeed. They said they needed compatibility with comScore (SCOR -1.90%) traffic measurement, compatibility with Google analytics to understand their audience, GA -- Google analytics -- has to work across all of its content, they need compatibility with BuzzFeed's internal analytics tool, control of design to make it look like it's in the content publisher's skin, ability to work with BuzzFeed on special formats -- things like quizzes, slideshows and things like that -- and of course monetization; the big deal.

Facebook came back in January and said "We can do all that."

O'Reilly: Wow. Do you know how anybody's getting compensated at all? Is it just a penny per whatever, or what?

Lewis: I don't have the 'per click' type thing.

O'Reilly: That is how it's being compensated?

Lewis: I believe so, because it's all ad based. So, what they have published is the ad splits. If the content providers sell their own ads then they are receiving 100% o that ad share. If they use Facebook's audience network, Facebook will keep 30% and publishers will take 70%.

O'Reilly: You know you're running down those bullets, and none of them sounded like anything that Mark Zuckerberg and company would object to, because it's not what they want. They want Facebook to be the place you go for news and everything else.

Lewis: Yeah. The other thing that I was blown away with was, there's no exclusivity with this.

O'Reilly: Really?

Lewis: Yeah. So, it's not like Nat Geo puts out this really in depth spread on B populations.

O'Reilly: That only goes to Facebook.

Lewis: And you can only get it on Facebook. It's available on Nat Geo, too.

O'Reilly: But on the flip side, Facebook has a billion users.

Lewis: Right.

O'Reilly: So, maybe it doesn't matter.

Lewis: So, this totally makes sense for Facebook, but usually when you see...

O'Reilly: That's a big win for New York Times, right?

Lewis: Well, it depends. I think this makes a lot of sense for certain publishers. Just to give you some context, Nat Geo said about 25% of their traffic comes from Facebook. Granted, some of that's desktop, not all of that's mobile. This is specifically targeting mobile right now. Is it good for publishers? I think it depends on the publisher's business model.

If it's an ad supported model -- something like BuzzFeed -- heck yeah. This is awesome. They're expanding their exposure, they're not losing any of the content, they're pretty much giving it another avenue, and they're leveling Facebook's ad platform.

O'Reilly: And the users get -- you're talking about 8 second load times. It's a better experience.

Lewis: Yeah. The experience on Facebook -- it's sexy. I was playing around in it before and...

O'Reilly: Yeah, what were you showing me? The gyroscope knows when you're looking at something.

Lewis: Yeah. There's some very cool functionality with this. I think they're just trying to give a fully interactive article experience. They have some interactive maps, audio captions to accompany articles, they have audio play videos, and I think one of the coolest things -- this is something that Facebook ported over from its page application -- this zoom and tilt functionality that uses the gyroscopic sensors in an iPhone to -- almost like a periscope if you were looking around in a lens, if you were zoomed in on the video.

O'Reilly: On a video on National Geographic, or something?

Lewis: Yeah -- which is pretty cool. So, there's a lot of really awesome stuff here for publishers. I think where some outlets are a little wary is that, if you're subscription base this I tough because you're giving away some of your content, arguably...

O'Reilly: For free.

Lewis: Some of your better content for free. So, you have people like New York Times that are a little cautious about that. They're involved and I think most of the publishers have said that they're only going to be doing a couple articles a week. But you have to question "Is it worth it to be giving away?"

O'Reilly: There's a cost benefit -- because if you're New York Times, it's 2015 and papers are dying and you don't want your brand to go away. So, you do this, but -- yeah.

Lewis: Yeah, and you know Nat Geo's the same way. I saw one of their first ones. I think Facebook said they can have two to three ads for 500 words and one of the full features that they put on there, all the ads were for Nat Geo membership. So, if you choose to do it that way you can. You're foregoing ad revenue, but if some of these outlets want to try to push to digital media subscriptions, or physical paper subscription that's something they could do.

O'Reilly: Wow. So, bring it back around. Do I need to sell my hypothetical Twitter shares?

Lewis: I don't know. It's interesting with Twitter. Like I said, the scale isn't quite there for Facebook. I don't think publishers are going to go cray with this. I think it's going to be something they slowly roll out and see what happens. Something that's interesting is the reporter's byline on the pages links to the Facebook profile of the writer.

O'Reilly: Of the writer? So, if we wrote on our -- yeah.

Lewis: So, you're seeing Facebook start to creep in and create this whole ecosystem, right? Something that we've joked about is people confusing Facebook for the Internet.

O'Reilly: Yeah. In our Internet.org discussion.

Lewis: Yeah, and had the troubles that come with that. Something that I noticed isn't linked with these instant articles is Twitter accounts. Typically if you go to BuzzFeed, or something else, there's...

O'Reilly: you've got five buttons at the bottom.

Lewis: Yeah, like tweet this option. From what I've read online you can share articles to other platforms. In playing around with it, it wasn't particularly easy to do. So, I don't know if that's by design, or if that's something that...

O'Reilly: Yeah, you try to do a copy thing on your phone and try to paste?

Lewis: I guess that's the way you have to do it because if you just go to 'share', it's just sharing within Facebook. It's not sharing outside of Facebook. So, there's some reason for concern, but I think it depends on what publisher reaction is with this and whether they're seeing the benefits. If they are then Twitter might have to worry a little bit.

O'Reilly: the evil empire's expanding. That's what I think. Very good. Well, thank you for your thoughts Dylan, that was good stuff.

Lewis: Always a pleasure, Sean

O'Reilly: well, that's it for us Fools. Before we go I want to make our listeners aware of a special offer for all of our Industry Focus listeners for a subscription to Motley Fool's top performing Stock Advisor newsletter. It was created over 10 years ago by Motley Fool co-founders Tom and David Gardner. Head over to focus.fool.com to learn more about this special offer. You will get two free stock picks each month, chosen by our team of analysts. Once again, that's focus.fool.com.

And as always, people on this program may have interest in the stocks that they talk about and the Motley Fool may have formal recommendations for or against. So, don't buy or sell anything based solely on what you hear on this program. For Dylan Lewis, I'm Sean O'Reilly. Thanks for listing and Fool on!