In this episode of Industry Focus: Tech, Dylan Lewis talks with Daniel Kline about some of the biggest trends and most exciting innovations he's seen so far at CES 2017. Find out how the wave of smart home technology has swept its way toward the mainstream, why drones aren't likely to find a market application any time soon, a few things that investors need to be wary of any time they read about an industry trade show, and more.
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A full transcript follows the video.
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This podcast was recorded on Jan. 6, 2017.
Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, Jan. 6, and we're getting a dispatch from our boots on the ground at CES. I'm your host, Dylan Lewis, and I'm joined on Skype by fool.com contributor Daniel Kline. Dan, how's it going over in Las Vegas?
Daniel Kline: Oh boy, it's a little colder than expected, but it's pretty exciting out here.
Lewis: This is kind of like your Christmas, right? You're Mr. Gadget for fool.com.
Kline: (laughs) Here's the thing: It's my Christmas if right at the end of Christmas, everything you get gets taken away. (laughs) You know? You get to see a lot of really cool stuff, but you don't get to take it home.
Lewis: Yeah. It's a lot of demos and trials at the Consumer Electronics Show in Las Vegas. For folks that might not be as familiar with your work, Dan, I would say that when it comes to trying stuff out and reviewing it, or just buying it for the sake of having a sense of what this consumer technology might be like, you're kind of the king for The Fool.
Kline: I was going to say, in terms of being a dummy who owns 17 smartwatches and an Apple Newton, that's me.
Lewis: But this is right up your alley. I was really excited that you were going to be traveling there, and we could have you on the ground, so we could get a little report on what you've seen so far. The conference started yesterday, right?
Kline: It started for me yesterday. There was a press day before that, but I was stuck in travel problems. It's the second-biggest show of the year here in Las Vegas, so getting here is a challenge. Flights get backed up, and there was some weather, so that was interesting. But what I found most shocking -- I wasn't here last year, but I was here two years ago, and if you replace 3D television with 4K television, I'm seeing a lot of the same things. There's booths full of drones, there's a lot of A.I., there's a lot of home automation. I'd say the home automation is a little bit more practical, because a lot of it is tied to the Amazon Echo, or other devices like that, which actually have some penetration. But, if you changed those TVs out and told me it was two years ago and I had fallen into a time warp, that's kind of what it's like here.
Lewis: So, your point is, year to year, there hasn't been a big difference? And, actually, you weren't there last year, so you're talking two years ago.
Kline: I was not there last year, so it was two years ago. And two years ago, you walked out and everybody was trying their different smart devices. And I think yesterday, I saw a smart toothbrush that performs the same functions as that little tablet they gave you in sixth grade that turns the plaque red. I saw a smart pillow, a smart mirror, a smart shirt, I'm not even sure what the shirt did. But, there's just an awful lot of stuff here that's just mild variants on things that already do work. I'm not seeing, for example, any major evolution in smartphones. I'm not seeing laptops that look different. At least, two years ago, you got those portable stick laptops, the computers, they felt like they were going to become a thing but it never really did. I'm not seeing anything like that. The innovations are incremental. Charging -- there's some very interesting quick-charge products. There are a lot of device holders that are sort of revolutionary, like, if you want to wear your smartphone on a ring. There really isn't any category that I look at and say, "Oh, wow, that's going to change how we make coffee," or "That's going to change how I get to work," or anything like that. It's all very incremental.
Lewis: So, if we're not seeing new categories coming out, why don't we talk a little bit about the categories that did exist a couple years ago, and maybe what the next phases of those types of devices look like. I know that you've already written a little bit about the smart home market in some of your CES coverage, which is available on fool.com. The Consumer Technology Association, which is the trade group that puts on CES, released a report saying that smart homes would be the most popular means of Internet of Things engagement. They're also predicting 29 million units of sales in 2017, which would be over 60% increase year over year. Can you talk a little bit about what you're seeing in respect to that market?
Kline: Yeah, I mentioned this a few seconds ago, I'm seeing a lot of things that tie into Amazon (NASDAQ: AMZN) Echo, Microsoft's Cortana, even Apple's iPhone -- technologies you already have and already understand. Two years ago, everybody had a platform. They were trying to get into your living room, they were trying to control things. Now, it's much more, "OK, we know what the platforms are, we know that about 20% of Americans have iPhones, and the Echo has been a huge seller." So, it's really tying in useful things to that. My mom isn't going to buy a stand-alone light bulb or a thermostat device that she then has to get an app for. But if she can plug in a light bulb and tell her Amazon Echo, "Echo, turn the light on," she might do that. We're starting to see practical implications of the sci-fi reality of walking into your house and saying, "Kitchen, make me a bagel."
Lewis: And it seems like this is really, largely, in response to consumer demand for this type of technology, right? This is something that, broadly, mainstream consumer seem to be clamoring for.
Kline: I think it was sort of a sneaky backdoor by Amazon. When the Echo came out, it was really pushed as a music player. And it's a lovely music player. You can walk into your living room and say, "Play Bruce Springsteen," and it'll play whatever you like. And then they slowly -- and we have a Fool skill on there, you can listen to the podcast by asking for it -- and that became very useful. So, it's not a huge leap when you're already using that. If you're already using Siri to give you directions, it's not crazy to ask a Siri-enabled device, whether that be a phone or Apple TV or whatever it is, to give you a recipe, and eventually to tie into, maybe, monitoring the temperature of your house. It's gone from something your cool geeky friend would have to, "Oh, OK, I already understand this, and now we can go to Target and buy this device, and that will integrate this way." And you're seeing a lot of that.
Now, there's plenty of stuff that will never make it to the home. I think there's a level of monitoring -- I saw a multiple smart home beds. I buy you might try the Sleep Number bed, where you can adjust it yourself. I'm not sure you need data analytics on how many times you flip over during the night.
Lewis: Yeah, that's a little invasive for the bedroom, I think.
Kline: It's just, people are trying to give you data you're not looking for. Now, for some person -- if you're not sleeping, that might be very useful. But it becomes a niche. And the real winners are going to be people that provide everyday usefulness. The first time you could put coffee beans in a Mr. Coffee and program it so when you woke up, something was there, that you didn't have to do that in the morning, that was a practical innovation. And you're really starting to see that with home automation now.
Lewis: OK. We talked about home automation. One of the other categories you mentioned was VR and AR. This seems to be one of the segments that might enjoy the most year-over-year growth. I know that CTA expects sales of 2.5 million units, or 80%, basically, year over year. What are you seeing with that segment there?
Kline: It's all Samsung. I actually had dinner last night with Jack McCauley, one of the gentleman who created Oculus. Samsung licenses the Oculus technology. He admitted that the devices are awkward to wear, and right now, it's really a gaming niche. You're seeing some really interesting gaming technology. What you're not seeing is how it breaks out beyond that. Microsoft isn't here, at least not officially. You might see HoloLens or some product like that have a real commercial application. You saw a little bit of it with Google Glass, where a doctor could be using it in the operating room to get outside advice. You're seeing a lot of high-end plays like that. But you and I, even me as a gadget guy, I'm not spending $799, $999, whatever it is, to buy a high-end device. But you're going to see a lot more penetration in the $99 to $199 market, whether that be with the Samsung product, or with Sony products. And I assume, eventually, we'll get some version of that for Xbox. And the gaming technology is incredible. Where you're seeing a lot of advancement is in how your head moves to get rid of some of that motion sickness that's associated with it. The technology is just leaps and bounds better than what it was even a couple of years ago.
Lewis: I think one of the ways that you can look at the VR market, particularly with gaming, is the rigs that are dependent on a computer, and are generally much costlier, and the headsets that you can run with your smartphone, and just put your smartphone in. It sounds like some of the more smartphone-oriented ones have a clearer path to market, and maybe more mainstream appeal. Is that what you're seeing?
Kline: Yeah, that's going to be the short-term growth. But I think you might see some of the higher-end devices -- you know how now, you can go to your local movie theater, and they're showing an opera, or a sold-out UFC fight, or that type of experience, you might pay $25 or $30 for it? It's not crazy to think that someday, you're going to go down to your local Dave & Buster's or a movie theater or whatever it is, put on a headset, and watch the Superbowl from the 50-yard line, or a NASCARrace, or a concert, or whatever it is. There might be some commercial applications that are frivolous like that that justify a store or a business spending a couple grand for a setup in a way to get a monetary return that isn't just a novelty.
Lewis: I have to ask this because it's a topic that people love to hear about: What's going on with drones at CES?
Kline: They're everywhere, and I have not seen any sort of viable application for them. There are some very cool variations of the drones you see at Brookstone, the Star Wars-like drones. There's a lot of cool kid game applications. There's a lot of hobbyist, high-end, $600 to $700, you play with it in your backyard, you spy on your neighbors, whatever creepy thing you're doing with it. There are dozens of people showing drones, and nobody explaining why I'm going to buy it and what I'm going to do with it, other than some very silly things. There are, obviously, commercial applications of drones. Wal-Mart is using them to do inventory in its warehouses. You're not seeing a lot of that there. The drones are almost exactly what you saw two years ago, except maybe they're a little bit easier to pilot. The technology is very cool, but I don't know, do you need a drone? What would you do with it?
Lewis: Yeah, I don't personally have any use for them. Actually, I don't think, as a resident in the District of Columbia, I can have a drone. I'm pretty sure they don't allow that, at least near the capital. (laughs) So I certainly don't have a use case for one. It has seemed for a long time like the more upscale camera-shoot type drones, if you're trying to get big landscape shots or stuff like that, maybe farmers using them for agricultural purposes, obviously Amazon has delivery intentions with drones, it's going to be a lot more targeted enterprise stuff than mainstream consumer tech, at least in my eyes.
Kline: See, I know Amazon is putting a lot of effort into them. I've seen the videos. I think there's limited applications for that. If you're Amazon, it might make sense to use a drone to deliver to someplace you're never going to send a truck. But I don't picture a sky full of drones delivering me a bag of gummy bears and you a book. It does not seem like the most practical way to do it. And that goes to something else I've seen a lot of here: robots. There are, I'll call them "fake robots," because this isn't a robot with a personality where you're going to have to tell it what to do. It's really an iPad strapped to a robot that has a little bit of A.I. programming, so it smiles when you say "hello." And they're everywhere. They look like people, they look like the end scene in Battlestar Galactica, where you start to see robots taking over the world. But, again, like the drones, they do some interesting A.I. stuff, but they don't really have any more technology than the robots from the 1980s that were really just R.C. cars that you could use to bring your friend a drink.
Lewis: Now, the companies that are behind those types of robots, are there any big players in that? Or are these mostly small start-ups?
Kline: They're small start-ups, and "look at me!" from some of the big players. I'm not going to say directly who, because I don't remember. You do see robots at some of the larger, higher-end booths, but I think it's more to flag down your attention. It's not the product they're going to bring to market. Just like there's some concept cars here, there's a lot of driverless technology, a lot of really interesting driver-assisted technology, but they're really just to get headlines. They're years away. You might see aspects of them, but I don't think there's any viable player in the U.S. who thinks that tomorrow, in your house, you're going to have a robot butler who's powered by an iPad. It just doesn't seem practical quite yet.
Lewis: Yeah, trade shows, particularly CES, are full of more gimmicky, less useful, or less recognizably mainstream-application-type technology being shown off. What were some of the very cool things that you've seen?
Kline: Well, after spending a day walking around, the booths full of massage chairs looked pretty inviting.
Lewis: (laughs) I bet.
Kline: But, really, the coolest stuff I'm seeing are things I could imagine actually having. There are some, call them hover-sled-like transportation devices that build off the Segway model, that you could see, maybe, eventually being a practical urban way of getting around. You're also seeing a lot of really cool home automation stuff that I don't think is going to be mainstream, but for some of us who are very tech-oriented, it's more practical in the next year or two for me to really make everything in my house work on a voice command. I can see some ways to do that. I've also seen some very cool wearables, where whether it's interacting with a video game or controlling a drone or a robot, there's some very cool gloves and other devices that seem like fun. Whether any of these are actually going to make it to market or not, that's very hard to know.
Lewis: Yeah, I think that's one of the most important things that you have to keep in mind when you see buzz from CES or South by Southwest, or really any tech trade show. You have people trying to make a splash and trying to get headlines and get a lot of press. That leads to, in some ways, needless innovation, or innovation without a marketplace, necessarily. I remember at South by Southwest in Austin last year, one of the coolest things I saw, bar none, was a VR headset rig that used an Oculus headset, but then also had this fighter jet-type pod. So, you put on the headset, you got in the pod, and the headset reacted to the movements of the pod itself. So, you could be flying upside down, doing tumbling 360s, whatever, and that's what you were experiencing in the headset. It was fully immersive. I was talking to the guys who developed it afterwards, and I said, "What's the application here? How are you guys going to bring this to market? This seems like this probably cost $500,000 or $1 million to develop, so I can only imagine it's going to be extremely expensive to buy as a consumer." And they said, "You know, we're not really sure yet. We're in the business of making cool stuff and then figuring it out later."
Kline: That's the theme of the day here. I walk around the show and I picture myself walking with the Shark Tank people and just dismissing 80% of these as "cool, but a bad idea." There's so much innovation that doesn't solve the problem. I don't need my smart shirt to tell me I'm sweating because it's hot. There's so much of that. When you look at technology, what technology do people buy? If it's truly transformative, you might buy something you never thought you needed. But for the most part, if it doesn't solve a problem for you, you're not going to spend money on it. A smart mirror that tells you your lipstick is smudged -- which is pretty much something you can see in a regular old dumb mirror -- isn't going to break through, no matter how cool it is. And the price tag on all this stuff ... It's one thing if Apple says, "We're going to give you something you don't need, but we can make a billion of them and price it accordingly." When it's one of these small booth companies that has some sort of innovative tracking system for, I don't know, a smart plate, so you can keep track of what you're eating and lose weight, that sounds very cool, but it's never going to become a mainstream product.
Lewis: Yeah. I think, as an investor, you need to take whatever excitement you have -- whatever the tech side of you is that gets really excited about what you're seeing at some of these trade shows -- and always bring it back around to, what does addressable market realistically look like for some of these businesses? To bring it to companies that are publicly traded and very popular now, you look at GoPro or Fitbit. These are businesses that, maybe the market thought the addressable market was a lot larger than it actually is, and they've hit saturation a little bit quicker. And these are wildly popular consumer devices. So, to scale that back down, some of these extremely niche products, especially the smart solutions like the mirrors and plates you're talking about, it's tough to see really getting mainstream appeal.
Kline: Yeah. The interesting thing is, two years ago, maybe longer than that, I would have looked at the robot vacuum, which now you can find in the $300 range, maybe even less on sale -- but, when those were $500 or $600, I looked at it and went, "OK, that's kind of cool, but nobody is going to spend this kind of money." And I was wrong. That has become a breakout category. And it's pushed the prices down, it's expanded the market. I don't know if it'll ever be something that everyone has. It's not correct for every home. But, that was an example of something that seemed a little bit ridiculous that broke through the market. And I'm sure there's products like that here, but I haven't seen anything -- even as a real tech guy -- that I thought, "Oh my God, sell me one of those, I don't care what the price is."
Lewis: Yeah. So, Dan, we're coming to the close of the show here. Before I let you go: What can people expect for future coverage from you for the next couple days? Anything to look forward to, anything you're really excited about, anything like that?
Kline: I'm going to spend today looking at things that may actually impact you. I'm going to go over and look at the new product that Dish introduced, where you can integrate over-the-air television with some of your streaming services, making all of that one box. I'm going to try to focus on things like, this is a practical battery charger that I might buy that's already on the market. I'm going to get away from the fanciful, and look at, these are the five things at CES that you could buy at the store next week that you might actually buy.
Lewis: Well, we'll be looking forward to reading it. Listeners, if you want to check out any of Dan Kline's coverage, you can find it on his author page on fool.com. We also have Supernova team lead David Kretzmann at CES. You can find all of his content at ces.fool.com. Thanks for joining us on today's show, Dan!
Kline: Thank you!
Lewis: Listeners, that does it for this episode of Industry Focus. If you have any questions, or just want to reach out and say hey, shoot us an email at email@example.com. You can always tweet us @MFIndustryFocus, as well. If you like the show and are looking for more of our stuff, subscribe on iTunes, or you can check out The Fool's family of shows 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. For Dan Kline, I'm Dylan Lewis, thanks for listening and Fool on!
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Daniel Kline owns shares of Apple and Microsoft. Dylan Lewis owns shares of Apple. The Motley Fool owns shares of and recommends Amazon.com, Apple, Fitbit, and GoPro. The Motley Fool has the following options: long January 2018 $90 calls on Apple, short January 2018 $95 calls on Apple, short January 2019 $12 calls on GoPro, and long January 2019 $12 puts on GoPro. The Motley Fool recommends Dave and Buster's Entertainment. The Motley Fool has a disclosure policy.