Loving Prime Day, Fighting a Duopoly, and Getting Hip to CRISPR

Markets Motley Fool

On this Market Foolery podcast, host Chris Hill and Motley Fool Rule Breakers' Aaron Bush discuss how the cheesy marketing stunt that is Amazon (NASDAQ: AMZN) Prime Day has proven to be genius for the e-commerce giant. They also consider whether all the nation's newspapers bargaining en masse could staunch the flow of ad money to Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google. Finally, the duo explain why we should be paying attention to an obscure genetic engineering technology that may not be so obscure for much longer. 

Continue Reading Below

A full transcript follows the video.

10 stocks we like better than Facebook
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Facebook wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of July 6, 2017

Continue Reading Below

This video was recorded on July 11, 2017.

Chris Hill: It's Tuesday, July 11. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, from Motley Fool Rule Breakers, Aaron Bush. Happy Prime Day!

Aaron Bush: Happy Prime Day!

Hill: I saw on Twitter that it's an actual prime number day. It's 07-11-2017.

Bush: Sounds right.

Hill: I like to think that somewhere, Jeff Bezos knew that.

Bush: It's part of his master plan.

Hill: I wasn't even chalking it up to a master plan, he just seems geeky enough that he's excited that on Amazon Prime Day, it's actually a prime number. We're going to talk about Prime Day, we're also going to get into the looming battle between Google and Facebook and what appears to be every newspaper in the United States of America. And we're going to talk about CRISPR, and the first thing we'll do with CRISPR is explain what CRISPR is. Some of you may already know. I was completely in the dark on this. But, let's start with Prime Day. This is dominating the business media today because, this started two years ago on Amazon's 20th anniversary as a company. You and I were talking yesterday, and I confessed to you that, even as an Amazon shareholder, when Prime Day came up two years ago, I just remember thinking,"This seems kind of cheesy." I get it, it's their 20th anniversary, but it just seems like a pretty shameless way to get people to sign up for Amazon Prime. As an investor, I should have been thinking, "Look! A great way to get people into Amazon Prime!" And even though they had problems in 2015, and frankly, the press coverage wasn't all that positive, either, this is one of those things that only takes us two years -- some people saw it in the moment -- but now, we can look back and say, "This was yet another master stroke by Amazon."

Bush: Yeah. I think Prime Day is a bigger deal than people think it is. Absolutely, it helps acquire new customers, new Prime members. But I think that's probably actually most relevant internationally. If you think, India or Mexico, where they're newer and haven't really won over the space yet, having Prime Day is something that no one else can really do, so it attracts a lot of attention. Also, they can use Prime Day to leverage the members they already have. I was just looking this year, it seems to be all about the Echo. I won't say the A-word.

Hill: Yes. It has been helpfully pointed out by some of our listeners that, you need to call the Amazon Echo by its name, which is the Amazon Echo. If you say, as Aaron said, the A-word, then for anyone who actually listening on their Echo, it activates the Echo and messes up the listening. So, thank you.

Bush: Absolutely. Anyway, when consumers who have an Echo are able to get deals earlier, and sometimes they have more Echo-specific deals, and of course the Echos are on sale, too, so it's just driving what they want to be driven. Then, lastly, and I think this is probably a bit more under the radar, this actually affects the sellers, too. Over the past several quarters, there's been an acceleration of third-party sellers who are moving their services to fulfillment by Amazon, in which case they can take advantage of the manufacturing and the logistics, and be eligible on Prime. What's really interesting to me is, if you play Prime Day forward, you can see how they can add more tactics and strategy to it whenever they launch a new service or device. Even this Whole Foods deal, think about what they could do with Prime Day for that. Or, even the past couple weeks, they brought Nike on and built a storefront for Nike, or are going to. Bigger customers, bigger brands could also have a presence on Prime Day, too. So, I think Prime Day is just getting started.

Hill: If you think back to, again, for those who weren't paying attention in 2015 when this happened, you saw, on balance, negative coverage of this. Even people in the business media were saying, "We don't know exactly how many new Prime members they signed up, but they probably signed up a bunch, so long-term this was a win." But, short-term, Amazon took a little bit of a reputational hit, because there were some technical glitches, there were a lot of accusations of bait and switch, similar to what we see on Black Friday with traditional bricks-and-mortar retailers, where they're advertising the 90-inch flat screen TV to get you in the door and they only have a few of them on hand, and it's like, "We don't have those," those same kinds of things. I remember people were generating lists of pretty absurd, esoteric products that were on sale for Prime Day that you would look at and think, "Who is buying this 55-gallon tub of Vaseline?"

Bush: Hey, don't judge. [laughs] 

Hill: But, it does, as you talked about, if you play this forward, you can think about the different things they can do with it. In a way, Amazon's first Prime Day was always going to be their worst, in terms of the experience, because they do what they do at Amazon, which is they put something out there and then they say, "OK, this worked, this didn't, how do we make it better?" Way back in the day when they were just focused on, "What does the main page of Amazon look like? What are people clicking on? How do we make the experience more seamless?" I'm going to be doing some shopping tonight. I didn't do it on either of the last two. But, again, they've gotten better at it.

Bush: Yeah. If you need any ideas, I have a couple for you that I pulled in. The Roomba, today, I noticed, 33% off. You can get yeti garden statues for 30% off.

Hill: Wait a minute, the yeti garden statue, I've only ever seen that in, I'm blanking on the name, but there used to be this magazine you would get, it was a catalog you would get on airlines, and there would be a yeti statue. Is this the big one? The 6-foot yeti statue?

Bush: I think so. There are various versions, and you can get them all.

Hill: 33% off?

Bush: I think it's more like 30% off. Still.

Hill: All right. Get with me right after the episode, because anyone who's ever walked around Fool headquarters knows that a large yeti statue would not be out of place in a corner somewhere.

Let's move on to the news business. As I mentioned, this is going to be something to watch. This is, newspaper publishers, through their trade association, which is the News Media Alliance, and if you're old like me you remember back in the day this was the Newspaper Association of America.

The News Media Alliance, which represents 2,000 newspapers in the U.S. and Canada -- including, by the way, The Wall Street Journal, and this is a story from the Journal, so you have to assume that they are at least tacitly involved in this -- newspaper publishes are calling on the United States Congress to allow them to negotiate collectively with Google and Facebook as what they are calling a digital duopoly which increasingly dominates online advertising and news distribution. And that part is not new, this is something we've talked about a bunch of times before. The growth in digital advertising over the last year or two has been captured almost entirely, if not entirely, by Google and Facebook. Now, you have every newspaper in North America essentially going to the Congress and saying, "The old antitrust rules that are in place here don't apply, we would like a waiver for this." I don't know. The thing about members of Congress is, every one of them has a bunch of newspapers back in their district or home state. It will be interesting to see where this goes. If you're Google and Facebook, are you worried about this at all? Are you putting your lawyers on this to any significant degree? Or, do you just think, this isn't really going anywhere?

Bush: I don't think it's going to go anywhere. It's kind of interesting because of the legal angle on it, how it could have an effect for the newspapers. But at the end of the day, I think what they're pushing for doesn't make any sense at all. And their argument, in my opinion, is built off a myth. And the myth is, Facebook and Google are using their dominance to purposefully harm traditional media companies, and that's just not true at all. There's nothing purposeful about it.

Hill: It might be a byproduct, but it's not the goal.

Bush: It's the new rules of playing a new game. If you think about it, Google and Facebook are digital aggregators here, and the economics of content fundamentally changes on aggregated platforms. So, it's not wrongdoing in any way at all, it's just a new reality. And that new reality means that newspapers and other media companies have no choice but to engage in perfect competition on those sites, because it's just a void that needs to be filled on people's timelines. That essentially means commodity products with zero marginal cost. And the main issue here for the publishers is that they're still built for the old way of doing things, not the new one. They have large fixed costs -- salaries, marketing, budgets, all that kind of stuff -- and they're still reliant on a daily basis on the traffic and data that the aggregators have, just so that they can stay afloat.

What the News Media Alliance is pushing for is essentially an escape from perfect competition, and begging for a way to make the old business model still work in a completely new world. But, the truth that I think is maybe a little too understood is that newspapers made money in the past not by adding societal value. They made it by, perhaps ironically, having monopolistic control of print advertising in whatever geographic region they were in. And why Facebook and Google are so powerful here is because they stole newspapers' advertising dollars, not their reporting. So, it's really just a simple business model problem. And none of that is going to change. What would be needed for this to change is fundamentally altering the way that Facebook feeds work, or Google searches work in the first place, and that's just not going to happen. So, I think what we're going to see is probably a fallout even more in newspapers, but those who survive will be the ones that can prove that their content is good enough and can attract enough attention that people are willing to pay for it. So, only the people that have subscriptions will stay alive, but they're still struggling.

Hill: And if you look at the The New York Times and The Washington Post, just to name two, and the strides that those two newspapers have made when it comes to digital subscriptions -- The Washington Post is no longer a public company, but you can read the tea leaves of their business, particularly since Jeff Bezos bought them, and see that they appear to be having a similar level of success that The New York Times, which is a public company, is having in terms of digital subscriptions. The other thing, which is not a part of this, this is something that has nothing to do with Google and Facebook and everything to do with Craigslist, and that is want ads. Newspapers, as you said, once upon a time, they had this locality-by-locality monopoly on print advertising and want ads. And Craigslist came along and absolutely decimated that for the newspaper industry. And that was such a cash machine for so many newspapers. So, that's another thing. Even if this is successful for newspapers, let's say that Congress totally backs them on this, let's say that everything breaks their way, they're still not going to get close to the levels of profitability that they had when their want ad sections were really fat.

Bush: No, not at all. And I do think there will be a shakeup also in the sense that new business models will emerge, meaning that new players will emerge, too. I think, a lot of times, the traditional players have a really hard time changing their plans to fit how things will work in the future, but that also creates a void for those who are more social media-native, like the Buzzfeeds of the world, also, take over and carve out some space for themselves.

Hill: So, every once in awhile, I like to walk by your desk and ask you, "What are you working on right now? What's something that's caught your interest?" And you had brought up this, [laughs] frankly, you brought up a word I had never heard before, and that is CRISPR. I should say, an acronym I'd never seen before. CRISPR stands for -- stick with me, folks -- clustered regularly interspaced short palindromic repeats. Let's do this again, shall we? CRISPR: clustered regularly interspaced short palindromic repeats, which is essentially a very fancy way of referring to biotech engineering.

The analogy that our colleague Michael Douglass mentioned to me, and also appeared in the article I read is that, imagine a DNA strand, and you have this microscopic pair of scissors, and it enables you to snip out one little piece of the DNA, and you can do any number of things with that, depending on which DNA we're talking about. This potentially has ramifications for food supply, for disease, for medicines, for treatments, all that sort of thing. Tell me where this space is right now, and what you're watching when it comes to this space. Biotech engineering has been, I would say, maybe not at the forefront of the news, but certainly 15 years ago or so, when we were going to sequence the human genome, what that was such a dominant story, I think since then, this is an industry that investors have at least had on their radar to some degree or another.

Bush: Right. I think it's still new enough to not be super relevant for investors. But every day or week that passes by, it becomes slightly more relevant. I think for the most part, the progress has been mostly restricted to labs, getting the fundamental technology itself to work, where you can actually change the genes in whatever creature. But, it is starting to move out more into the mainstream, and it's starting to become more relevant and creating cures for diseases and actually doing things with it. In my opinion, it's kind of like a big idea at this point. There isn't a lot to back it up. But, if you do play it forward, it is one of those really big ideas. It's probably on par with augmented reality, or machine learning, or cryptocurrencies, even, that can just disrupt the way that things are done at a fundamental level. So, I'm excited to see where it runs. But it's still definitely the early days.

Hill: And that was another thing Michael Douglass mentions. He said, "This is super early stage," and there are pure-play companies out there, one of which was smart enough to get the name CRISPR Therapeutics, so kudos to whoever nailed that one. But, you were saying before we started taping that there's a move right now to create a patent pool, because you could see where, for some companies, this could become incredibly lucrative. You could also see a situation where -- and it sounds like this is maybe part of what is driving the move toward a patent pool -- everything could just get tangled up in legal "he-said, she-said, that's my patent" stuff.

Bush: Right. One of the main blockers to the development of CRISPR is an ongoing fight over patent rights. I think we're at the point where things are getting slow and getting caught up legally. As you can imagine, there are several universities, labs, biotech companies just clamoring over this, trying to pile on as quickly as possible, because it is going to be one of the next big things. And right now, there are a few exclusive licenses that are probably too broad in the market, and should probably be re-evaluated so that there aren't specific gatekeepers to the technology. So, yeah, this needs to form a patent pool and simplify the licensing process, could ease that patent logjam and really help accelerate CRISPR's development across everything, across the entire space. So, right now, this is still at the proposal level, and I don't know how quickly that's going to move, because there are a lot of players here. There's still negotiation to be done, but if the negotiations go well, I think this could start to become much more relevant for investors sooner. And something with the biotech space in general is, you do need to invest early to get the big results. And if you wait until there's a drug on the market that works, you just missed a several-billion-dollar run-up. So, it is important to be watching these early moves. And seeing how all the different players, the Editas, the CRISPR Therapeutics, and others, how they're going to shake out in this patent pool issue.

Hill: It sounds like, as investors, we should be rooting for the patent pool to come to fruition, because that's going to accelerate the process, instead of being -- and I'm just pulling these numbers out of thin air -- 10 years away from treatments being on the market, we are five to seven years away.

Bush: Yeah. I think it's hard to put specific numbers on it, but yes, that's definitely the idea. It'll allow companies to more quickly start building their own technologies and their own patents on top of a larger pool that's available to everyone.

Hill: To make this both more real and more fun, one example that I dug up when I was clicking around this morning, an article from Scientific American -- which is six years old, by the way. I'm angry that no one in my life flagged this article for me. It was basically how researchers took the fluorescent proteins that appear in jellyfish genes and inserted them into a common household cat. And so, boom, glow-in-the-dark cat. I mean, who's not excited about that?

Bush: What else can you ask for?

Hill: Actually, our man behind the glass, Dan Boyd, when I mentioned that to him, he was like, "No. I have no interest in a glow-in-the-dark cat, they're enough trouble as they are at nighttime. Add the glow-in-the-dark feature and that's not sweetening the deal for me." Really interesting stuff. Definitely something to keep an eye on. Aaron Bush, thanks for being here!

Bush: Thank you!

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 anything based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening, we'll see you tomorrow!

John Mackey, CEO of Whole Foods Market, 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. Aaron Bush owns shares of Alphabet (C shares), Amazon, Facebook, TWTR, and WFM. Chris Hill owns shares of Amazon and WFM. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, NKE, TWTR, and WFM. The Motley Fool recommends NYT. The Motley Fool has a disclosure policy.