Motley Fool Money - The Case Against Google

Episode Date: April 6, 2018

Facebook deals with a growing crisis as Mark Zuckerberg prepares to testify before Congress. And Spotify makes its Wall Street debut via a direct public offering. Our analysts discuss those stories and share some stocks on their radar. Plus, Pulitzer Prize-winning reporter and best-selling author Charles Duhigg talks trade wars, innovation, and the case against Google. Learn more about your ad choices. Visit megaphone.fm/adchoices

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If you have a growing business and you want to acquire more customers, then you need Active Campaign. Their solution goes beyond marketing automation, getting the right type of message to the right person at the right time. For a free trial, go to activecampaign.com slash fool. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full Money Radio Show. I'm Chris L joining me in studio this week.

Senior analyst Jason Moser, David Kretzman, and Aaron Bush. Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. Pulitzer Prize-winning writer, Charles Duhigg is our guest. And as always, we'll give you an inside look at the stocks on our radar. But once again, we begin with the ongoing saga at Facebook. Next week, CEO Mark Zuckerberg heads to Capitol Hill to testify before House and Senate committees.

This week, Mark Zuckerberg and Chief Operating Officer Cheryl Sandberg embarked on what the Wall Street Journal has called the Facebook Apology Tour. Saying all the usual things, David, mistakes were made. This feels like one of those situations where it's going to get worse before it gets better. Well, as a Facebook shareholder, I certainly hope not. And I feel like all of this is a precursor to Zuckerberg testifying before Congress next week. That's really what everyone is waiting for. And I think if you're Zuckerberg and if you're Facebook, you're just hoping to get through that testifying,

testification, whatever you call that. Testifestimony, I believe. Testimony, that's it. That's the word I was looking for. you're trying to get through all that without starting any more fires or, you know, flaming up these fires any more than they already are there. But I like what Zuckerberg and Sandberg are doing here, taking responsibility, saying that they made a mistake, they need to do more to control what third-party developers and apps are doing as far as access to user data. So I think

they're on the right track, but it could get a little bit uglier in the short term. Yeah, and we're already seeing them take some steps to reducing the extent to which their data can be accessed by third parties. A lot of their APIs have already been shut down or changed. And so I have a feeling we'll probably see stricter and stricter data policies going forward. What's interesting about this, though, is that that might actually be a good thing for Facebook. It's bad in the sense that it takes away any ambitions they had about becoming a broader platform, getting into transactions and payments and things like that. But they already have a pretty huge walled garden, and these changes just make those walls rise up even faster.

Yeah, I think Aaron brings up really the key point is we have to sort of separate ourselves and look at this from sort of the human perspective and the investor perspective. And not to say that we investors aren't humans, but I think sometimes people think we may be a little bit more heartless than others. I think that really, for me, yeah, I agree with you. I think this ultimately works out well for Facebook in that they're going to be the ones with the data. This gives them the upper hand.

This gives them the power. And advertising is not going away. So I could see a world where this actually works out well for them. It remains to be seen how many people actually follow through with that commitment of shutting down their Facebook account. But my favorite is that, yep, I'm going to shut down my Facebook account. You can find me on Instagram, right? Well, let's be clear.

Instagram is owned by Facebook. So that really works out well for them. And I think that we will see as time goes on, Instagram become a bigger part of that revenue stream. down today right now. Facebook has about 6 million advertising partners versus Instagram's 2 million. There obviously is going to be a lot of overlap there, but I think as time goes on, we'll see more of those advertising partners moving over to Instagram, which will work out well for Facebook. Let's also remember they own WhatsApp, they broke out Messenger. I'm not giving

Facebook a pass here. I don't own Facebook shares. I don't make it ever will. I don't really like the platforms. Not a big fan of the company, but you have to look at facts here. This is a huge business with a huge user base. And at the end of the day, I think a lot of people out there that use Facebook are going to say, well, where else am I going to go? And I think there's actually an argument to me, Bain, that most of the negativity is already priced into the stock and then some. Right now, Facebook, as of the latest quarter, was growing twice as fast as Alphabet or Google. They're far more profitable than Alphabet, but right now their valuation is lower than Alphabet. So I think a lot of this pessimism is already priced in.

That's why I think looking out over the next three to five years, I think the stock, handily outperforms the market from here. I'm glad you mentioned the profitability, because one of the things Cheryl Sandberg was very clear about this week was that profitability will be impacted. And I don't know, they report earnings in about a month or so, and maybe not so much is going to show up in this quarter, but I sort of feel like, yes, this might be a buying opportunity. This might also be the opportunity where six months from now we look and say, wow, we didn't realize just how much the profitability was going to be impacted.

We've got examples here in the recent past of companies where we felt like it was a bad situation, but surely it would get better. I mean, Under Arm or Chipotle, just two easy ones. Oh, sure. Take two stocks that I own. And I own those too, myself, Chris. I'm feeling your pain. But it was an interesting idea I've seen kicked around here and there is perhaps you could charge users

for Facebook in exchange for not sharing their data. I think that would be an interesting pilot to attempt. I don't know how many people ultimately care about that to the degree that they would pay. I think the bigger problem, though, the toothpaste is already out of the tube, as they see here, would people actually trust them? So if Facebook tells me, I'll pay, you can pay Facebook and we won't share your data, do I actually believe you're not sharing it? And right now, no, I personally wouldn't trust them.

Now, over time, perhaps they gain that trust back, but that's a big hurdle to clear here in the near term. To me, the largest risk right now is that the regulatory system, snowball continues to get bigger. Testifying in front of Congress, that's going to be maybe peak volatility in this movement, depending on how well, Zuckerberg does here. But, I mean, politicians in the U.S. and in Europe are pretty angsty. And to what extent that they can change laws that might even restrict Facebook's own access to, like, their own user data, I think that could be pretty influential. But a lot of this is just, like, how people in general perceive it,

because they only are some of their users. And even though, like, lock-in seems pretty high because everybody uses it, switching costs are actually pretty low because you could just stop using it. I remember back in the day, during the middle of the financial crisis, Hank Paulson and get up there and give a presser. In the market, it was either up 500 points or down a thousand. I mean, I don't know that we'll see that volatility with Zuckerberg testifying, but yeah, I can't imagine a situation where he comes across very well. Yeah, we'll see. So far, over the past week, Zuckerberg and Sandberg have said that they haven't

really seen much of an impact on revenue or users dropping off the platform. But even if they do take a hit over the next six months for the rest of this year, this is a company that's in the last quarter of crude revenue around 48%. Profit margin is still close to 40%. Google's profit margin is in the low 20s. So they can afford to take a hit and slow down revenue growth and even take that hit to profitability. I think the stock is still compelling today. Although, Aaron, you were saying before we started taping that, depending on the geography of people dropping off of Facebook, it can have a bigger effect. Yeah.

So users in the U.S. and Europe, those are monetized that significantly higher rates than the rest of the world. So even if we do see, just say, 1% of users drop off, if those happen to be from the U.S. or Europe where people are worried more about privacy, it could have a larger than 1% impact on the business. Yeah. And just one final point here. We kicked this around an MDP for a while. We ended up selling just a little bit of our Facebook position. And the logic there was what Aaron chimed in a little

bit earlier about was the optionality factor. That just is gone in the near term. We're not going to see payments. We're not going to see commerce. Those are going to be off the table, I think, for Facebook for at least a little while. So if those are off the table, does this increase the likelihood that Facebook moves further down the line towards some sort of programming, whether it's original programming, movies, or live sports. I think you could see some of that ways to bolster the platforms that they do have. And I think it could also potentially be a boon for the company. If they can't rely on acquiring talent, maybe they have to do a little more R&D internally, have some more

homegrown development of new platforms. I mean, the company is sitting on what, over $40 billion of cash, no debt. So I think we could also see them repurchase a good amount of shares. If the stock does stay at kind of these lower levels or goes down even further. hey, maybe even a dividend. So, yeah, a lot to do with that cash. Yeah, I think Facebook 2.0 is just going to be them in incumbent mode, where they're no longer the upstarts that are trying all these new things. They're now in the business of protecting their territory. And so if that means paying for new content, that's not the greatest business model, but things like that, if that is what retains users, they will do and sacrifice

some profitability for it. Jason, you get the last word. Time for Facebook to grow up. One of the most anticipated public offerings of 2018 happened this week. Spotify, the streaming music company, used a direct public offering instead of an initial public offering. So, Aaron, they bypass the big banks on Wall Street. Didn't raise any money. I'm not entirely sure why they did this. Because usually we like to see a company.

If they're going public, we like to say, oh, here's how much money we're looking to raise. what we plan to do with the money. Yeah, so they don't need to raise money, so they didn't. But going public really is just a way for insiders and early investors to sell out. I mean, it's also a milestone. That's not selling me as a potential investor. But in all honesty, that is a huge factor here. I do think you have to give Spotify credit where credit is due. I mean, they've built a $26 billion company in a really difficult industry. They have something like 160 million active users, and they actually just turn free cash flow

positive. So I feel like the timing is actually pretty decent for them to go public, but the battle is still ramping up. Yeah, I think they have a lot to prove just in the way of pricing power and sort of customer retention. It doesn't strike me as they have all that much of a differentiated model. I think going public, honestly, this was kind of a neat way to do it. They don't need the money now, but one of the benefits of being a public company,

This will open them up to the public markets, so later on, when they do, not if, when they need more money, they'll have a little bit easier access to it. I mean, it is impressive. It's a night and day difference looking at the financials of Spotify versus Pandora, which is just consistently flubbed its way as a public company over the past several years. I think longer term, for me, the biggest question with Spotify is that they're going up against Apple, Amazon, Google, who all have their own music offerings. And those offerings are really a feature within their larger subset of services on their platforms. So I question how much pricing power will Spotify have? Can they raise their prices by $1 or $2 down the road without losing customers to these lower price alternatives that really have almost identical offerings? Yeah, and pricing power is probably going to come from having exclusives,

and that is pretty difficult to get when it comes to music, a bit easier to get for launching new programming for other things, so that's less impactful. Yeah, I mean, if they could get exclusives for music, that actually would be a pretty big differentiator and actually might be a sign that things are moving in the right direction, because that could accelerate maybe switching from other platforms to them. If they get more users, then they have more power. And the industry could shift to where power is from those who own the music to those who own the listeners, in which case they could increase their gross margins through lower royalty rates as well as higher prices. And it could be interesting. But a lot has to go right

for them before that happens. Wageworks making headlines this week and not the good kind. The CEO and Chief Financial Officer of the Employee Benefits Company are gone following an internal investigation that found wageworks inflated some of their profit and revenue numbers. Jason, this used to be one of your stocks. You know, Chris, I like to dabble with watercolors. And one thing I found out in watercolors, often very, very often, less is more. You can really really, you can really do a lot more with the painting with less. In the case of executive leadership, really, less is not more. And when we look at what's going on here, CEO Joe Jackson, out. CFO,

just retired. Senior Vice President General Counsel, gone. I mean, this company has lost a lot of leadership in a short period of time. A little bit of an exodus there. This leads one to believe that maybe leadership made some big mistakes here. And I think that the restatements sort of speak to that as well. So, yeah, I mean, WageWorks is a company that I had followed, for a long time, was never fully convicted one way or the other, and ultimately came down on the side of, you know what, I'm going to need to take a pass on this company. That happened before any of this restating stuff. And really, my challenge with this company, it's a difficult sell the products that they're selling in flex spending accounts and things like that, tax-benefit

accounts for employees. I think the biggest problem is you speak with an employee, you explain to someone why they need to sign up for a flex-spending childcare account, and you just lost them, when you said flex-spending childcare account. It's not simple. There's a lot of friction. It's a good program, but I think this really speaks to why they have such a big pool of potential employees to sign up, but why they don't actually sign up a lot of those employees. It's tough to communicate the value proposition while there is one. And I think that WageWorks is going to continue to face this challenge, even with new CEO, Edgar Montez, taking over the reins. Coming up, we'll dip into the full mailback. Stay right here.

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With hold it, and there goes the shirt right off my bag. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill, here in studio with Jason Moser, Aaron Bush and David Kretzman. Our email address is Radio at Fool.com from Connor Nolan, who asked, if you had to choose one Chinese stock, which do you believe brings about the highest chance of return in the long term? About two months ago, I would have said Tencent, but given

their performance recently, I'm not so sure. I don't know, David, Tencent really hasn't been knocked down all that much over the last couple months. No, over the past year, it's been a really strong performer. I think outperforming just about any market average you can find. But I'm actually going to go with Baidu right now. This is the online search giant. We'll refer to it as the Google of China. Recently, their video streaming platform, ICHE, went public, and Baidu still owns 80% of that platform. They're also the leader in autonomous vehicle mapping and data in China. So I think they have their hands in a lot of lucrative areas, potentially. And they're only trading for six-time sales compared to 15-time sales for Tensin and 13-time sales for Alibaba. So I think Baidu might be underestimated from here.

I'm actually going to push back on Tencent a little bit. I think there actually still is quite a bit to like there. I mean, for one, they're the largest video game publisher in the world, and that's an industry that's still growing quickly is very profitable. And being in China, there's sort of a gatekeeper for outsiders. So that's huge. They pretty much have a monopoly with WeChat, and that's huge. But even if you look at that, they're still hugely profitable. And if you look at the reason why the stock has recently fallen after earnings, It was because they decided to postpone some earnings and invest heavily and some product

lines that are working really well, such as cloud computing and payments and content. So I actually think Tencent could be a strong, long-term performer. I would say, given everything I've learned about Tencent from Aaron, from my colleague, Paul Chi, I would actually look at Tencent with this drop as the opportunity. I'd agree with that. All right. Let's get to the stocks on our radar. Our man behind the glass, Steve Brodell, hit you with a question.

Also, behind the glass with Steve and our producer Macraer this week. week. James Chen, longtime listener visiting. Shout up to James. All right, David Kretzman. What are you looking at? I'm looking at National Beverage, ticker F-I-ZZ. This is the beverage company behind soft drink brands like Shasta and Fago. But most recently, their growth is coming from sparkling water brand La Croy. And even now, any grocery store I go into, they have prominent displays everywhere. LeCroy is everywhere. Revenue is still growing 17 percent, strong balance sheets, strong free cash flow production. The shus CEO I think you'll ever find, so worth a closer look.

Steve, question about national beverage? Did they still sell Shasta? I have not heard of Shasta since, I don't know, in 1985. Is Shasta still going stronger, though? Sales are dropping a little bit. Jason Moser, what are you looking at? Yeah, I know my guy cakes with the sports junkie. He's going to love this one. Calling out J.P. Morgan, ticker JPM.

CEO, Jamie Diamond's Letter of the Shareholders, just came out over this week. I recommend everybody reading it. I do believe this is a company worth owning for the long haul. I put Diamond in a class with Buffett and even maybe a little bit of Bezos there. But I think he's probably the best reason known this company. Very smart. His experience navigating through the Great Recession, I think, has really put this company in a great position. Listen, they measure themselves by tangible book value, and they're targeting 17 percent

annual returns on tangible equity for the foreseeable future. Stock is selling about two times tangible value today. I still think it's worth a look. Steve, question about JPMorgan? How many Chase credit cards do you currently have in your wallet. I think I have just the one, right? That's the Amazon Prime Visa, right? That's a chase card, isn't it? It is. It's your card, man. Don't ask me. Just as long as the creditors aren't chasing me. All right, Aaron Bush, what are you looking at? Yeah, I'm taking a look at Autodesk, which makes computer-aided

design software. I think it's really interesting because Adobe has actually done, been a huge outperformer, and I think they're following their footsteps in terms from changing their business model from licensing to subscriptions. So right now, the financials look pretty bad, but I think things are about look pretty good. And the ticker? ADSK. Steve? I'm an Autodesk shareholder. What do you think the biggest opportunity for Autodesk is in terms of what

design thing for them in the future is? Oh, man. Aaron will get back to you on that one. In the meantime, you got one you want to add to your watch list? I'm going to stay with Autodesk. They've been a huge, just a rocket ship. All right, Jason Moser, David Kresman,

Aaron Bush. Guys, thanks for being here. Thanks, great. Up next, a conversation with bestselling author Charles Duhigg. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Charles Duhigg has a Pulitzer Prize winning reporter and a best-selling author. He joins me now from New York. Charles, welcome back to Motley Fool Money. Thanks so much for having me. Let's start with the trade war. As a reporter at the New York Times, you have written about the challenges posed by globalization and you wrote about Apple and its manufacturing plant in China. And right now,

President Trump and the leaders in China are talking very tough about a trade war. When you watch this plays out, what goes through your mind? What goes through my mind is that the reason we call it a trade war is because much like other wars, there is unmitigated disaster that can come out of it. Now, it's important to note that nothing's actually happened yet. Right? Trump has made a bunch of threats, and the Chinese government in response has made threats of their own, and none of those threats have actually been implemented as of now. And there's some reason to believe, for instance, the president's economic advisor said that the tariffs might not even come into being. But when you think about war, one of the things you think about is it's so much senseless loss of life. And a trade war, similarly, is so much senseless loss of economic activity. not replaced by something else, not to give us a better long term, but simply to make the pie smaller in the short run. And that's a really scary proposition. When you think about the potential outcomes, if, as you said, these are just threats, but if they become real in terms of tariffs, and maybe this isn't the company that needs to worry the most.

but because Apple is the biggest public company out there, and Apple has a growing market in China and R&D facilities and manufacturing, like, how much does Apple have to lose in terms of a trade war with China? That's a really hard question to answer. You know, I mean, they wouldn't necessarily be on the short list of people who definitely are going to be losers, right? Because many of the terrorists that have been proposed have not necessarily been the components or the product. that Apple uses or sells, what will be hit much, much harder are kind of what we think of as the old mainline manufacturing products. Strangely and ironically, a lot of the industries that came out very strongly for Trump during the election are the ones that stand to lose the most.

But this is the weird thing about trade wars and about war in general, is you never really know what the consequences are going to be, right? The claims that are driving President Trump's threats, they're legitimate claims, right? We know that the Chinese government has been stealing IP from companies for years. There's not strong intellectual property protections in China. And as a result, American companies and other companies are afraid of working there. We also know that the Chinese government supports its own industries in ways that would be illegal potentially in other countries. and certainly in the United States.

And so China, in some respects, operates at an advantage. And what the president has said is he wants to even that playing field. The problem is that the way that he's going about evening that playing field can be enormously economically destructive in ways that we can't really anticipate. So for companies like Apple or like the other component electronic component manufacturers, or for mainline manufacturing, or even for paper manufacturers, there can be all kinds of negative impacts without the promise of future growth that usually comes from some type of short-term pain.

And that's what's scary about this. Let me move on to something that you wrote recently for the New York Times magazine, and it's a long piece entitled, The Case Against Google, and you looked at the claims that Google is stopping competitors before they can even start to compete. I'm old enough to vividly remember that the last time the U.S. government went after a big tech company

20 years ago when Microsoft was charged with antitrust violations. And as you write in the article, many view that endeavor as a complete waste of time and money. So why spend the time and money to go after Google? It's a great question, right? And we look at Microsoft

and the conventional wisdom is the government just completely screwed up. They took this wonderful company and they sued it for seven years. And at the end of the day, nothing changed. All that happened was that Microsoft was annoyed for a little while and that we wasted a ton of money. But what's interesting is that now that we've had a little bit of time to actually look at what happened when the government went after Microsoft for antitrust issues, we've learned some other stuff. Most notably, that at the same time that the government was suing Microsoft, a small young startup,

A new search engine named Google was emerging. And there were actually plans within Microsoft to squash Google. And Microsoft had the power to do it. If Microsoft had decided that they wanted to kill Google by telling everyone who uses their Internet Explorer, their browser, the most popular browser in the world at that point, that if they typed in Google, it would say, wouldn't you rather go to MSN search?

Or did you know that Google steals your data? Why don't you use another search engine? They could have killed Google in the crib. But instead, they were really distressed. by this lawsuit, right? This antitrust lawsuit put them really on edge. They felt like they couldn't do anything risky like that. And so as a result, Google was allowed to exist. And of course, Google becomes eventually the new Microsoft. This is the basic pattern that we see over time, which is that antitrust lawsuits are an important part of the innovation cycle. Because the reason

why companies become monopolies usually is because they find great new technology. It's happened And again and again and again, at Standard Oil, at Alcoa, at AT&T, at Microsoft, at Google. Someone comes up with a new insight, a new piece of tech that changes everything, and it makes them so powerful that they become a monopoly. So the question for the country then is, how do we take the benefits of that new technology? And rather than letting one person hold on to it, letting the inventor hold onto it, how do we share it with other companies, create this ecosystem that allows startups to become colossi? they answer time and again has been antitrust.

So when we talk about whether we ought to go after Google or not, and there's an interesting conversation about what Google is really doing, what they're doing right now is they're stifling potential competitors, anyone who creates a new search engine, even for small products, like if I want to find cameras online, or if I'm Yelp and I'm creating the equivalent of a search engine for local businesses, Google tries to undermine them, and it creates a system where it's very hard for them to compete,

if not impossible. So in order to stop that, what the government says is, look, if we sue you for antitrust, what we're actually doing is we're helping other companies succeed. And some people say that is ridiculous, but there is evidence that it's true. And in fact, that's why Google exists today is because the government sued Microsoft. So one of the most interesting things in this article to me is the push and pull between consumers and competitors. because consumers aren't complaining about Google in the same way that 100 years ago,

consumers were not complaining about standard oil. It's the competitors that are doing the complaining. That's exactly right, right? I mean, this is one of the funny ironies of antitrust is that consumers usually love monopolists. Monopolis do great things for us, right? Standard oil, one of the biggest monopolies in the world until it was broken up by the government,

they're the ones who made it possible for people to light their homes at night. basically invented garrison, the way to refine petroleum to give you cheap and expensive energy so you can light your home at night. And similarly, nobody's complaining about Google right now, right? We love Google. Do you remember back in the days of Ask Jeeves? Like half the returns that you would get when you did a search were porn or, you know, some type of spam, Google was fantastic. It still is fantastic. I love Google. Everybody loves Google. But that's kind of. It's kind of kind of the point is that we don't build antitrust law around what consumers want, because

consumers are usually the last to know when something's wrong in the marketplace. What we do is we build antitrust law to make sure that there's always a healthy supply of competition in the marketplace, because we know that over time consumers benefit from competition, that monopolies tend to eventually stifle innovation, and that if you, you ever so often go out and clear the field, it creates a lot of new, healthy soil for something new and amazing that you might not even think of right now as a consumer to put down its roots and grow. The article is about Google, but you also in this article point out the dominance of Apple, Amazon, Facebook, and Microsoft, five companies that collectively have annual revenues

of more than half a trillion dollars. Of those five, is Google the one that should be the most nervous if Uncle Sam comes knocking on their front door, or is it one of the others? Well, right now I'd say it's Facebook, right? Nobody's quite as nervous as Facebook is, as evidenced by the fact that they've offered

to put their CEO, Mark Zuckerberg, out there before Congress and that he's telephoning every single journalist who wants to talk to him and telling them how sorry he is, all of our that everyone's data was stolen. So I would say all the companies ought to be pretty worried, except for Microsoft, right? Microsoft is kind of like also ran in that list. But right now, right now all eyes are on Facebook. What do you think as you watch this play out,

particularly over the past week with Facebook? Because the thing that is the most striking to me is how little apparently Facebook appeared to know about what these so-called bad actors were doing with their own data? Well, it's an interesting question, right? Like, why is this story exploding right now? Because a lot of what's coming out is stuff that we kind of already knew. We maybe didn't know the scale. But we knew that Facebook has been allowing others to scrape our data for a number of years.

Not anymore, but for a number of years they were. We knew that Facebook, essentially, their entire business model, is about vacuuming up everything possible about you that they can learn and then selling that to advertisers or at least access to you based on that information to advertisers. So what's different now? I think what's different now is, first of all, this connection between Facebook and the Trump election through Cambridge Analytica. Suddenly that made it feel really, really present and scary for a lot of people, particularly

people who don't like President Trump. And Silicon Valley is filled with those folks. But secondarily is just understanding the scale and the scope of this, that Facebook has become so large that essentially they have information on everybody. And that for a number of years, they opened up the candy shop and let anyone who, not anyone, but basically anyone who wanted to, come in and figure out who you were and what you liked and who your friends were and what your phone number was and could make all those connections. I think the reason why it's so different right now is that there's this realization, not only within the tech community, but also among the American electorate in the world of how powerful this information can be. Because for years, journalists and thinkers have warned people about the dangers of losing our privacy, of giving up all this information. And basically, people said, we don't care. If we get Facebook for free, if we get Google for free, if we get these wonderful social networks, then we don't have to pay anything for them.

We'll hand over our data as payment. That's totally fine. And even as the warnings were coming out, people started to said, whatever. But now for the first time people are beginning to understand why this data is valuable, not just because someone might try and sell me a widget or sell me a new razor, but because someone might try and use that information to influence who I vote for. Or they might put up, if you're a foreign government, fake stories in order to make me see the world a certain way that might not be true. And I think for the first time, it's actually becoming scary to the average person. Coming up, who benefits if people leave Facebook? This is Motley Fool Money.

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For a free 14-day trial, go to ActiveCampaign. com slash fool. And for our dozens of listeners, they're also offering a second month free with signup. So go to activecampaign.com slash fool. There is nothing quite as wonderful as money. There is nothing quite as beautiful as cash. Welcome back to Motley Fool Money. Chris Hill talking with best-selling author Charles Duhigg. Your first book was entitled The Power of Habit.

And for so many people, Facebook is a date. daily habit, which makes me a little skeptical about how many people are actually planning to leave Facebook. But if some sizable portion of people leave Facebook or even just cut down the amount of time they're spending on Facebook, is there a company or an industry that you think stands to benefit? That's a really great question. And it's worth noting that Facebook very explicitly uses habit sciences to make their product

more habit-forming or addictive, in the words of some people, including people who work within Facebook. So who benefits if we stop using Facebook quite so much? Well, I think there's kind of a long list, and it's at this point maybe the rest of the world, right? Because what Facebook makes money from is Facebook makes money from selling ads, and they're the best out there at it. They and Google sell ads more precisely than anyone else.

But if we stop using Google and Facebook, if we stop giving them our information, then those advertisers, they're going to have to turn to other forms of media that they've used in the past. They're going to have to turn to newspapers, particularly high prestige newspapers, because you know that you get a certain affluent reader among those newspapers. Television will suddenly see be a more attractive option for advertising. In some ways, we'll be returning to the world that we had before Facebook became a huge juggernaut, with one exception, which is that advertisers have now been trained to look for precision. So it used to be that you had put an ad on TV, and if your sales went up by 20%, you said,

wow, that was a great ad. It really, really worked. And everyone always said 50% of advertising spending is being wasted, but I can't tell you which 50%. Facebook and Google made it possible for us to know exactly who I am marketing to and how to market to them specifically. And advertisers are going to be expecting that even if it's not on Facebook or Google, even if it's not on the internet. So what you'll see going forward is that the people who most end up benefit are those companies that have the ability to sell advertising and sell it precisely. And we're already seeing that in some, for instance, television stations that now offer micro-segmenting when they do cable advertising for their cable channels.

You also see some newspapers developing web strategies that allow them to micro-target the advertisements that are on the website. This is the future going forward. It's a future that was created by Facebook. But as Facebook stumbles, everyone else can rush to grab a piece of that. And it might be long lasting. Before I let you go, tell me about the new podcast, Chain Change Agent. Well, the Change Agent, which is a podcast I did at the New York Times, it's kind of based on something that came out of my books, The Power of Habit and Smarter, Faster, Better, which was this basic question that we had. When I wrote The Power of Habit, I started getting phone calls from people, and they would say, I have this problem, like I have a shopping addiction, or I'm an alcoholic in recovery, and I'm trying to figure out how to explain this gap in my resume.

And they would send me emails or they would call me, and my response was always the same, which was to say, like, this sounds like a really hard problem. I'm only a reporter. I'm not a therapist. I don't know how to solve any of these problems. And so what my, me and my colleagues, what we started thinking was, well, since we are reporters, what if we took people's problems and we went out and we did some reporting to try and solve them? What if we found someone else with a similar but very different kind of problem, a problem that they've solved, some kind of big insight that they've discovered? And we bring that story, that reporting back to the person with a problem and see if it works. So for instance, in one episode, a young woman called us because she has this online.

shopping addiction. She can't stop herself from buying good deals. And so what we did to try and help her was we went and we talked to someone who teaches people how to hold their breath for incredibly long periods. Because the key to holding your breath for world setting, world record setting them at length of time is learning willpower, learning how to marshal your willpower, learning how to use your willpower. And then we went back and we told that story to this young woman and we said, look, here's what we've learned about willpower, about how people learn to strengthen their willpower. Can you try and use these tactics and these techniques to avoid online shopping? And it worked. I think the most interesting part of that is someone has a job

that entails teaching people how to hold their breath. It's amazing, isn't it? It's a great story. If you get a chance to listen to it, one of my colleagues at the times went and she learned how to hold her breath and really did a wonderful job of telling the story. This is the same guy who teaches movie stars how to hold their breath so they can shoot those underwater scenes. And the thing that I carried away from it is I never want to learn how to hold my breath. That seems like, seems like not a pastime for me. Charles, I thought we had a deal. I agreed not to write books and you were not going to start podcasting. I don't, I don't feel like we're giving you much of a run for your money. I still tune in for your show ahead of mine any day of the week.

You can check out Change Agent wherever you listen to podcasts. You can follow Charles Duhigg on Twitter or pick up a copy of Smarter, Faster, Better, but only if you want to be more productive in life and business. Charles Duhigg, it's always good to talk with you, my friend. Chris, thanks so much for having me on. I really appreciate it. Hey, before we wrap up, the Motley Fool's $10,000 college student award competition is still going on. If you're a college student over the age of 18, go to fool.com slash competition to check out all the details. Terms and conditions apply. That's fool.com slash competition.

First place winner gets $10,000. 20 runners up can win $1,000. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Career. I'm Chris Hill. Thanks for listening. We'll see you next week.