Microsoft & Facebook – BFF

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I see Microsoft and Facebook creeping quietly together. 

• I continue to think that Facebook and Microsoft make very good partners and I see them doing more and more together over the long-term.
• In addition to building an undersea cable together (see here), Facebook and Microsoft have a long history of collaboration and when I look at their assets and the directions they are taking, it continues to be an excellent fit.
• The latest place where they have appeared together is Section F which is a huge start-up campus in Paris with space for 1,000 start-ups.
• Both companies are involved with Microsoft lending support to build is AI program and Facebook also being a major launch partner.
• Facebook and Microsoft have often worked well together in the past and I can see this collaboration deepening going forward.
• This is because Microsoft and Facebook are now going in very different directions meaning that there is almost nowhere where they directly compete with one another.
• Facebook has the intention to become by far the biggest consumer ecosystem of them all while Microsoft appears to be edging away from the consumer and is increasingly dominating the enterprise.
• If I look at their respective Digital Life pies there is also a good fit as Facebook is very strong in Social Networking and Instant Messaging while Microsoft has good assets in Gaming, Search and Browsing.
• Consequently, I think that should Microsoft decide to bite the bullet on consumer, Facebook would represent a natural place for many of those assets to find a home.
• While Microsoft is not the best in AI, it is far better than Facebook, and sharing that expertise would move Facebook meaningfully forward.
• This could also benefit Microsoft as it really is only able to generate data using Bing but if it had access to some of the data being generated by Facebook, this could help it to both improve the diversity of algorithms it creates as well as the speed of development.
• Even in Gaming where Facebook is already present with Oculus, the fit as good and it has already been announced that the VR headset will be able to be powered by the Xbox.
• I don’t think that Facebook and Microsoft will merge but there are many areas in which collaboration is mutually beneficial and there is a remote possibility that Facebook will buy some of Microsoft’s consumer assets.
• In the short-term I prefer Microsoft as its increasing strength in enterprise still gives plenty of support to its current valuation.
• However, over the long term, I suspect that Facebook’s growth into new Digital Life segments will provide greater upside potential once it has overcome the short-term slowdown in growth (see here).