Microsoft Corporation (NASDAQ: MSFT) stock got a nice little pop after management announced that MSFT will be partnering with Amazon.com Inc. (NASDAQ:AMZN) so both companies can enhance the artificial intelligence that powers the Cortana and Alexa digital assistants.
According to research firm Global Market Insights, smart speakers is going to be a $13 billion market in the next 7 years, with over 100 million units sold. But that’s just the beginning. The real value lies deeper.
As smart speakers get ‘smarter’ and there are more functions for people to use, all the data that is stored from the requests and usage can be used by these companies to find other ways to build their relationships with customers. They are creating a massive database that they can then put into Big Data to analyze.
And because of this deal, MSFT will get information on Amazon sales at Whole Foods Market, Inc. (NASDAQ:WFM) purchases. It won’t get a cut of purchase driven from Cortanta customers, but AMZN will share the date with MSFT.
That is a significant opportunity for MSFT. It also opens the possibility that Microsoft’s Bing search engine can be used as the search engine and navigation tool for Alexa, which would certainly be a boost to Bing’s current user base. Search-based advertising is a $92 billion business, according to Statista.com and is growing rapidly. Right now, Google takes the lion’s share of that market. Getting a bigger share of that pie would be very helpful to MSFT.
The price for all this is AMZN expects MSFT to stop its cloud storage pricing war with it. MSFT’s Azure cloud is the fastest-growing competitor to AMZN’s AWS (Amazon Web Services). And AWS is money maker that AMZN uses to fund its other projects.
By slowing down the cloud storage competition with Azure, AWS can remain a cash cow and help the rest of Amazon’s divisions. If it has to give away some customer data to achieve that it’s worth the risk.
This is the grand bargain both are making. MSFT will slow Azure’s growth to expand its reach in other areas, and AMZN will protect AWS’ growth by sharing its massive customer base.
It will take a while to see if anyone is the real winner here. But at this point, it looks like MSFT is the one that has the most to gain.
Up a respectable 18% year to date and delivering a solid 2.1% dividend, there is still plenty of upside left here.