Owners of Microsoft (NASDAQ:MSFT) stock are investing in many things, ranging from cloud computing to productivity software to computers themselves. More and more, though, MSFT stock is a bet on artificial intelligence in general and conversational AI in particular. That is to say, the technology giant is finding ways to make it easier for users to have a productive dialogue with an algorithm rather than an actual person.
The argument that we as a society are suffering because we are avoiding real contact with real people has its merits. Moreover, being able to express your wishes to a machine and see them come true is the epitome of being spoiled.
Good or bad, though, carrying on conversations with an app is not only the future, but it’s big business as well. MSFT is well-positioned to make the scenario even more commonplace.
If you haven’t yet, put the term “conversational AI” in your lexicon.
As one would guess, conversational artificial intelligence is simply an AI platform with which people can interface using words and phrases that sound just like a chat you might have with a friend at a coffee shop; in other words, no special coding or commands are needed.
Consumers have already seen conversational AI put to good use. The Alexa-powered Echo smart-speaker from Amazon.com (NASDAQ:AMZN) utilizes conversational artificial intelligence to do users’ bidding. Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google division makes and markets a digital assistant that utilizes artificial intelligence as well. Even Microsoft’s assistant, Cortana, makes use of conversational AI.
But MSFT is trying to take this connection between people and technology to the next level.
The latest step down that path was announced on Wednesday, when the company revealed its intent to outright acquire software company XOXCO, which specializes in the development of conversational artificial intelligence.
Although it may not mean much to the average consumer or prospective owner of Microsoft stock, industry insiders will recognize Howdy.ai, one of XOXCO’s chief platforms. Howdy.ai will quietly change Microsoft’s plans for the next generation of conversational AI tools.
Big Money at Stake
Thus far, large tech companies like Amazon and Google that have developed and monetized artificial intelligence platforms have only used their innovations in their own products. That’s also true for Microsoft. Its recent deals within the AI arena have been a means of making its office productive suite, its LinkedIn website and its own employees more effective. Now, however, the company wants to provide AI chatbots to its corporate customers.
On Wednesday, MSFT launched a platform that will help its current and prospective clients “build (their) own enterprise grade virtual assistant.” Called Azure Bot Service, the platform is an “open source bot solution accelerator for virtual assistants,” MSFT VP of Artificial Intelligence and Research, Lili Cheng, explained in a blog post. “This solution accelerator simplifies the creation of branded virtual assistants, enabling developers to get started in minutes,” Cheng reported.
There is a market for third-party conversational AI development tools. Grand View Research predicted that the chatbot market would be worth $1.25 billion by 2025, while Zion Market Research puts the figure closer to $2.1 billion by 2024.
However, neither outlook incorporates the inclusion of deep AI into the conversations that will be managed by the chatbots. If the chatbots become true virtual digital assistants, Research and Markets expects the market to be worth $15.8 billion by 2021.
The Bottom Line on MSFT Stock
All of those outlooks should be taken with a grain of salt, of course. Nobody really knows what the future holds and much can change in the meantime.
Still, even if the estimates are only able to roughly outline the scope of the revenue on the table, the opportunity is respectable.
The potential impact on Microsoft and Microsoft stock, however, goes well beyond the revenue directly driven by companies simply looking to buy an off-the-shelf conversational AI solution. Odds are good that any organization that will hire Microsoft to develop specialized digital assistants will also lean on MSFT to satisfy its other technology needs. To that end, the software giant’s chatbot platform could be considered a business-building tool that may well bear a tremendous amount of other fruit.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.