Did Amazon Just Make Microsoft Blink, or Was It Something More?

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The world of voice-activated virtual assistants is becoming a crowded place. Apple Inc. (NASDAQ: AAPL) gave us Siri, Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG) provided the Google Assistant, Amazon.com, Inc. (NASDAQ: AMZN) authored Alexa, Microsoft Corporation (NASDAQ: MSFT) contributed Cortana, and there are many other smaller examples. So far, none has been crowned king or queen in the space, though there have been plenty of assertions made about which is best. That's why a recent announcement about an alliance between two of the biggest players came as such a surprise.

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In a move that turned more than a few heads, tech titans and fierce cloud-computing rivals Amazon and Microsoft announced a partnership to integrate the two companies' digital assistants. The move may not make sense at first glance, but a deeper look reveals the motivation behind the unlikely partnership. 

Partners or frenemies?

Beginning later this year, users of Amazon's Alexa, found in the Echo family of speakers, will be able to use the digital darling to access Microsoft's Cortana by asking "Alexa, open Cortana." Likewise, users of Cortana, present on the Windows 10 operating system can gain access to Alexa by asking "Hey Cortana, open Alexa."

A move like this is almost unheard of, as each of the tech giants has been working to ensure that its assistant would be a hit with consumers. The companies have spent untold amounts in research and development, each system being an island unto itself, and the proprietary nature and competitive advantages would seem to discourage such a collaboration. In the end, though, the reasoning may be quite simple.

Varying areas of expertise

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Part of the reason may be differing capabilities. The market for virtual assistants is still quite fragmented, largely because each has its strengths and weaknesses, and none has yet become a "killer app." Cortana is tightly incorporated into Microsoft Outlook, the company's email program that is part of its Office suite of products. Amazon would find it difficult to achieve that level of integration with any competitor's product, though it has made a massive push to provide thousands of useful commands since the introduction of its Echo family of smart speakers. Alexa can order a pizza or a ride-hailing service, control your smart-home devices, and get exclusive Prime deals.

The biggest reason, however, may simply be one of reach. Some estimates place Siri on over 1 billion devices worldwide, and that number will likely increase with the release of Apple's HomePod smart speaker. Google Assistant is estimated to be on 150 million devices, with more on the way with the release of the Home speaker and upgraded versions of its latest Android operating system. By contrast, Cortana has only 145 million monthly active users, and though it doesn't report the number, Amazon is estimated to have an Alexa/Echo device in more than 10.7 million U.S. homes. Without the smartphone user base of their competitors, the combined reach of Amazon and Microsoft simply pales by comparison.

Compensating for the lack of a smartphone

Though it may have initially seemed that Amazon made its tech rival blink, this deal is likely something of a necessity for both companies. The two have struggled with smartphones, an area that is dominated by Google's Android and Apple's iPhone. Cortana has been mostly shackled to computers using the Windows 10 operating system. Amazon has been working to integrate Alexa into every conceivable device, from appliances, smart-home products, to vehicles, in an attempt to compensate for its lack of a phone, but its range is still limited. This collaboration with Microsoft increases that base by 145 million devices. Both companies are seeking to integrate their assistant on as many devices as possible, but they will need to reach far more, however, if they hope to catch up with Siri.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Alphabet (A shares), Amazon, and Apple and has the following options: long January 2018 $640 calls on Alphabet (C shares) and short January 2018 $650 calls on Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has a disclosure policy.