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With prices rising for both cars and gas, selling points for car makers are coming down to either fuel efficiency or additional features that set their cars apart from the rest of the crowd. Toyota (NYSE: TM ) is teaming up with Microsoft (Nasdaq: MSFT ) to help accelerate that process of differentiation. The two companies are working to provide high technology in-car advanced digital information and communication systems to its customers. The general industry term for this service is "telematics." Microsoft will do this on their Windows Azure cloud computing platform. The question is: Will this be a partnership that delivers results to shareholders?
Here comes the news
With this partnership, Toyota enters a space already crowded by many car makers who provide similar services. Among the most notable ones is General Motors' (NYSE: GM ) OnStar, with which you can make calls or unlock your vehicle remotely. There is also Sync, which Microsoft had earlier made for Ford (NYSE: F ) . The interesting difference in the new Toyota-Microsoft device, however, is that cars like the RAV4 EV and the plug-in Prius can "talk" to each other, share in-car information, and draw power from the grid.
So what is Microsoft's true motivation here? Facing immense and potentially threatening competition from rival Apple (NYSE: AAPL ) , who already dominates the hardware market Microsoft repeatedly tries to meaningfully enter, in other spheres of business, Microsoft might actually be looking to get one step ahead by diversifying to the automotive sector and in the cloud computing side of the market. Clearly, the game is to control as much end-user time as possible. Given the amount of time individuals spend sitting in traffic and cruising the highways, Microsoft could be developing a long-term edge here. Unfortunately, it's a bit too soon to tell.
Up in the cloud
This is all part of a bigger cloud computing play here. Cloud computing is where the bigger players are headed, and obviously Mr. Softy is targeting one very specific element of that: cars. With Apple running over competition in hardware, it is probably a wise move for Microsoft to take its cloud computing platform Azure to the automotive industry, where the competition is somewhat less stiff and certainly less well-capitalized. With more smart cars set to roll out in the coming years, and with Toyota being another consummate top-level player in the auto business, Microsoft can actually look at this as a potential profit center going forward.
Reinventing itself on the web-based technology sector is the best way to shield itself from competition as far as Microsoft is concerned. Other customers for Microsoft's cloud based products include 3M (NYSE: MMM ) and Lockheed Martin (NYSE: LMT ) . 3M uses Microsoft's Azure for Visual Attention Service, a program that enables website designers to find out which part of the website catches the most attention. But the area where Microsoft and Toyota might find more takers is the idea of embedded connectivity technology, where charging priority for electric cars is set according to the user's schedule.
How Fools stands to gain
So, how does Microsoft benefit from this deal? One of the arrangements in this new smart car technology is that it will allow consumers to control and monitor in-car data through the use of smartphones. Microsoft is surely going to make use of this arrangement to bring in more business for the Windows 7 mobile phone platform.
Also, this new line of business can open more inroads for Microsoft into the cloud computing sphere. Many other players in the automotive industry use Microsoft platforms such as the TellMe voice application. With the demand for smarter, cleaner, and technologically loaded cars rising every year, Microsoft should definitely benefit from this association. As an investor who has put money on Microsoft, you can actually look forward to a good run with greater confidence. After all, this is one area where Apple is yet to topple Microsoft's A game.