Reports surfaced last night of the two companies eyeing $1 billion acquisitions. Several Israeli outlets are reporting that Facebook is eyeing Waze, a fast-growing traffic and navigation app that uses crowdsourcing in the form of 47 million active users worldwide that submit real-time information to help out their fellow users. Microsoft, on the other hand, is rumored to be making a play for Barnes & Noble's (NYSE:BKS) digital Nook business.
Both deals make sense in terms of recent history.
Waze was prominently featured during the unveiling last month of Facebook Home, the social networking juggernaut's new platform for Android smartphones.
Microsoft has already made it clear that it sees value in the fledgling Nook business. It invested a mind-boggling $300 million for a 17.6% stake in Barnes & Noble's college bookstore and Nook business last year.
However, just because both deals make sense doesn't mean that both deals will make cents.
Facebook's last $1 billion acquisition was Instagram, another fast-growing free app that has been tricky to monetize.
As for Nook, it's been a financial drain for the struggling book retailer that's fading in relevance. Analysts see losses at Barnes & Noble continuing through at least the next couple of years with sales sliding. It's hard to reverse that.
The big difference between these two potential pairings is that Facebook is latching on to a company that's ascending. If anything, the only real surprise here is that Facebook doesn't have more competition for Waze.
Who else would cough up $1 billion for Waze? Well, how about Apple (NASDAQ:AAPL)?
When Apple had the embarrassing mapping fiasco late last year, CEO Tim Cook singled out Waze as a near-term fix to users given the shortcomings of Apple Maps. A few months later, rumors surfaced suggesting that Apple was going to acquire Waze. It didn't happen.
Who else do you think would compete with Microsoft if it wanted more Nook skin? No one.
Facebook knows what's trending. It acquired Instagram because it knew better than anybody else that it was becoming the social photo-sharing app of choice. It naturally knows the volume of Waze updates that users share through Facebook.
Microsoft, on the other hand, has no reason to think that Nook could fare any better in its hands. How could it know? Nook as a digital platform is simply second fiddle to Amazon.com and its Kindle empire. That's not going to change under Mr. Softy's watch. There were as many Kindle Fire tablets sold as Microsoft-powered tablets during the first quarter of this year, and that's before we dive into the millions of cheaper Kindle dedicated e-readers.
Microsoft made a bad investment last year, and now it's rumored to be throwing good money after bad. Facebook is chasing growth, and in the end, it's the much smarter way to go.