The notion of forging strategic alliances for the betterment of all is nothing new, and tech leaders Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) have worked hand-in-hand for years. Facebook's release of a beta version of its app for Microsoft's Windows Phone OS users is just the latest example of the two heavyweights making nice. Of course, both Microsoft and Facebook have been awfully busy in their own rights of late, too.
For Facebook, 2014 has already been a watershed year. With multiple acquisitions, including spending $19 billion for mobile messaging leader WhatsApp and $20 million for drone consultant Ascenta, the social media titan is spreading its wings.
Meanwhile, Microsoft CEO Satya Nadella has been putting his personal stamp on the software giant. Nadella's "mobile-first, cloud-first" mantra has become synonymous with Microsoft, but a recent acquisition demonstrates the company isn't averse to exploring other avenues of growth. And that could provide an opportunity for the two companies to join forces to turn a rapidly growing industry on its head.
The latest from Microsoft
Much has been said of Microsoft's recent acquisition of the wildly popular Minecraft game through the buyout of its creative development studio, Mojang. While some have bemoaned the deal, saying the $2.5 billion Microsoft spent on the deal was a bit over the top, it's hard to overstate just how popular the game actually is.
Available on Microsoft's Xbox One and primary gaming console competitor Sony's PlayStation 4, as well as virtually every mobile device and OS known to man, Minecraft is nearly a gaming industry in and of itself. On any given day, three years after its release, Minecraft still generates upward of $200,000 in sales. Toss in revenues from licensing, merchandise, and maybe even in-app ads at some point, and Microsoft's $2.5 billion investment doesn't look so bad.
The latest from Facebook
Of Facebook's recent acquisitions, perhaps the one with the most potential to quickly generate a return on investment is the $2 billion deal for Oculus and its virtual reality, or VR, headset, dubbed Rift. As Microsoft demonstrated with its purchase of Minecraft, gaming is becoming an industry with significant potential. Who hasn't seen a mobile or desktop user seemingly lost in a world of his or her own playing the latest, greatest game?
Though Facebook CEO Mark Zuckerberg has plans for the Oculus Rift that go well beyond VR gaming, that's where the most immediate bang for his buck will come from. And based on the Rift's most recent prototype, "Crescent Bay," Oculus is getting much closer to bringing the unit to the masses.
Together, they could rule the gaming world
If folks think Minecraft is fun in its current form, which they clearly do, just imagine being able to "step into" the game via a VR headset like Rift. As it stands, Facebook's Oculus Rift is a desktop-only VR solution, though plans are to make it mobile-ready ASAP. Facebook's Rift VR headset would be an excellent additional feature to an Xbox One console, and it wouldn't take much to make it compatible.
Now that Microsoft's Xbox One gaming unit is available in 41 countries, you can bet it will add mightily to the 5 million units that have already been sold in a mere 13 markets. Games such as Minecraft, as wildly popular as it already is, would essentially begin a whole new sales cycle for all those gamers who would simply "have" to have a VR version. Assuming Oculus can develop a cost-effective, Xbox One-compatible version of Rift, both Microsoft and Facebook would reap the rewards.
Nadella's mobile-first, cloud-first refrain speaks to Microsoft's shift in focus, but its purchase of Minecraft, and Zuckerberg's $2 billion deal to bring Oculus into the Facebook fold, make it clear both companies are willing and able to step outside their core businesses when they see an opportunity. And gaming, particularly if Microsoft and Facebook were to join forces, offers huge revenue potential for each.
Final Foolish thoughts
A Microsoft-Facebook VR partnership could go well beyond games. Microsoft is a leader in commercial cloud solutions, generating an estimated $4.5 billion annually in revenue from the business. Zuckerberg sees Rift as a business solution, too, clearly a market Microsoft certainly knows a little something about. Together, Microsoft and Facebook could set the gaming industry on fire, and that would only be the tip of the iceberg for this match made in heaven.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.