Microsoft/Facebook: The Enemy Of My Enemy Is My Friend

by: Bret Jensen

There is probably no better way to describe the evolving and deepening Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) partnership. Their joint target is Google (NASDAQ:GOOG). It is a partnership that Google's ignores at its peril. To recap the relationship so far:

  • Microsoft held talks with Facebook several years ago about acquiring the entire company.
  • Instead, Microsoft made an early investment and took a stake in Facebook; which it should be richly rewarded for when Facebook's IPO happens in May.
  • Two years ago, Microsoft integrated Facebook's social data into its search queries.
  • A year ago, Microsoft sent out feelers to see if Facebook wanted to buy its Bing search technology platform.
  • Facebook incorporated Microsoft's recently purchased Skype technology into its customer platform
  • This week Microsoft took its $1B patent portfolio it just purchased from American Online (NYSE:AOL) and sold 650 of those patents to Facebook for $550mm and agreed to give Facebook rights to the 275 patents that Microsoft retained from that portfolio. In so doing, it threw Yahoo (YHOO), its main search partner who is suing Facebook under the bus.

Google is being forced to fight on a greater amount of fronts, including increasing regulatory and legislative oversight. The company spent over $5mm in lobbying during the first quarter. This is more than Apple (NASDAQ:AAPL), Facebook, Microsoft and Amazon (NASDAQ:AMZN) combined.

Unsolicited advice to Larry Page: You have a major competitive presence forming on your right flank and your company is becoming a much bigger target for myriad constituents. As you fight with increasing government scrutiny, don't take your eye off this growing Microsoft/Facebook partnership and competitive threat. It could determine whether Google can continue to grow in the marketplace or if becomes a Harvard Business case on failed leadership. May I suggest you give up flying the corporate Boeing to "Global Warming" conferences in Davos, worry less about expanding the cornucopia of free employee perks, and endeavors that having nothing to do with your company's core mission (AKA, mining asteroids for gold might be one thing you want to shelf)? The future of Google depends on it.

Disclosure: I am long AAPL, MSFT.