Microsoft To Buy XOXCO, Expand Conversational AI Portfolio

Microsoft (NASDAQ:MSFT) is leaving no stone unturned to integrate robust conversational artificial intelligence (“AI”) capabilities across its portfolio. The company’s focus on making the utilization of AI easy and available for enterprises is in sync with the acquisition of XOXCO. However, the financial terms of the deal have been kept under wraps.

XOXCO which is based out of Austin, TX was founded in 2008. In 2015, it reportedly raised $1.5 million in a bid to focus on chatbot development. XOXCO created the first bot, named Howdy enabling Slack’s chat app users to schedule meetings. XOXCO’s Botkit is one of a kind development kit enabling developers on GitHub to design bots.

With the XOXCO acquisition, Microsoft attempts to craft a new bot development tool to assist enterprises in building conversational bots.

Chatbot Development Capabilities: A Key Catalyst

With the increasing integration of cognitive thinking process into machines, artificially intelligent voice assistants are slowly becoming part of regular life. The company is striving to gain competitive edge in the conversational AI market, in particular either through innovation or inorganic additions.

In fact, per Gartner, conversational AI is projected to sustain customer experience for approximately more than 50% of consumer-centric businesses by 2020 as revealed by Microsoft. Moreover, Gartner predicts that by 2021, approximately 50% of businesses will spend more on bots and chatbot development compared with traditional mobile apps.

Key Takeaways

Microsoft Bot Framework service, available on Azure and GitHub, boasts of more than 360,000 developers. Per VentureBeat, the figure was around 130,000 as of May, 2017. We believe that the company is well poised to expand its bot framework service with XOXCO buyout.

Additionally, per Fortune, Microsoft intends to support Slack’s Howdy bot post acquisition. Notably, Slack’s app competes with Microsoft Teams. This keeps us optimistic about the company’s increasing inclination towards open-source projects.

In fact, XOXCO capabilities are expected to enable Microsoft to devise robust bot apps particularly for Teams app, eventually boosting its adoption rate. Per the last-reported quarter data, Microsoft Teams is used by roughly 329,000 organizations, including 87 of the Fortune 100.

The company also issued guidelines to assist developers in building responsible AI chatbots. We may note that the company has come a long way since March 2016, when its experimental conversational chatbot, Tay, had to be pulled down in two days after it was plagued with racist, misogynist and anti-Semitic Twitter conversations.

Microsoft also announced that its virtual assistant accelerator solution is in preview. The accelerator is aimed at enabling businesses to design personalized conversational assistants to customers.

We believe these initiatives will aid the company in capitalizing on a rapidly growing AI market. Notably, per MarketsandMarkets, the AI market is projected to reach $190.6 billion by 2025, at a CAGR of 36.6% in 2017-2025 time period.

Strategic AI Buyouts to Boost Engagement

Notably, the buyout marks company’s fourth acquisition this year, aimed at strengthening portfolio by expanding AI capabilities, followed by Semantic Machines, Bonsai and Lobe buyouts.

These strategic buyouts (including GitHub) are enabling Microsoft to add features on a regular basis to various applications. Apart from strengthening cybersecurity features of Microsoft 365, the company infused new AI-driven features, including automated slide design, Cortana reminders, enhanced search experiences and real-time meeting transcription, among others.

In Microsoft Teams, the company is adding automated translation support for meetings, shift scheduling for firstline workers, and new industry-specific offerings for healthcare and small businesses.

Moreover, Microsoft is well-poised to gain on strong growth in no-code app building and business analytics in the cloud, driven by the company’s investments in Power BI, Power Apps and Flow.

The company added almost 100 new capabilities to Azure in the last reported quarter, with focus on existing workloads like security and new workloads like Internet of Things (IoT) and Edge AI.

The new infused capabilities enhance the features of company’s portfolio, consequently bolstering user engagement. This in turn, boosts adoption of Microsoft’s services, eventually benefiting the top line.

Zacks Rank & Other Stocks to Consider

Microsoft carries a Zacks Rank #2 (Buy).

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) , Cadence Design Systems, Inc. (NASDAQ:CDNS) and Intel Corporation (NASDAQ:INTC) are other stocks worth considering in the sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for SS&C, Cadence and Intel are pegged at 13.5%, 12% and 8.4%, respectively.

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