Facebook Just Got Better

There’s one thing that differentiates a great company from a good company. Great companies keep getting better and better. In other words, they evolve.

Companies evolve by taking the risks and adopting the new strategies necessary to take advantage of new markets and opportunities. By this definition, both Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) are truly great companies because of their latest move.

Facebook and Alphabet, the company formerly known as Google, entered into a very interesting alliance last week that could change the worlds of search and social media. Starting November 13, 2015, Facebook started letting Google crawl and index its mobile app, The Wall Street Journal reported.

Deep Links Are the Key to Google’s Future

This deal means that Google searches on smartphones will now pull up some content from Facebook’s app. It also gives Alphabet (NASDAQ: GOOGL) access to a vast amount of data that it can use to improve its Android smartphone operating system.

The Journal thinks this deal shows that Google’s app-searching capability is improving. One problem facing Alphabet in today’s world is that Google cannot search in apps, which prevents users from accessing a lot of information.

The deal could help Google maintain its position as the dominant player in the world of search. It also shows off some impressive new technology that Alphabet has developed: deep links listings that take users to the relevant part of the Facebook app.

What this means is that it will be easier than ever for people using Android to connect with Facebook pages. It also means that Google will refer people to Facebook even through Android.

That’s a real boon for Facebook because Android is the world’s most popular smartphone operating system, with one billion users. It will now be even easier for users, including hundreds of millions of people in the developing world, that own Android phones to access Facebook and create tens of millions of new Facebook customers.

The risks the companies are taking here are obvious. Each company is giving an aggressive competitor access to proprietary information they could use against each other. That seems like a risky strategy, but it’s a brilliant one because it opens up vast new markets to each company if they are willing to play along.

Why WhatsApp Is the Key to Facebook and Google’s Future

The deal is good for Alphabet because it can help familiarize tens of millions of smartphone users that do not use traditional computers with the web and Google. Facebook owns the hugely popular messaging solution WhatsApp, which has 900 million users. It also has 700 million users for its own Facebook Messenger solution.

WhatsApp owns the instant messaging market in a wide variety of countries, ranging from South Africa to Argentina to Germany. Data from Statista shows just how impressively WhatsApp’s dominates the messaging market in many countries.

WhatsApp Market Share by Country:

• South Africa – 78%
• Malaysia – 75%
• Argentina – 74%
• Singapore – 72%
• Hong Kong 71%
• Spain – 70%
• India – 69%
• Mexico – 67%
• United Arab Emirates – 63%
• Italy – 62%
• Netherlands – 61%
• Germany – 57%
• Brazil – 56%
• Saudi Arabia – 56%
• Indonesia – 52%
• Turkey – 49%
• United Kingdom – 34%

As you can see, WhatsApp is the dominant messaging solution in many highly developed and affluent countries, including some of the world’s largest economies. It is also popular in some of the fastest-growing nations, including India and Mexico. If Alphabet could get Facebook to put Deep Links in WhatsApp or develop a different search solution for WhatsApp, it gets access to 900 million new customers!

A Beneficial Alliance

If it holds, this alliance could be highly beneficial for both companies. Alphabet could get to take advantage of Facebook’s social media expertise; one of the few areas where Google has stumbled has been in social media. Its Google+ has been something of a failure compared to the raging success of Facebook and WhatsApp.

Facebook could get access to Alphabet’s expertise in developing ecommerce solutions, including the all-important product search and payment apps. Facebook has only begun to scratch the surface of ecommerce. Google already has some impressive ecommerce solutions in the form of Android Pay and has done important work on delivery through Google Express.

More importantly, this could help Google penetrate the developing world, particularly Africa and Latin America, where almost everybody owns a smartphone but most people are unfamiliar with the Internet. Alphabet is already there with Android, but it has failed to engage smartphone customers in the way Google provides a gateway to the Internet for PC users.

The bottom line is if Alphabet and Facebook can figure out how to monetize mobile search in the way that Google has monetized online search, they could be sitting on vast new streams of revenue here. The challenge is a tough one. Tracking America’s Internet searches is one thing, but how do you track the activity of an African who only owns a smartphone and occasionally uses it to make an online purchase?

Alphabet and Facebook have proven they are great companies by making the very risky move of cooperating and working together. More importantly, they are demonstrating that good companies do more than keep abreast of technology; great companies evolve with it.

By working together, Facebook and Alphabet are demonstrating that the future of technology is a combination of the Internet and mobile devices that will create a new worldwide platform. That platform could be an even greater venue for ecommerce and profit than anything we’ve seen so far, including the internet.

Alphabet and Facebook are showing that they are ahead of the curve; value investors should take notice. Smart investors would be well advised to keep abreast of these developments and add these two wonderful companies to their portfolios.