Federer's two-year reign as Tour Finals champion was brought to an end by a brilliant display from Djokovic, who underlined his status as the world number one by taking everything the Swiss great could throw at him and then hitting back even harder.
Djokovic eventually won 7-6 (8/6), 7-5 after two hours and 14 minutes of enthralling action at London's O2 Arena on Monday, denying Federer the chance to add to his six Tour Finals titles and leading the 31-year-old to acknowledge the thrill he gets from going toe to toe with such a spirited rival.
"It's part of the puzzle that makes me motivated, trying to play against the likes of Novak, Andy (Murray) and Rafa (Nadal)," Federer said.
"It's great playing against these guys because the ball does come back a few more times than against other players and you get those great rallies going," Federer said.
"I love playing against the young guys as well, because to many of them I'm an idol which is kind of strange to me," he said.
"But it's nice seeing them grow, see what the next generation comes up with."
Federer admitted he was frustrated to let the title slip through his fingers after leading by a break in each set.
But the 17-time Grand Slam champion acknowledged Djokovic had come up with some superb shots at the key moments.
"Maybe I have a bit of regret because I had the lead twice first before him," Federer said.
"But at the end of the day, that doesn't matter," he said.
"You have to get over the finish line in the set and then obviously at the end of the match," Federer said.
"He was better at that today."
Although Federer's 2012 campaign ended on a low note, a season which includes winning Wimbledon for the seventh time, as well as taking a silver medal at the London Olympics, can't be regarded as a failure.
The Swiss is already plotting how to add more silverware to his trophy cabinet next year.
"I reflect in a nice way," Federer.
"I think it's been a fantastic season to be part of," he said.
"I'm very pleased that I was able to pick up my performance at the end of the season, like I played now this week," Federer said.
"So obviously that gives me confidence for next year," he said.
Federer said he hasn't set clear goals yet for next year.
"I first have to make sure I create my schedule so it makes sense," he said.
"I need to practice a whole lot more next year, because this year, I hardly did have an opportunity to do.
"I have some catching up to do in that standpoint."