$69B: Microsoft makes all-time largest tech acquisition!

While we celebrate 44 unicorns in the startup ecosystem, Microsoft played BIG daddy and just acquired Activision for $69 billion!

19th January 2022
4 min read

In a nutshell

Satya Nadella just spent $70B for the Metaverse! Largest tech acquisition ever.

Microsoft's been gobbling tech companies & startups: LinkedIn: $26B | Nuance: $20B | Skype: $9B | GitHub: $7.5B

But they paid more than all 4 combined for Activision!

What does Activision Blizzard even do?
Owns famous games across platforms:
- Candy Crush: 2.7 billion downloads in 2017!
- Call of Duty
- World of Warcraft, etc

But, last year, Activision was sued for having a toxic workplace culture.
CEO Bobby Kotick, had not taken action despite knowing of these happenings.
Employees protested on social media, and 200+ employees even staged a walkout in November.

Now, back in November, Microsoft condemned Activision's culture. But, after the backlash, Microsoft had an easy target in Activision. But, why is Microsoft so eager to buy this gaming company? Well, there are many reasons!

A) Microsoft will now be the 3RD BIGGEST video game company.

Only 2 more to beat:
- China's Tencent: League of Legends & PUBG fame
- Play Station maker, Sony

B) The Metaverse has 2 bets — 1) revolutionising gaming and, 2) virtual office

Microsoft already sees Minecraft & Halo as part of the Metaverse concept.

Now, the horizon is broader: huge game communities can create their own Metaverses.

C) No more paying app store fees to Apple & Google!

Microsoft's gaming empire becomes so big that gamers come to it directly.

D) Microsoft has 0 mobile gaming presence. Candy Crush by itself makes their position strong.

This $70B deal has the potential to shake up the entire gaming industry!

'The Metaverse is here!' — tweeted Satya Nadella a few months ago. We knew Microsoft had some grand plans, and on Tuesday they revealed one piece of the puzzle.

Microsoft has made the largest tech acquisition of all-time. They bought the gaming company, Activision Blizzard, for a whopping $69 billion!

To set some context, these are the 4 largest acquisitions of Microsoft:

  1. LinkedIn: $26B
  2. Nuance: $20B
  3. Skype: $9B
  4. GitHub: $7.5B

Microsoft has paid more for buying Activision than all of the above combined!

Clearly, this is a HUGE bet, and so is Metaverse. So how does all of this tie up? Read on!

Firstly, what does Activision Blizzard even do?

Remember that time when everyone you knew was on some level of Candy Crush? The app went on to become one of the highest grossing mobile games of all-time — 2.7 billion downloads in 2017!

Activision Blizzard bought King, the maker of this game, just a year before that feat.

But that's not the only famous game they are behind. They also own "Call of Duty", "World of Warcraft" and a number of other games.

And this gaming maker is also a fortune-500 company.

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When controversy struck…

But 2021 brought terrible news for the company. A California employment agency sued them over accusations of fostering a toxic workplace culture. Reports said that women were often sexually harassed and discriminated against.

Of course, employees were agitated, and protested through social media campaigns.

It got worse when reports also suggested that the CEO, Bobby Kotick, had known about these occurrences for years and often not taken action.

In November 2021, 200+ employees staged a walkout and demanded that the CEO resign.

All in all, there was a huge internal turmoil at Activision.

Meanwhile, Microsoft was ready to pounce on this stressed company!

...and Microsoft bought them out!

When Activision faced the heat in November, Microsoft was at the forefront questioning its culture. Microsoft's gaming division CEO, Phil Spencer, even wrote an email to Xbox employees that the events at Activision deeply troubled him.

But, these allegations also made Activision as an easy target for Microsoft. Agreed that buying Activision was still very expensive for Microsoft, but it came with no difficulty.

On Tuesday, Spencer and Kotick even made an appearance together. Praising the deal, Kotick said that culture was after all, a work in progress. He exaggerated it by saying both companies had similar values and cultures!

But hold on, why is this such a crucial deal for Microsoft?

Microsoft has always been eyeing to become the largest gaming giant. After buying Activision, Microsoft is already the 3rd largest gaming company, only after Tencent & Sony.

But there are a whole lot of other reasons that make this deal lucrative for Microsoft:

1. Boom in size

The gaming industry is consolidating. Large companies are eating up the smaller players, and of course Microsoft is at the forefront of this. After this acquisition, Microsoft only has Tencent & Sony to overtake!

2. Expansion of the Metaverse

Microsoft's Metaverse concept has two big bets:

  • Revolutionise gaming
  • Change the traditional office and make it virtual

While Microsoft already sees Minecraft & Halo as similar to the Metaverse idea, this acquisition broadens that horizon. Huge, devoted game communities can now create their own Metaverses.

3. Goodbye App Store charges!

Google's Play Store & Apple's App Store charge a hefty amount for game sales — something Microsoft has protested against for long. The acquisition makes Microsoft's gaming empire so big that gamers will come to it directly.

4. A whole new world of mobile games

Microsoft has almost 0 mobile gaming presence. Activision owning "Candy Crush" by itself is sufficient to give it that much needed leverage in the industry.

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Woah! And how does this affect the gaming industry at large?

Microsoft's acquisition is one of many in a series of ongoing buyouts of video game companies.

Just last week, GTA (Grand Theft Auto) owner Take-Two Interactive made an offer for mobile game maker, Zynga, of Farmville & Poker fame.

Industry giants EA or Electronic Arts (Fifa, Sims owner) and Take-Two Interactive also fought for racing game company, Codemasters in 2021. EA won that deal.

A couple of years ago, Microsoft bought Zenimax Media for $7.5 billion.

But what do we make of these acquisitions?

Two things:

  1. Market leaders are undervalued right now. There are possibly more acquisitions coming in future and the value of companies like Microsoft & Sony is set to boom, if their bets play out right.
  2. Gaming will be a key component in the virtual world of "Metaverse". Meanwhile, mobile gaming is already huge. In both cases, subscription-based gaming services will emerge as the winner.

For now, for Microsoft, it's game on!


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Amazon vs Shopify - Why Amazon acquired Shopify's rival Selz?

Amazon made $469B in 2021 & it's now worth $1.42 trillion dollars!

Guess who Amazon's biggest rival is?
Walmart? eBay? Target? — Nah!

It’s the 2006 startup, Shopify, that even now makes just 1% of Amazon's revenue! But, how? Well, let's find out!

First, let's understand the difference between Amazon & Shopify!

Amazon => Retailer (wholesale products) + Marketplace (3rd party sellers)
Shopify => It is a platform that allows e-commerce companies to go online

Amazon has complete control over the marketplace, while Shopify simply facilitates contact between sellers & consumers
But, Shopify makes $4.6B in revenue, that's 100x less than Amazon's revenue.

Let's break down their GMV to figure out why Shopify can compete with Amazon:

GMV => Gross Merchandise Value => the sum value of all the products & services sold by a particular platform.

Amazon's total GMV in 2021 => $610B

Out of this
a) Amazon Retail's GMV => $220B (36%)
b) Third-party GMV => $390B (64%)

Now, Shopify's GMV in 2021 => $175B

If we just consider third-party sales, then Amazon's GMV is twice as large as Shopify. So, clearly, Amazon is in the lead.

But, the insight is not in the numbers, it's in the trends.

Shopify's GMV was 45% of Amazon in 2021. Only 3 years ago it was 25%.

So, Shopify is growing & that too, quickly!

The trend shows that traditional marketplaces are not the only option for merchants anymore.

The D2C businesses are also a viable option in 2022.

Amazon also has other problems. But, it's never wise to underestimate Amazon.

Now, in the past, Amazon has tried to buildd a startup similar to Shopify, but both times it failed. It has now acquired Shopify's competitor Selz! So, let's see how things go!

Let’s be SaaSsy! Apple’s move from hardware to SaaS

Apple is the cult it is because of the iPhone, Mac, iPod & many other iconic products. But it's future is in the hands of a dark horse — Apple Services.

Apple Services is how Apple makes money on top of all the software that ships along with Apple devices.

Some of Apple’s most popular software as services are:
A) Apple Music — Music streaming platform
B) App Store — App store platform
C) iCloud — Cloud software service
D) AppleTV+ — Streaming service
E) Apple Pay — Instant payment service

Apple makes money from these services through subscription fees, commissions, paid downloads, partnerships, etc.

Apple Services makes ~$68bn in revenue, which is 2nd largest revenue maker for Apple, only after the iPhone.

But here’s the best part — Apple makes ~64% profits on services vs. 32% on hardware devices!

More surprisingly, Apple Services easily beats top SaaS companies in terms of revenue making >1.5x the revenue of Salesforce, Adobe & Zoom combined.

Facebook loses 250 billion in a single day!

Last week, Facebook's parent company Meta lost $250B in a single day. Consequently, Meta's shares dropped by 26% & Zuckerberg's net worth fell by $31B.

Over the years, Facebook has always seen steady growth in the number of users. Until the 4th quarter of 2021, when its daily global users fell by 1M. In the bigger scheme of things, that's just a 0.05% drop for Facebook, so why fuss about it?

Well, this drop could probably mean a beginning to continuous decline for Facebook OR it could just be a regular up & down all companies witness.

Now, one reason behind these events could be Apple's new privacy policy. According to the new policy, users have to opt in to getting tracked on their phones. Of course, over 60% of users opted out. As Facebook relies on Ad money, this was a major hit. They lost $10bn in 2021 because of the policy alone.

Additionally, apps like TikTok & YouTube are growing each day to challenge Facebook's once help lead in the social media. Even advertisers have more options to air their advertisements.

With growing competition & Apple's privacy policy, it'll be interesting to see how Facebook tackled these issues. But for now, they have placed their bets on the Metaverse.

Metaverse is a high-risk high-reward scheme and the only other major tech company operating in this space is Microsoft.

Facebook lost over $10 billion on this last year, but it's all insignificant if Facebook's bet plays out well. Of course, only time will tell if the Metaverse becomes a reality and who wins the race. For now, though, Facebook has a bumpy ride ahead.