'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:
- LinkedIn: $26B
- Nuance: $20B
- Skype: $9B
- 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.
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.
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?
- 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.
- 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!