Skip to main content

Is Microsoft bringing the joy and community of gaming to everyone?

Microsoft grabs Activision Blizzard, based on image by Lux Interaction on Unsplash
The News

On January 18, 2022, Microsoft announced the intention to acquire Activision Blizzard with the vision of bringing the joy and community of gaming to everyone, for $95 per share, which equals a transaction value of $68.7 bn. This is a bit more than eight times of the revenue that Activision Blizzards expect to have in the fiscal year 2022.

With this acquisition, Microsoft can add 400 million monthly active users to the already existing 25 million Game Pass holders.

Until the acquisition closes, the companies will run independently. After completion of the transaction, Activision Blizzard wil report to Phil Spencer, the newly appointed CEO of Microsoft Gaming.

This acquisition makes Microsoft the third largest gaming company by revenue, after Tencent and Sony.

The stock markets reacted with a sharp increase of Activision Blizzard shares to about $87, while Microsoft stock largely followed its pre-existing slight downward trajectory.

Here my analysis in a brief video.

The bigger Picture

We have currently around 3 billion people and growing, who are actively gaming. Millennials and younger do not even know a world without social media and smart phones. They often play using mobile devices. Microsoft, on the other hand, is available on basically every device and offers quite some hardware, too, either directly or via partners. Additionally, Microsoft already before was a known entity in the gaming market, e.g. owning gaming platforms like Minecraft and Doom. Still, according to Shacknews, Microsoft seems to have missed the own growth targets, even though an increase of Game Pass holders from 18 million to 25 million in the year 2021 is quite significant. 

Apart from the ubiquitous blockchain, NFT, DAOs, VR and other technologies, gaming is also one of the key ingredients to any upcoming metaverse, not in the least because of the widely offered possibility to create (and monetize) own worlds in the gaming engines that allow for immersion and the built-in offered possibility to virtually meet in the forms of avatars. 

And as “Metaverse” is largely uncharted land, there is a move to set standards by various companies, Meta, Nvidia, Sony, Tencent, Google, Apple, to just name a few heavy hitters. Following common business rationale, these standards need to be set fast, before someone else does, and especially before regulation kicks in.

This requires scale.

My PoV and Analysis

$68.7 is a whopping number that not many companies are able to pay. However, with a multiple of around 8, this is technically not an expensive acquisition. Yes, it still is a lot of money. It easily dwarfs the price that Take Two paid for Zynga ($12.7 bn) or the acquisition of LinkedIn by Microsoft ($26 bn). Or Microsoft’s 2021 acquisition of Nuance Technologies for about $20 bn. 

Both companies are highly profitable and complement each other in the gaming world. And, as said, together they are number three in a platform market. This is the short-term play.

As Microsoft CEO Satya Nadella is quoted in the press release: “Gaming is the most dynamic anc exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms. We’re investing deeply in world-class-content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive, and accessible to all.

This shows the long-term game: Defining “Metaverse”.

Fellow analyst Jon Reed agrees. He considers this acquisition a “gaming play with a semi-trojan-horse long game as a “metaverse” play for Microsoft. Microsoft has the $ to place a big metaverse bet without facing too much downside.

As gaming is, “Metaverse” is a platform play. Platform plays are about access to huge numbers of people and masses of personal data. This deal ties a massive community of gamers to Microsoft and therefore strengthens Microsoft’s access to this personal data. Microsoft without Activision wouldn’t have enough critical mass in terms of the size of its gamer community while Activision Blizzard would have been small fry by valuation. Tencent and Sony are the numbers one and two with valuations of $570 bn and $154 bn, respectively. Having said this, Electronic Arts, Epic are even smaller than Activision Blizzard. Even Roblox is smaller, but then this company is on a different trajectory.

All these companies will feel the pressure. Other companies with “Metaverse” aspirations, too. Microsoft just upped the ante.

One of the big remaining questions is: Will this merger succeed? Apart from regulatory considerations that seem to be partly addressed by forming a unit “Microsoft Gaming” with an own CEO?

The main obstacle here lies in company culture.

Looking at this topic, two very different ones collide with Microsoft and Activision Blizzard. While Microsoft is very strong on compliance, inclusion and non-discrimination, Activision Blizzard has exhibited a very toxic work culture. Analyst (and gamer) Marshall Lager says that “the company has seen the departure of several executives and development leads due to allegations of improper behavior, and the company as a whole has been implicated in union-busting and other unfair labor practices.” He continues: “If this deal goes through, Microsoft will have some delicate juggling to do. On the one hand, it should not mess with Activision Blizzard’s creative or marketing efforts, because that company’s brands are among the most popular and lucrative in the industry, with considerable fan support. On the other, it needs to do something in those very areas, because it’s where all of the sexual harassment and abusive labor practices have occurred over the years […]. How do you change the people and the behavior while maintaining the quality of their output?

The success of this merger will largely depend on successfully bridging exactly this gap. 

One other thing is for sure. This acquisition clearly shows that the dream of a Web 3 as being an open decentralized version of the Internet just tanked. Remember: Web 2 or the original Internet have started with the idea of being open and decentralized and see what happened. Three times is not the charm here. At least not without strong regulation.



Last Year's Top 5 Popular Posts

Zoho - How a technology company reimagines business software

The News   On May 4, 2023, Zoho held its Zoholics conference in Austin, TX which included a media and analyst track in addition to the customer track. After all, Zoholics is a customer event. During this event, about 80 participants of the former track had ample opportunity to learn about and discuss the latest news at Zoho. We also had the opportunity to listen to - and question - a panel of customers who gave candid answers about their journey with Zoho and challenges they faced. Of course there was plenty of room for mingling and networking with Zoho executives and, of course, with analysts and customers. In addition to the breaks between the tracks, there was a pre-evening reception, a dinner on the event day and a casual brunch at the Zoho farm just outside of Austin.  As usual for Zoho, the sessions were less about feeding us with PowerPoint (or Zoho Show, to be precise. Why would Zoho not use a Zoho product?) but about giving good information and a genuine interest in getting fe

Don't mess with Zoho - A Zohoday 2022 recap

After spending two days in Austin, TX, attending the ZohoDay 2022, it is time for a little recap of this interesting event.  We were 99 analysts and 24 customers and plenty of knowledgeable Zoho personnel. The incredible Sandra Lo and her team organized the event around open and transparent communication. So, there was plenty of access for us to customers and the Zoho team.  Which was very important, as already the keynote session by founder and CEO Sridhar Vembu was quite hardcore. Vembu talked about how strategy and culture need to be one, how culture needs to be the root of strategy, and how Zoho implements this. The Zoho strategy lies on three main pillars ·       Transnational localism, a unique concept that in its essence is about embedding a company into a local community by not only selling into it but also by investing into it. This investment is e.g., by offering high paying jobs in areas where these are scarce, by fostering local education, but also by own local sourcing in

SugarCRM explains how the third wave of CRM adds value

The news On October 4 and 5, 2023, SugarCRM held its Connected event followed by an analyst summit in London. The first day – Connected – was targeted mostly at customers while the second day focused on analysts.  The event started off with an intense speech by Katherine Grainger, DBE , a British rowing champion. Her core messages were about team bonding, the importance of communication, continuous improvement, and perseverance (well, at least that’s my take). This was followed by information about what is new in the software and, more importantly, a customer panel.  The main sponsor, Mobileforce , placed some words about the partnership. In addition, the analysts had 1:1s with customers, partners, and Sugar executives. The second day was filled with information targeted at analysts. CEO Craig Charlton and his executive team shared about financial status, strategy and more in-depth product news. Sugar being a privately held, VC backed company, the financials are of course under NDA, s

Relevance, reliability, responsibility are key for AI – the SAP way

The News A lot is going on in the SAPverse during October and the early days of November 2023. First, SAP conducted its CXLive event with CX-related announcements, then the company reported good Q3/2023 figures, a new version of its CX software that includes new generative AI capabilities got released and lastly, it executed its SAP TechEd event with a good number of AI-, BTP-, and ERP related announcements. As this is quite a lot, I covered the CX world in a previous post and will cover the TechEd related news in this post.  So, what is new at SAP TechEd ? For one, it is enough to fill a 17-page pre-event news guide that SAP sent out. SAP certainly is able to stack up the news for major events. I took the liberty to ask ChatGPT for a summary of the document, which I slightly edited afterwards. Here we are: AI and Development Environments: ·       SAP introduces SAP Build Code with generative AI, improving application development and testing, while new AI capabilities are integrate

How to play the long game Zoho style

The news On February 7 and 8 2024, Zoho held its annual ZohoDay conference, along with a pre-conference get together and an optional visit to SpacX’s not-too-far-away Starbase. Our guide, who went by Chief, and is probably best described as a SpaceX-paparazzi was full of facts and anecdotes, which made the visit very interesting although we couldn’t enter Starbase itself. The event was jam-packed with 125 analysts, 17 customer speakers, and of course Zoho staff for us analysts to talk to. This was a chance we took up eagerly. This time, the event took place in MacAllen, TX, instead of Austin, TX. The reason behind this is once more Zoho’s ruralization strategy, transnational localism.  Which gives also one of the main themes of the event. It was more about understanding Zoho than about individual products, although Zoho disclosed some roadmaps. More about understanding Zoho in a second.  The second main theme was customer success and testimonials. Instead of bombarding us with presenta