By acquiring Activision, Microsoft is trying to open the doors to the metaverse

Microsoft has shown an appetite for the heights of its gigantism. The company announced on January 18 the acquisition of Activision, a pioneer in video game publishing as one of the leading companies in the sector. Valued at 68.7 billion dollars, it is the largest acquisition of 100% cash (i.e. “in cash”, which does not use shares as currency) in history, relegating to the background the giant’s record takeover Bayer’s Monsanto 6 years ago.

On Microsoft’s part, this is its largest operation, representing more than two and a half times the cost of its acquisition of LinkedIn in 2016. This shows the importance it places on the video game sector. And it’s understandable if you know that it’s a huge market of 3 billion active players (40% of the world’s population!), Which weighs in at almost 200 billion dollars in annual sales.

Despite such a claim, Microsoft is still far from dominating the sector. It will only go from 6.5 to 10.7% market share and will only rise to third position behind its direct competitor Sony and Chinese leader Tencent. Consolidating its position in video games is certainly a reason to take over, but it’s likely that Microsoft’s goals are more in this sector.

It is by mobilizing in a strategic approach based on the resources and expertise, which is the subject of our research, that we can better understand Microsoft’s competitive movement. The development of the masterpieces should lead the Redmond company in video games in the “metaverse” (metaverse in French), this famous 3D virtual world that should include the “Internet of the future”.

Uniting a community

For the giants in the sector, the success of video games depends on the development and control of franchises, these game suites have become blockbusters where media content and source products can be created. . In the acquisition of Activision, for example Diablo or Call of Duty, among the best-selling series of all time, fell into the hands of Microsoft.

The strategy has been well underway since 2009 with the acquisition of Rare, then crowned with success thanks to the acquisition of Mojang (creator of the famous Minecraft) in 2014. This has clearly been accelerated by recent developments. year to acquire 7 studios in 2018 and 2019 and the acquisition of Bethesda and its 8 studios in 2021 to $ 7.5 billion. In total, Microsoft now has 30 studios.

Having a large catalog of successful games is crucial because the industry’s profitability is no longer based on selling games but on managing access through subscriptions to platforms. Also included are in-app purchases (items, resources, game money, character costumes, access to game content or extensions, etc.) and the collection and use of player data. It’s called game on demand (GOD: game on demand), a bit like Netflix and VOD, but for games.

Microsoft, through its Xbox Game Pass platform, is bringing together a community of 25 million subscribers who need to be attracted and satisfied by offering an ever -expanding catalog. With the acquisition of Activision, Microsoft has access to a group representing a base of 400 million active players in 190 countries.

Win new market shares

The operation brings another decisive advantage: access to mobile games. Activision actually bought, for 5.9 billion dollars in 2016, King studio, creator of the famous Candy Crush, one of the most profitable mobile games. This segment, where Microsoft has a small presence, now accounts for 52%of the sector’s sales, leading to console games (28%) and PC games (20%). So this is a significant increase in competition for Microsoft, whose strategy so far has been based on console games.

Microsoft has also strengthened its position in the specific segment of online multi-player games, with Activision primarily owning World of Warcraft, one of the leaders in this field. By offering its own Major League Gaming, Microsoft has finally entered the e-sports market, whose value is estimated at 1 billion dollars and brings together an active community of more than 200 million fans. Added to all this is an advantage in terms of internationalization of activities because Activision is well established in the Chinese market, the largest in the sector in terms of sales volumes.

The acquisition of Activision has enabled Microsoft to strengthen its business, access new market segments and realize synergies by combining Activision’s content creation skills with its own technology. and distribution capability. This is to consolidate a position against competitors of different types.

Position yourself as an important broadcaster

The special press recently announced Sony’s intention to launch the Spartacus project. The creator of the Play Station console, number two in the video game sector, wants to develop a service aimed at competing with Microsoft’s Game Pass by combining the two offerings with this Play Station Now (online or download at games) and Play station Plus (online multiplayer games.). Because if the Japanese company actually leads Microsoft in console sales, it stays behind in subscription offers.

Faced with the rise of its direct competition, Microsoft has every interest in creating its own catalog of games as much as possible to enhance the beauty of its platform. But controlling the console market may not be Microsoft’s goal, which has been selling their Xbox consoles that have been missing for years. Microsoft’s strategy seems to be based primarily on Game Pass development. In this sector, competitors are called Apple, Google and Amazon.

The first two not only control access to mobile games through the App store and Google store, but they also directly develop the game with Apple Arcade and Google Stadia. For its part, Amazon has made no secret of its ambitions: the online distribution giant has already made its first game, New World, developed by Amazon Prime Gaming, which offers a monthly selection of free games, launches cloud, Space, and owner gaming service. the Twitch platform.

With Activision’s acquisition, Microsoft has positioned itself as a key broadcaster in cloud gaming by reporting an attractive Game Pass catalog on it. He has expanded and maintained his community of players, which is undoubtedly the most valuable resource and the one that opens the doors to the metaverse.

Different from Meta

Facebook recently became Meta and Marc Zuckerberg presented in detail his metaverse project, a virtual space that allows social and commercial interaction using virtual reality and augmented reality. At his conference announcing Activision’s acquisition, Satay Nadella, CEO of Microsoft, also specified, on several occasions, his intentions to become a major player in this area. He made a clear stance against Meta by offering a self-proclaimed, more open view of the Metaverse.

After his various failed attempts to enter the social media sector by buying TikTok, Discord or Pinterest, video games as the main channel he finally chose to access the metaverse. Like Meta, Microsoft is developing step by step key pieces that comprise the metaverse architecture. These include its Hololens augmented reality headset, the Horizon World virtual reality platform, the second largest cloud platform with Azure, investing in cryptocurrencies, the development of 3D avatars for Teams video conferencing applications, special social networks on this LinkedIn and GitHub, and, above. all, the holographic virtual collaboration platform Mesh.

These necessary elements, however, do not allow Microsoft to distinguish itself straightforwardly from Meta. The company created by Bill Gates and Paul Allen can on the other hand differentiate itself thanks to its strong position in games. They are a privileged gateway to the metaverse not only because they will be one of its main applications, but also because there is an awesome online community integrator out there.

In full confidence

The planets though are aligning happily for Microsoft. The whirlwind in which Activision has been lured by accusations of sexism and sexual harassment within it has certainly weakened it and hastened Microsoft’s acquisition. And the announcement can be made in full time, just a few weeks after the launch of Meta

It remains from notification until completion of the acquisition, which is set for 2023. An important step is the validation of competition regulatory authorities. And at this level, the planets no longer seem to fit in because the Federal Trade Commission and the U.S. Department of Justice announced this same Jan. 18, just hours after information of Microsoft’s acquisition of Activision, which wanted nila. to strengthen anti-trust laws and give particular attention to Big Tech.

Microsoft, which has long been marked by the trauma of its anti-trust case and the record fines that nearly led to its dismantling 20 years ago, is still as it is now in full confidence, according to evidence of its CEO Satya Nadella. The company even agreed to include in the takeover contract the $ 3 billion penalties to be paid to Activision if the deal is not finalized.

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By Frederic PrevotProfessor of Strategy and International Management, Kedge Business School

The original version of this article was published in The Conversation.