As you may have heard, Microsoft announced today that it will acquire game studio Activision Blizzard. The price tag for the 10,000-employee company is $68.7 billion in an all-cash deal (inclusive of its net cash). Activision Blizzard is best known for iconic game titles like Call of Duty and Candy Crush.
But the biggest question is why. Stepping back, Microsoft’s gaming division led by Phill Spencer has been one of the company’s biggest success stories of the past decade. Though a product departure from Microsoft’s primary enterprise targets, Xbox diversifies its business with a consumer play.
And it couldn’t have picked a better horse. Gaming has grown to 3 billion global users and aggregate annual revenue around $152 billion (1.6x the film industry). As a console, Xbox has not only become a direct user touchpoint, but it has established recurring subscription revenue in its Game Pass.
Against that backdrop, Activision Blizzard joins the mix. And with the one-two punch of console plus content, Microsoft gains the business and product advantages of vertical integration. That translates to economies of scale and tighter hardware/software systems (the Apple playbook).
The acquisition also beefs up Microsoft’s Game Pass to 30 internal game studios in total, and makes Microsoft the third-largest gaming company by revenue, behind Tencent and Sony. Game Pass recently reached 25 million subscribers, while Activision Blizzard reaches about 400 million players.
Land Grab
As the internet goes crazy over the deal today, there’s ample speculation about the m-word. And this deal was expressly driven in part by the land grab underway for all-things metaverse. That’s still unfortunately nebulous and ill-defined but it’s generally about owning connected 3D experiences.
One of the tenets of the metaverse, at least as its defined today, is multiplayer 3D experiences. And Call of Duty is one of the original MMOs, as is World of Warcraft (another Activision title). Microsoft has its eye on owning users throughout 3D connected worlds, pursuant to longer-term monetization.
As for what that monetization means, it’s still unclear. As metaverse business models materialize, it will become clearer. In the meantime, it’s all about a land grab for user engagement and eyeballs. And some monetization could inherit existing models like subscription, advertising and in-game purchases.
Meanwhile, several gaming companies are intent on planting metaverse flags, most notably Epic Games, which owns Fortnite and Unreal Engine. Gaming will be one of many precursors and inroads to the metaverse, which includes online/virtual worlds and dimensional layers in the physical world.
Opportune & Ill-Defined
The latter is where the metaverse meets local commerce, as we explored in a recent panel discussion at Localogy 2021, including Epic Games and Foursquare. As discussed then, the metaverse is as opportune as it is ill-defined. So, like the early internet, we’ll have to track it as it unfolds organically.
We’ll circle back in a larger report and conference programming in 2022 to continue breaking down what the metaverse means for local media and commerce. Meanwhile, Microsoft takes a step closer to the M-word. Expect more M&A to follow as companies look to fast track their way in.
