Microsoft’s planned takeover of Activision Blizzard puts the tech company at the centre of two big issues facing the sector: the metaverse and Washington’s determination to rein in big tech.
The metaverse is where the physical and digital worlds come together, although it is very much at the concept stage. The idea is that you will put on a virtual reality headset and a digital representation of yourself – an avatar – will interact with others at work and play in a combination of virtual and augmented reality.
Microsoft has made clear with its planned $68.7bn (£50.6bn) acquisition of Activision Blizzard that it expects gaming to be a key feature of this new world, with Satya Nadella, Microsoft’s chair and chief executive, saying on Tuesday that gaming “will play a key role in the development of metaverse platforms”. If the metaverse is an immersive world, then gaming – as exemplified by titles such as Roblox and (Microsoft-owned) Minecraft – already offers that experience to its participants.
Mark Zuckerberg is so convinced by the potential of the metaverse concept that he changed the corporate name of his empire from Facebook Inc to Meta. If his recent announcement that his company is spending $10bn a year on the metaverse seemed like a gamble, Microsoft has just staked nearly $70bn on it.
Of course there are immediate benefits for Microsoft, which will gain access to Activision’s 390 million monthly users and huge gaming franchises such as Call of Duty and Warcraft. Gaming, Metaverse or not, is a $180bn global market already, according to research firm Newzoo. Microsoft owns the Xbox gaming platform and Activision’s games and talent will help the company in its competitive battle with Sony’s PlayStation as well as gaming offerings from Meta’s VR platform, Oculus.
Despite big brands like Xbox and the Halo game, Microsoft’s big earners are business-focused: cloud computing (ie providing services like storage space over the internet and sparing you having to invest in hardware) and PC software. As analysts at Wedbush Securities said of the deal on Tuesday, Microsoft’s consumer strategy has “been on a treadmill approach”. Not any more.
But the opinion of regulators and lawmakers matters on this deal. Microsoft is one of the big three console makers and owns games-making studios such as Mojang, the creator of Minecraft. If this deal goes ahead it would make Microsoft the world’s third-largest gamesmaker and it will be noted by regulators, says David Wagner, analyst and portfolio manager at Aptus Capital Advisors. “This will get a lot of looks from a regulatory standpoint.”
The US competition watchdog, the Federal Trade Commission, is now under the leadership of Lina Khan, who has underlined her interest in tackling the big tech players by successfully lodging a renewed complaint against Meta. Khan is a Joe Biden appointee and big tech has few friends among Democrats and Republicans in Congress. Microsoft is making a big move in a hostile environment.