Microsoft and Activision Blizzard Deal: 5 Key Points Behind the Deal

In its biggest gaming deal ever, Microsoft is buying Activision Blizzard, bringing together two of the biggest names in video games. With a $68.7 billion all-cash acquisition,  the deal is almost three times the size of Microsoft’s 2016 acquisition of LinkedIn.

Microsoft Will be the 3rd Biggest Gaming Company

In the event the deal is approved by regulators, Microsoft will become the world’s third-largest gaming company, just behind China’s Tencent Holdings Ltd., publisher of League of Legends, and its gaming rival Sony Corp., maker of the PlayStation.

In an interview, Chief Executive Officer Bobby Kotick said that Activision couldn’t compete in the new world of gaming on its own. “When you look at companies like Facebook, Google, Amazon, Apple, and especially Tencent, they are enormous, and we realized that we would need a partner in order to achieve our dreams and aspirations,” he added.

For Microsoft, Satya Nadella said Tuesday that “together with our ambition is to bring joy and unity to everyone on the planet”.

Microsoft Wanted to Enter into Mobile Gaming Segment

Mobile gaming is the fastest-growing segment of gaming. In addition to Candy Crush, one of the most popular mobile games of all time, Activision owns mobile-gaming studio King. Microsoft has no mobile gaming presence.

Phil Spencer, the Xbox chief who on Tuesday became CEO of Microsoft Gaming, said in an interview that the No. 1 gaming device on the planet today is a mobile phone. Earlier this month, Take-Two Interactive Software Inc. announced its plan to buy mobile game maker Zynga Inc. for $11 billion.

Microsoft Wanted to Bypass App Store Fees

In order for Nadella’s gaming empire to be big enough to bypass Apple Inc.’s App Store, he needs to expand to be big enough. Microsoft and Apple, as well as Alphabet Inc.’s Google, have been at odds over app store fees.

Nadella said on a call with investors that Microsoft is facing strong competition from companies that generate more revenue from game distribution than from sales and subscriptions of games. “We need more innovation and investment in content creation and fewer constraints on distribution.”

Or, as Spencer said when talking about mobile-phone gaming, “Distribution on those devices are controlled by two people, two big companies.” So Microsoft wants its own “unfettered” ability to distribute games and content, Spencer said.

Microsoft is Focusing on ‘Metaverse’

In addition to Office and conference software, gaming is one of Microsoft’s two biggest metaverse bets.

As Nadella and Spencer see it, the communities of gamers around titles like Minecraft or Halo resemble the metaverse concept.

Creating a metaverse will become even easier with the acquisition of new and massive game communities.

Microsoft is Following the Three C’s

Throughout Nadella’s tenure at Microsoft, his corporate strategy has been focused on cloud, content, and creators.

Going forward in the future, Microsoft’s only goal would be to get as much of Activision’s content onto Xbox Game Pass and boosts the company’s sales with an increase in subscription numbers.

As part of the deal, Microsoft will also have access to a pool of players creating their own gaming content and universes.

Microsoft’s CEO has been looking for a major asset that would add to his growing community of creators after adding Minecraft, LinkedIn, and GitHub.

It looks like he’s finally secured a deal with Activision after failing to land social video service TikTok, and talks with Pinterest Inc. and Discord Inc. similarly failed.

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