Microsoft’s stumbles in the social media world meant that it was encouraged to double down on gaming.DADO RUVIC/Reuters
Microsoft’s MSFT-Q blockbuster, US$69-billion cash purchase of Activision Blizzard ATVI-Q, the world’s third-biggest video game publisher, was dressed up with all the usual blather about the metaverse, which is being promoted by the tech bros as the NBT – the Next Big Thing.
The metaverse really might be the NBT – or not. It’s a mythical place, lacking an accepted definition, and Microsoft might not really care whether the metaverse has the potential to propel its shares beyond the stratosphere into the exosphere. Maybe the reason behind its pursuit of Activision was much more mundane and centred on the simple pursuit of subscription revenues from awkward adolescent boys with no social life.
The metaverse is touted as a virtual 3-D world whose denizens can interact with one another. The term first appeared in 1992 in the science fiction novel Snow Crash, by American author Neal Stephenson, who also made “avatar” popular. Metaverse is apparently a meld of Meta, the Greek word for “after” or “beyond,” and “universe.”
In recent years, the Silicon Valley tech wizards seized upon the term, none more so than Facebook co-founder Mark Zuckerberg, who recast Facebook as Meta Platforms, or simply Meta, last year. Its website says “The metaverse is the evolution of social connection” and pretty much leaves it at that – tantalizing, vague, largely meaningless.
When Microsoft announced the all-cash purchase of Activision early this week, Microsoft CEO Satya Nadella talked about the metaverse, seemingly parroting the Zuckerberg line. “In gaming, we see the metaverse as a collection of communities and individual identities anchored in strong content franchises, accessible on every device and bringing fantastic entertainment together with new technologies, communities and business models is exactly what this transaction is about,” he said on a conference call.
Whatever.
Subscription revenue is the better line, since the metaverse doesn’t bring in the bucks, at least not yet, and Microsoft needs an endless inflow of bucks to justify its lofty valuation and pump up the shares. They have sagged since the end of 2021, but are still up by more than a third in a year, giving the company a market value of almost US$2.3-trillion, putting it not far from Apple’s US$2.7-trillion and almost triple Meta’s.
Activision is an industry powerhouse, though a flawed one for business and social reasons. The company has been a slouch at updating some of its popular gaming titles, such as Starcraft, which was last tweaked in 2015, and made nasty headlines last year when it got hit by a barrage of sexual misconduct allegations. In July, it was sued by the State of California for sexual harassment and employee discrimination. The U.S. Securities and Exchange Commission launched an investigation.
Activision’s titles include Candy Crush, World of Warcraft and the phenomenally popular Call of Duty. The company has an impressive 390 million monthly active uses, though that’s down from its peak. The Game Pass subscription service of Microsoft, whose titles include Minecraft, Halo and Fallout, has only 25 million subscribers. So plenty of room for improvement, all the more so since Game Pass can distribute across console (Xbox is Microsoft’s console gaming brand), PC and mobile devices.
Microsoft knows that gaming is the hottest entertainment category. Gaming’s growth has been turbocharged by the pandemic lockdowns and restrictions, which have kept kids at home with nothing to do except slaughter the enemy online; forget watching TV or reading books.
Microsoft’s stumbles in the social media world – it reportedly tried to buy Pinterest, Discord and TikTok – meant that it was encouraged to double down on gaming. The Activision purchase entrenches Microsoft firmly in the gaming industry. If the deal closes – antitrust regulators might cause trouble – Microsoft will be the world’s third-largest gaming company by revenue, behind Tencent of China and Japan’s Sony.
Will gaming boost Microsoft’s fortunes? Probably yes, given the industry’s dazzling growth, but some of Microsoft’s previous bets came up short. The Nokia purchase comes to mind, one of the biggest tech blunders of all time. Another dud was MSN TV, formerly WebTV, which Microsoft shut down in 2013. Anyone remember Pointcast? And don’t forget that Apple’s App Store and Google Play Store are powerful players in the mobile gaming distribution. Neither of them will be happy to hand market share to Microsoft.
The metaverse opens a lot of opportunities for Microsoft, but they are pie-in-the-sky at this stage. The Activision purchase signals that Microsoft wants to dominate the gaming industry and reap torrents of subscription sales. Its formidable competitors might make that goal hard to achieve. For the moment anyway, Microsoft’s bet on gaming represents a regular business challenge that could turn into a grubby down-to-earth slugfest.
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