Activision acquisition: Microsoft’s new gigantomania

Dhe power of the big American technology companies is the subject of much debate these days. Politicians and regulators are pressuring “big tech” with antitrust lawsuits and plans for new legislation, both in Europe and the US. So it doesn’t seem the best time for companies to pay more attention to their size. That’s exactly what Microsoft is doing now. The software giant, whose stock market value is currently only surpassed by the iPhone manufacturer Apple, has now announced by far the most expensive takeover in its history: it wants to pay almost 69 billion dollars for the video game manufacturer Activision Blizzard.

Microsoft can afford it, the company’s net income in the most recent fiscal year was almost as high as the purchase price. But it is a daring maneuver that CEO Satya Nadella is using to invite more critical looks. He risks Microsoft being lumped together more than before with Facebook, Google, Amazon and Apple in the discussion about the power of the industry.

With the acquisition of Activision, Microsoft is strengthening itself in a huge market that has become even more important during the pandemic. Video games are now bigger business than movies or music. More and more financially strong companies are getting involved, including Apple, Google and recently even Netflix. Microsoft is one of the established players here, as is the Japanese Sony group, with its Xbox console and games such as the “Halo” series. Activision brings more hit titles to one of the most important projects in Microsoft’s gaming division, a subscription service modeled on Netflix. The acquisition also helps in the growth market for smartphone games.

Anchor for the Metaverse

As attractive as the business is, it often seemed like a foreign body in the Microsoft group, even under Nadella, who has been at the helm since 2014. He focused on enterprise software and, above all, pushed cloud computing offerings such as the Azure platform. However, he has also signaled with some acquisitions that he does not want to neglect the games division. Acquiring Activision is his clearest commitment to the business to date. Nadella gives it more strategic weight beyond just selling games and consoles.

He sees it as an anchor for the so-called metaverse, which is currently widely described in the industry as one of the most important future topics. This refers to virtual spaces in which the boundaries to the real world are blurred. So far, the metaverse is a rather vague vision, nor is it clear what business opportunities it will bring. But some see it as the next generation of the Internet. From Microsoft’s perspective, this may make it imperative to occupy the area at an early stage. The company still has painful memories of how it once missed the leap into the mobile Internet era.

With Activision, Microsoft is bringing challenges in-house. The video game manufacturer recently showed unusual weaknesses, for example with a new title in its “Call of Duty” series, which was comparatively poorly received. He also came under pressure over allegations that he was rife with discrimination and sexual harassment of female employees. He was even sued by a labor authority for this. All of this has weighed on the stock price, and Microsoft has a major cleanup ahead of it. Nadella may have seen this as a good opportunity for the acquisition. He is no stranger to opportunism. A while back, he also grabbed the smartphone app TikTok when it came under political pressure in the US because of its Chinese ownership. The transaction ultimately failed.

Nadella has so far managed to keep Microsoft out of the debate about the power of “big tech”. This is remarkable, after all, the group was once considered an enemy in the industry due to the market dominance of products such as the Windows operating system and was involved in spectacular antitrust proceedings. In the meantime, it had a reputation for falling behind competitors such as Google and Apple, but it has made a phenomenal comeback in recent years, also with the help of acquisitions such as the career network LinkedIn. If the spectacular acquisition of Activision succeeds, it will probably be more difficult to stay under the radar.