Microsoft Bets on Metaverse With Blockbuster Activision Deal

Microsoft is not going to be made obsolete by the metaverse. Instead, the technology giant is muscling its way into this virtual world by scooping up mega videogame company Activision Blizzard in a $68.7 billion all-cash deal. In one fell swoop, Microsoft is going from a stodgy technology stalwart to one of the top gaming companies in the world based on revenue.

Microsoft is looking to Activision, behind leading franchises like Call of Duty, World of Warcraft (WoW), and Candy Crush, to catapult it forward in a race among tech and gaming companies alike to plant their respective flags in the metaverse. Some gamers fear a monopoly is forming, though we can't imagine why they think such a thing.

Gamers and investors are cheering the deal, with shares of Activision Blizzard soaring close to 30% on the announcement. The timing couldn't be better for the gaming giant. Activision's stock has been hammered of late, shaving off nearly one-third of its value since the summer amid allegations of sexual harassment against the company.

Microsoft is opportunistically swooping in while the chips are down, but Activision still boasts a market cap of over $64 billion. Social media seemed pleased that Microsoft Gaming chief Phil Spencer would be in charge of the division once the integration is complete.

activision 3 month chart
Activision 3-Month Chart | Source: TradingView

Metaverse Push

The metaverse in many ways is still being defined, but that has not stopped companies from tripping over themselves to be associated with it. It has become the latest buzzword in traditional and blockchain circles alike, as demand for digital avatars, including the wildly popular NFTs, pave the way for a virtual world where participants live, breathe, and shop. Activision CEO Bobby Kotick told CNBC that its gaming franchises would serve as anchors in the metaverse. Microsoft CEO Satya Nadella also spelled it out in a statement, saying:

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms. When we think about our vision for what a Metaverse can be, We believe there won’t be a single, centralized metaverse. It shouldn’t be. We need to support many metaverse platforms as well as a robust ecosystem of content commerce and applications.”

It's All About the Ip

Microsoft is no stranger to gaming, with Xbox a shining jewel in its portfolio. Xbox-related revenue has been on a tear as demand has outpaced supply amid the one-two punch of the pandemic and supply chain constraints. Meanwhile, Microsoft is up against stiff competition even in its realm with the likes of Sony and Nintendo.

Videogame expert Shahid Kamal Ahmad noted on Twitter how this deal is part and parcel of Microsoft's mode of operation, which is to acquire IP and their holders. On the other hand, Sony is known for scooping up developers who are skilled at drumming up “great IP” while “Nintendo already has the IPs everyone would kill for but can't have,” he explained.

According to Ahmad, the method behind Microsoft's madness is more about Minecraft than Game Pass, even though the company needs titles for the service. Based on social media responses, gamers envision a world where WoW becomes part of Game Pass, which appears likely. According to the announcement:

“The acquisition also bolsters Microsoft’s Game Pass portfolio with plans to launch Activision Blizzard games into Game Pass, which has reached a new milestone of over 25 million subscribers. With Activision Blizzard’s nearly 400 million monthly active players in 190 countries and three billion-dollar franchises, this acquisition will make Game Pass one of the most compelling and diverse lineups of gaming content in the industry. Upon close, Microsoft will have 30 internal game development studios, along with other publishing and esports production capabilities.”

Metaverse Community

When Microsoft's Nadella enters the metaverse, he will not be alone. Perhaps he will be greeted by fellow tech billionaire Mark Zuckerberg, who has similarly recognized the power of the virtual world. Zuckerberg even rebranded Facebook's Menlo Park, Calif.-based parent company as Meta to reflect this digital transformation.

Microsoft has been on the acquisition trail, and Nadella has done an excellent job of not interfering. Hopefully, he will be more successful than Zuckerberg is perceived upon his metaverse arrival, as the “Icelandverse” parody depicts so well.

The Microsoft/Activision deal still must pass regulatory hurdles. It's not too far in the rearview mirror that Microsoft was rebuffed for its ambitions to acquire China's social media giant TikTok. Nadella is betting he will have better luck with gaming.

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