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Activision deal pushes Microsoft into top three gaming companies

January 25, 2022

Microsoft announced buying of video game publisher Activision Blizzard.
Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

Microsoft’s proposed US$67bn cash purchase of Activision Blizzard will be the largest ever deal in the gaming industry if approved by regulators. The deal will make Microsoft the world’s number three games developer by revenue behind Riot Games owner Tencent and PlayStation creator Sony.

It will also expand Microsoft’s presence in the fast-growing mobile games market, swell its electronic sports (eSports) portfolio with new leagues and provide new content for its expanding cloud gaming platform. But if Microsoft executives have a longer game in mind, it almost certainly involves extending and honing virtual (VR), artificial (AR), and mixed reality (MR) experiences for the Metaverse.

Multi-platform expansion is a short term aim

The Activision deal is Microsoft’s largest to date, eclipsing its US$26bn purchase of business-orientated social media platform LinkedIn in 2016. But the company has been steadily expanding its stable of games and game developers over the last ten years, including the acquisitions of Minecraft developer Mojang in 2014 (US$2.5bn) and ZeniMax Media/Bethesda Softworks (Fallout, Doom, and Wolfenstein) for US$7.5bn in 2020.[i]

Activision Blizzard brings some of the biggest computer game franchises created in Call of Duty, Warcraft, Diablo, and Overwatch. Some of those titles debuted on PC and console and were later retro-fitted for the smartphone. Others, notably Candy Crush, were developed for the smartphone. Candy Crush was the 5th most downloaded mobile game of 2021, according to App Annie’s State of Mobile 2022 report, and the third most popular in terms of monthly active users (Call of Duty: Mobile made 9th place).

Activision also contributes some expansive eSports operations. It currently runs eSports leagues for titles including Overwatch, Call of Duty, Hearthstone, StarCraft, and World of Warcraft that attract large numbers of participants and spectators worldwide.[ii] And once its integration is approved, Microsoft will own no less than 32 games developers to expand its Xbox Game Pass Ultimate proposition. This cloud gaming platform gives subscribers access to hundreds of games that can be played on PCs, consoles, and Android smartphones/tablets for around US$14.99 a month.

AR/VR/MR proposition under development

Microsoft’s ambition with the Activision acquisition leans beyond differentiating itself purely in platforms and titles and more toward building online communities of subscribers that will engage with its products and services in new and innovative ways. The company has already signaled an intent to harness Activision’s expertise in developing the “building blocks” that will come to define its approach to the Metaverse (read a broader discussion of what the Metaverse is expected to deliver in our recent blog Facebook envisions commerce in the Metaverse written by our CEO – Jonathan Kriegel).

Many building blocks are already well developed, but others need more work, particularly hardware. To deliver the experiences it promises, the Metaverse will need a new generation of affordable, high-performance AR/VR/MR headsets to deliver the virtual environments in which people are expected to play, communicate, and shop.

The underlying headset technology has taken a while to mature and arguably still has some way to go before going mainstream. Statista estimates that the global augmented reality AR, VR, and mixed reality (MR) market will generate around US$30bn of revenue in 2021, rising to almost US$300bn by 2024. And that’s despite the recent acclaim for devices such as the Oculus Quest 2, developed by VR gaming start-up Oculus before its acquisition by Meta (than Facebook) for US$2bn in 2014.

Microsoft has invested heavily in its own HoloLens 2 device but has targeted business and science applications rather than games to date. That has limited its user base, with reports suggesting only around 6% of SteamVR users have a Windows Mixed Reality (WMR) headset.[iii] Suppose Microsoft is to become a significant player in the Metaverse market. In that case, it needs a portable, network-connected AR/VR/MR headset to support the proposition – something that Meta, Google, Apple, and others are already working towards.

More deals on the way?

This year, the Microsoft Activision deal is the second large-scale acquisition in the gaming market after Take-Two Interactive announced its proposed US$12.7bn purchase of Zynga earlier this month (Greg Sigel provides more analysis in a recent blog Zynga brings mobile gaming muscle to Take-Two here). Greg also predicted more M&A deals between gaming companies are almost inevitable.

With Newzoo forecasting the mobile segment will generate almost US$91bn of revenue in 2021 and deliver the fastest growth rate of any platform over the next few years, it’s highly likely we will see other deals put on the table in 2022. But as Google, Meta, Microsoft, Sony et al. jostle for market position in the future, it could increasingly be the gaming, collaboration, shopping, and payment experiences they deliver on Internet-connected AR/VR/MR headsets alongside smartphones that come to define their success.


[i] A guide to Microsoft’s Xbox game studios empire, CNBC, 19th January 2022

[ii] Microsoft agrees to acquire Activision Blizzard for $68.7bn, eSports Insider, 18th January 2022

[iii] The Microsoft-Activision acquisition targets Google and Meta more than Sony, AndroidCentral, 23rd January 2022

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