Source: Internet Monster Gang
Prior to market hours on January 18, 2022, Microsoft announced plans to acquire Activision Blizzard for $95 per share in cash. The acquisition valued Activision Blizzard at $68.7 billion. Activision Blizzard's management team will remain in office and report to the head of Microsoft Gaming. The acquisition will make Microsoft the third-largest gaming company in the world by revenue, behind Tencent and Sony.
As a veteran gamer, I'm neither a Microsoft fan nor a Followstation Blizzard fan; I've never purchased an Xbox console, and the last time I played Activision Blizzard's game was back in 2017, when I used Barbarians in Diablo 3: Reaper of Souls. However, I think this acquisition is reasonable, Microsoft can run Activision Blizzard well, and the two can produce a certain synergy. For Microsoft, this will further solidify its game development and publishing business; for Activision Blizzard, it is an important redemption that can inject some new vitality into itself.
Since 1999, Microsoft has been playing games for 23 years and has paid tuition for 23 years. In the beginning, Microsoft worked primarily with independent game studios as their publishers. Subsequently, it tried to work closely with Sega to expand the Windows ecosystem to the home console market through Sega Dreamcast consoles. However, Sega failed to compete with Sony, and Dreamcast became a very short-lived console. Microsoft had to build a gaming platform itself, and that was Xbox.
In order to provide enough high-quality content for Xbox consoles, Microsoft has greatly expanded its self-developed game business. It acquired a number of independent game studios, upgraded game development into an independent division, and developed a great self-developed product like Halo (in fact, it was also obtained through acquisitions). If my calculations are correct, Microsoft has historically founded or acquired a total of 41 game studios, 23 of which are still in operation today.
As of early 2022, Activision has 11 game studios, Blizzard has 5 development groups (equivalent to studios), plus the mobile game developer King acquired through acquisitions, for a total of 17. Assuming microsoft doesn't make a massive restructuring of Activision Blizzard's architecture, the entire Microsoft game development division will have 40 studios covering almost every major game category.
I think Microsoft can run Activision Blizzard well for a simple reason: it's paid enough tuition, it's losing enough, and it has a very serious attitude towards gaming. The Internet and software giants in the United States are basically only three minutes hot for self-developed games: Apple has never touched games after Jobs's return; Amazon has been engaged in games since 2014, but after a brief taste, enthusiasm has dropped greatly after 2019; Google has started to do self-developed games since 2019, and only did two years to shut down self-developed studios; Facebook (Meta) basically only makes VR games. Only Microsoft persisted for 23 years. No matter how stupid Microsoft was when it came to gaming, 23 years of tuition was enough.
Players with a little seniority should remember that the original Xbox console only achieved limited success in the North American market because it was too bulky and too late; the Xbox 360 console was an uncompromising tragedy, the manufacturing cost was too high, and it was defeated by the "three red" vicious bugs; Xbox One barely had the ability to fight with Sony, but the market share was still left behind; the sales of Xbox Series X/S were nearly doubled by the PS5. For four generations since its inception in 2002, Microsoft has never beaten Sony (and occasionally lagged behind Nintendo). But Microsoft persevered, knowing that its gaming ambitions could only succeed if it combined hardware and software, content, and platforms. Even if game consoles have proven to be a poor business, they will never consider exiting the market.
Since Microsoft can tolerate losing tens of billions of dollars on Xbox consoles (the exact number is unknown), it can certainly tolerate billions of dollars invested in game development and distribution. Microsoft's journey into game development has not been smooth:
Until 2008, Microsoft had been living under the shadow of mainstream game companies. Many of the self-developed games it had high hopes for fell short of expectations, with a series of self-developed studios forced to close after just two or three years of operation; having to sell parts of its business to entice big game companies like EA to develop products for Xbox; and whimsically hoping to develop casual games based on MSN Live, which of course would not succeed. In addition to the Halo series, Microsoft did not come up with any heavyweight products, and even Bungie, the developer of Halo, spun off into an independent company in 2007. The above chaos fully reflects how chaotic Microsoft, as a large software company, was in the early stage of trying to do content, how chaotic the thinking was, and how lackluster the decision-making was.
Fortunately, Microsoft's management, no matter who it changes to, will never waver in its commitment to the game business. In 2009, affected by the financial crisis, Microsoft made massive layoffs of 5,000 people, but did not dismantle the gaming business as Wall Street analysts had hoped. On the contrary, Microsoft was still acquiring game companies in 2009. It was also that year that Phil Spencer was promoted to the management of Microsoft's game development department — he's still in office, and the CEO of Activision Blizzard will report to him.
After 2011, Microsoft's self-developed games gradually got on the right track. The secret is simple: never stop throwing money, never ending buying. Microsoft continues its rhythm of acquiring at least one game company a year, most notably Minecraft developer Mojang in 2014; it also invested money in the development rights to well-known IP such as Gears of War. Honestly, seeing Microsoft spend money so recklessly and successively, even if God is an iron heart, I am afraid that I will be moved to tears.
Microsoft doesn't have that much patience in other content areas. In 2012, it founded Xbox Entertainment Studios to try to provide original film and television content for the Xbox platform. The studio existed for only two years, and was disbanded after only two episodes and one movie. Microsoft has also never seriously tried to enter the music content market, although it has invested heavily in the Zune music player in a vain attempt to overthrow the supremacy of Apple's iPod. It can be seen that The heads of Microsoft's successive generations of management are still sober, and they know what is the most important thing - the strategic value of the game business to Microsoft far exceeds the sum of all other content, so it must be guaranteed at all costs.
If Microsoft had acquired Activision Blizzard in 2010 or even 2015, I probably wouldn't have been so optimistic. Because the tuition fee had not been paid enough at that time. In fact, 2014-18 was the most turbulent period in Microsoft's game development department, with many self-developed studios being sold or spun off. At the time, Microsoft may have indeed evaluated internally whether to keep the game development business, or even the Xbox platform — and the result was obvious, Microsoft decided to continue. Phil Spencer was also promoted to the position of head of department, which was the right choice.
Activision Blizzard is a company that is in decline. Blizzard has not launched a new IP for many years, and Activision mainly relies on a few "New Year's GOODS IP" to survive. Like major game companies in Europe and the United States, Activision Blizzard is facing the impact of mobile games, the challenges of the free-to-play mode (GaaS), and the unsustainability of the AAA game development model. Microsoft's acquisition won't have an immediate effect, and it won't help the long-established game company quickly find new growth points, but it will provide enough resources and room for maneuver.
Many investors often naively believe that platform companies can easily do a good job of content businesses such as games by relying on strong financial resources and user base. This view is not worth refuting, because among the world's top platform companies, in fact, only Tencent, Sony and Microsoft have done a good job of gaming (it is difficult to say whether Sony can be considered a platform company now). Because the resource endowments required to do the platform and the content are different, the decision-making mode is different, and the requirements for the management system are also different. To cross these two broad categories, you either need to have very good luck or you need to spend a lot of money.
Tencent and Sony have both encountered very good luck when entering the game market, but they have also spent a lot of money. Microsoft's luck is relatively poor, either encountering technical problems or encountering macro environment problems, so it throws more, more, more money. From now on, given that the game development market is already very crowded, and the areas that can be occupied have long been divided, we can think that the luck of all later platform companies will not be very good. To be precise, their luck will be worse than Microsoft's, so they have to smash more, more, more, more, more, more... money.
And even if they throw so much money, they will still fail.