From the day it was announced, Microsoft Corporation's (MSFT) acquisition of Activision Blizzard, Inc. (ATVI) has generated a fusillade of headlines. Every aspect of the deal—from the number of times the metaverse was mentioned in the announcement to its effect on the gaming industry—has been dissected.
The analysis overkill is not surprising considering the deal's complicated optics. At roughly $69 billion, it is the largest deal in Microsoft's history and will boost the content library of its Xbox gaming console. But the acquisition has occurred at a time of increased spotlight on Big Tech firms and is likely to draw antitrust scrutiny from regulators.
- Microsoft has framed its acquisition of Activision Blizzard as a metaverse play.
- Activision does not have the necessary technology to be considered a metaverse company.
- Microsoft may be positioning its deal as one related to the metaverse to escape regulatory scrutiny.
The tech giant has positioned the Activision deal around the metaverse. That word, and market, was only recently introduced into public lexicon by Meta Platforms, Inc. (FB), the social media giant formerly known as Facebook. The metaverse connection seems a tenuous one to analysts because Activision is not known for its credentials in that incipient market.
Microsoft's stock has been on a tear during the pandemic, and framing the purchase as a metaverse acquisition, right before an earnings call, could make the company even more attractive to investors enamored with the latest tech trend. But they might want to take a reality check before diving into the metaverse.
Activision as Metaverse? Not Quite
At its best, metaverse is a vague concept including a collection of technologies and markets—virtual reality, gaming, and cloud computing are just some examples. Activision Blizzard is a leader in the gaming industry. Its games, which make up a universe unto themselves, have been best-sellers for more than two decades.
However, Activision's virtual worlds do not quite comprise a metaverse in that they are still dependent on various platforms, such as consoles and mobile platforms, and are not completely immersive because the user still functions in the real world. That is why, even amid the brouhaha over the metaverse in 2021—when companies were tripping over themselves to generate momentum for their stock with the concept—Activision Blizzard did not mention the concept during its earnings call.
The company will need Microsoft's technological heft in cloud computing and virtual reality, when it does market itself as a metaverse play. Cloud gaming will enable access anywhere, while devices like the HoloLens can provide access to another world.
Bernstein analyst Mark Moerdler stated in a report last week that Microsoft has "over many years built what we would argue is the largest breadth and depth of functionality that will be required to deliver the metaverse platform."
According to John Egan, chief executive of market intelligence firm L’Atelier BNP Paribas, Microsoft could create "virtual layers" on existing urban infrastructure and use mixed reality lenses to imbue them with game-like characteristics. But that universe will take some time to surface.
Is Microsoft's Acquisition a Metaverse Play?
If one were to analyze acquisitions and patents as an indicator of interest, Microsoft would lose out to Meta in the metaverse stakes. According to analysis by The Economist, Meta has purchased eight of the 13 firms that work in augmented reality or virtual reality—two key technologies that guard the entryway to metaverse. "More than half of Meta's patent applications since 2019 mention AR or VR," writes the publication, noting that the company is "single-minded" in its pursuit of the metaverse.
Meanwhile, Microsoft, which spent the most to acquire companies among tech conglomerates, has cast a wider net across many industries—like healthcare and quantum computing—in its pursuit of the next big thing.
That said, the company is hardly a laggard in the metaverse race. But the Activision acquisition is more useful to it as a gaming play than one related to the metaverse. Its gaming division is mostly dependent on revenues from its console Xbox’s sales; Activision's games could balance out the division's revenue share between software and hardware.
Meanwhile, anointing the deal as a metaverse acquisition could help the company escape the prying eyes of regulators. Microsoft last faced antitrust regulators in 1998. That case led to erosion of its market share and loss of primacy in the tech industry as competitors such as Apple Inc. (AAPL), surged ahead.
Microsoft has more than made up for its losses since then. It has also escaped censure even as its counterparts in the tech industry dutifully make the rounds before Congress. Framing its latest business move as a metaverse acquisition could help Microsoft argue that it is competing in a new market, one whose contours are still being marked out, rather than the existing gaming industry.