Microsoft goes all-in with Activision acquisition

What will it take to “level up”?

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Microsoft’s eye watering $67.8BN bid for Activision Blizzard will create the third largest gaming company in the world overnight behind Tencent and Sony…if the regulators don’t get in the way.

This is a huge deal even in Microsoft terms: it makes the Gaming division as important as selling Office or Azure. Microsoft has plenty of experience with large acquisitions: LinkedIn in 2016 for $26.2Bn; Nuance Communications for $19.7Bn in 2021; Skype for $7.5Bn in 2012. However, the deal for Activision Blizzard at $68.7B (a 45% price premium) not only represents the biggest bet to date in gaming but also portends a whole new set of opportunities and challenges for the corporation and its leadership.

Putting the consumer in the front seat

Microsoft was born and raised as an enterprise technology company and that DNA led to plenty of early struggles and misfires within the growing Xbox division. That said, Microsoft’s consumer product portfolio today represents nearly a third of the company’s total annual revenue. With another $8+ billion of annual sales coming from Activision, consumer becomes the largest part of the company and surely that DNA will begin to influence the legacy portions of the business.

Land grab in the Metaverse

For all the press around Facebook’s rebrand to Meta and its PR-driven driven vision of blending real, augmented, and virtual worlds, the reality of the Metaverse (and even what that term means) is still very much out on the horizon. Microsoft intends not to miss out and the addition of Activision’s content and user base to their Azure-based infrastructure and AI/ML technologies gives them the potential to be a leader straight from the starting line. Again, success will require Microsoft’s leadership to drive start-up levels of agility and innovation from within a nearly 50-year-old, $170B behemoth

A reset for Activision’s reputation?

Activision has been widely criticised for an allegedly toxic culture and problems with workplace harassment and discrimination. Before the merger announcement, the company reported its work to address the problems was continuing and that it had fired or pushed out more than 36 staff and disciplined another 40 since July of last year. Just following the merger announcement, Phil Spencer, CEO of Microsoft Gaming, posted a statement saying:

“We deeply value individual studio cultures. We also believe that creative success and autonomy go hand in hand with treating every person with dignity and respect. We hold all teams, and all leaders, to this commitment. We’re looking forward to extending our culture of proactive inclusion to the great teams across Activision Blizzard.”

Microsoft CEO Satya Nadella has been an outspoken advocate for DEI within Microsoft and the company has made measurable progress in this area according to industry observers. He and the rest of the Microsoft leadership team will certainly have its work cut out to reset the regressive elements of Activision’s culture and ensure that they can retain the talent critical to success in a relentlessly competitive marketplace for the best people.

With a $70B bet on the line and the future of the Metaverse in play, will Microsoft be able to crack the code and “level up” to win, or could this prove to be Nadella’s Waterloo? Our advice: keep watching the executive talent bench. Microsoft will need to continue to attract and retain a mix of innovators and operators, visionaries, and executors to pull this off.

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