Advanced Computing in the Age of AI | Thursday, June 30, 2022

Microsoft’s Activision Blizzard Purchase Could Bring Microsoft’s Metaverse Closer 

Microsoft’s $68.7 billion move to buy the Activision Blizzard video gaming platform is not just a blockbuster deal for the gaming industry, but it also positions Microsoft to focus more of its attention on the metaverse market.

The deal, which was announced on Jan. 18, brings Microsoft the popular and action-packed Activision Blizzard games line-up from “Call of Duty” to “Warcraft,” “Diablo,” “Overwatch” and “Candy Crush,” and provides Microsoft with additional building blocks for its metaverse strategy, the company said in its press release. The deal is also expected to accelerate the growth in Microsoft’s gaming business across mobile devices, PCs, consoles and the cloud.

The acquisition will make Microsoft the world’s third-largest gaming company by revenue, behind Tencent and Sony, the company said.

“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,” Satya Nadella, Microsoft’s chairman and CEO, said in a statement. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”

The transaction is subject to customary closing conditions and completion of regulatory review and Activision Blizzard’s shareholder approval, the companies announced. The deal is expected to close in fiscal year 2023 and has received approval by the boards of directors of both companies.

For Microsoft, the Activision Blizzard deal is creating a template for Microsoft’s metaverse aspirations, a group of industry analysts told EnterpriseAI.

R. Ray Wang, analyst

“What Microsoft is doing is they are buying up or building out the stack,” said R. Ray Wang, the principal analyst and founder of Constellation Research, Inc. “They have … other gaming platforms, but by buying Activision Blizzard it means they are serious. They are doubling down on that piece of the business.”

Wang said that his research company sees 43 enterprise use cases for metaverse technologies, including for providing service and support, improved collaboration, training and on-boarding and creating new digital malls and other roles. Microsoft will be able to play in some 38 of those markets, according to Constellation Research’s data.

“Facebook has very little in the metaverse, other than the revenue from Oculus,” said Wang. “It is more of a consumer play for Microsoft right now, but they can get into the enterprise. There is going to be a big enterprise place for this.”

Some examples of this include being able to virtually show what an actual customer experience will look like or putting a person virtually in the eyes of a robot so they can guide the robot to repair something on an oil rig, said Wang. “I do not want you to fly out to the oil rig because that is too hard. But let me show you what it would look like, and you can be immersed on the oil rig see what is going on. In some cases, the user can use an exoskeleton and feel the haptic effects or the feedback from their gloves.”

Another analyst, Charles King, the principal of Pund-IT, said the acquisition “offers Microsoft both a massive platform and substantial intellectual property that should be valuable for future metaverse development.”

At the same time, said King, the metaverse is not yet ready for business on a large scale. “Beyond the metaverse implications, this could be a huge step ahead for Microsoft in terms of a position in modern entertainment, including leading online gaming, console/PC gaming and sports events and gaming. In the short term, it is a bigger shot across the bows of Amazon Prime, Google’s YouTube, Apple and Netflix.”

King said it would be interesting to know if Microsoft made the first move on the deal, or if Activision Blizzard proposed it. “Given the size of the deal, it would not be surprising if other bidders were involved but that is purely speculation on my part.”

James Kobielus, the senior research director for data communications and management at TDWI, a data analytics consultancy, said the deal “certainly helps Microsoft position in gaming, but that is only one small piece, and not necessarily core, of what generally is being referred to as metaverse.”

Kobielus said he was struck that there were no specific VR/AR, digital twin or mobile commerce tie-ins with the acquisition, “so it is not at all clear that metaverse is the right frame of reference for gauging its importance.”

The potential metaverse future depends on where the move ends up going for Microsoft, said Kobielus. “It could be worth the battle in the same way that cloud was worth the battle when Satya Nadella took over from Microsoft’s Gates/Ballmer era,” he said. “Look at how transformative cloud was for Microsoft in the past 10 years. Maybe metaverse – however defined – will propel Microsoft into the cloud lead vis-a-vis AWS, which has not yet put together a clear vision or portfolio in this metaverse arena.”

At Intersect360 Research, CEO Addison Snell said that by adding Activision Blizzard, Microsoft – which was already one of the top hyperscale companies and a leading presence in AI and online gaming – “lets the company expand both [of these things] with virtual universes, [which are now being called] the metaverse.”

Dan Olds, analyst

Dan Olds, the chief research officer at Intersect360 Research, elaborated on the deal, pointing out that Microsoft was able to buy Activision Blizzard “on the cheap” after a serious sexual harassment scandal took a big chunk of value off the stock prices.

Overall, the acquisition is a good one for Microsoft, said Olds.

“I think that there is always going to be big money in entertainment and the entertainment that matters these days is all digital and virtual,” he said. “Microsoft has already carved out a solid position in gaming and cloud gaming. They have Azure and have shown they know their way around building and managing a cloud. The Activision buy is an extension of the strategy to find more ways to profitably build their online ecosystem. And it can be seen as a metaverse on-ramp for them, but we have not seen the killer app for the metaverse yet. If the killer app emerges, then there will be something to talk about metaverse wise, until then, it is all about the games.”

Enterprises, however, should be cautious about the metaverse at this stage, said Olds. “Right now, I do not think that enterprises should fall all over themselves embracing the metaverse,” he said. “I would watch it, but let other companies spend the money and take the pain that inevitably comes with being an early adopter – or a too-early adopter.”

Another analyst, Karl Freund, the founder and principal analyst for machine learning, HPC and AI at Cambrian AI Research, said the Activision Blizzard deal, though, could help change that attitude. “Activision give Microsoft a rich portfolio of environments ripe for expansion into metaverse worlds, putting it way ahead of Meta if Microsoft moves quickly,” said Freund. “The 2023 closing [date for this deal] seems late, however, so Meta’s Facebook has a window of opportunity. Nvidia is pushing digital twins to enterprises with Omniverse, [but that is] a different sphere.”

Under the deal, Activision Blizzard CEO Bobby Kotick will continue to serve in that role until the deal closes, at which time the Activision Blizzard business will report to Phil Spencer, the CEO of Microsoft Gaming.

The $200+ billion gaming industry is the largest and fastest-growing form of entertainment, according to Microsoft. In 2021, the total number of video game releases was up 64 percent compared to 2020 and 51 percent of players in the U.S. reported spending more than 7 hours per week playing across console, PC and mobile. About three billion people globally play games today, which is expected to grow to 4.5 billion by 2030, according to the company. More than 100 million gamers, including over 25 million Xbox Game Pass members, play Xbox games across console, PC, mobile phones and tablets each month.

 

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