Top IT takeaways from Microsoft’s $68.7B acquisition of Activision Blizzard

Satya Nadella (CEO - Microsoft)

Microsoft’s plan to acquire games developer Activision Blizzard, announced Jan. 18, isn’t just about gaming; it has consequences for the enterprise and CIOs, too.

The US$68.7 billion value the deal puts on Activision Blizzard is only about 3 per cent of Microsoft’s market capitalisation, and the two companies have sales and net incomes in similar proportion, so it’s not going to weigh all that heavily on Microsoft’s strategic direction.

But the deal will absorb about half of Microsoft’s available cash, limiting its capacity in the near future to make other large acquisitions that could better serve CIOs.

Activision Blizzard comes with a far larger price tag than any of Microsoft’s other big purchases of recent years. These include speech recognition specialist Nuance Communications, for US$19.7 billion in April 2021; ZeniMax Media, another games studio, for US$8.1 billion in September 2020; version control platform GitHub, for US$7.5 billion in 2018; social network LinkedIn, for US$26.2 billion in 2016; or Mojang, developer of the game Minecraft, for US$2.5 billion in 2014.

Moving to the metaverse

For Microsoft, this deal isn’t (just) about acquiring more gaming content for its Xbox and Windows platforms, but about creating the building blocks for the development of metaverse platforms.

Facebook’s change of corporate name to Meta Platforms brought the term metaverse to the fore last year, but the IT world happily adopted it from popular fiction years ago. IBM had a metaverse evangelist back in 2007.

But what exactly is a metaverse? Simply put, it’s a virtual reality environment — something like Second Life, or the fantasy worlds found in many video games, but accessed through a VR headset such as Facebook’s Oculus or Sony’s PlayStation VR. (Microsoft’s Hololens, in comparison, is an augmented-reality or mixed-reality headset because you can see the real world through the images it projects, making it unsuitable for visiting purely virtual worlds as reality will intrude.)

“We believe there won’t be a single, centralised metaverse and there shouldn’t be,” Microsoft CEO Satya Nadella said in conference call to discuss the deal. “We need to support many metaverse platforms, as well as a robust ecosystem of content, commerce, and applications.”

There’s a metaverse of sorts creeping into the workplace, too. With the move to working from home, many of us are familiar with videoconferencing services such as Zoom or Microsoft’s Teams. These typically offer users — if their computer’s video hardware is powerful enough — the option to hide the pile of laundry or the peeling paintwork behind them with a virtual backdrop. Teams goes one step further, allowing users to control not only how they present themselves, but also how they see colleagues, arranging their images around a virtual conference table or on virtual theatre seats on the screen in front of them.

Bandwidth and budget permitting, that experience can be taken even further, so that whichever direction meeting participants look, they all appear to be in the same virtual room.

There’s no reason the office metaverse need stop at one room, though. Activision Blizzard will bring Microsoft experience of creating much larger virtual worlds, such as those of Call of Duty, a first-person shooter game in which typical maps span thousands of square meters (a large office building, or a small strip-mall) or World of Warcraft (where fans estimate the maps cover an area the size of Washington, DC).

Software architect may soon take on a whole new meaning in the IT department org chart.

Cloud scale

These days, video games such as those that Activision Blizzard produces don’t just run on consoles and PCs: They have extensive cloud computing components, too, demanding low latency and high reliability. Activision Blizzard made Google Cloud Platform its preferred hosting provider in January 2020, so one way Microsoft might wring additional value from this acquisition would be to move those workloads to Azure.

With demand highest out of office hours the gaming would be a good complement to Microsoft’s business applications, allowing it to get a better return on its existing infrastructure investments. It’s a post-acquisition path Microsoft has trodden before, moving workloads to Azure from LinkedIn’s own datacentres and moving Mojang’s games off of Amazon Web Services. Listen for the complaints from gamers if this cloud migration doesn’t deliver.

The Kotick controversy

Activision Blizzard will bring Microsoft not only entertainment, but also drama. California’s Department of Fair Employment and Housing filed suit against the company in July 2021, alleging that the company discriminated against women on pay and promotion, and that its “frat-house” culture led to incidents of sexual harassment.

Its CEO Bobby Kotick was subpoenaed by the Securities and Exchange Commission in September 2021 as part of an investigation into his handling of reports of sexual misconduct at the company, and a November 16 story in The Wall Street Journal reported that he knew far more about the alleged incidents than he told the company’s board.

A petition by Activision Blizzard employees and contractors calling for Kotick’s resignation has now garnered signatures from almost one-fifth of the company’s workforce — but in its announcement of the deal, Microsoft said Kotick will remain in his position.

In a letter to employees announcing the deal Nadella said, “We look forward to extending our journey to create a more diverse and inclusive culture to our new colleagues at Activision Blizzard, and ensuring all our employees can do what they love, while thriving in a safe and welcoming environment.” But keeping Kotick sends a mixed message about the workplace culture Microsoft wants to encourage.

CIOs can clean up their own workplace by looking for signs of a sexual harassment problem and dealing with it early — but they shouldn’t count on working from home or the use of virtual environments like the metaverse to keep things clean. A beta tester filed the first report of sexual harassment in Horizon Worlds, Facebook/Meta’s virtual reality social media service, just days before it opened to the public.