Jan 19, 2022 4:37 PM

Microsoft’s Activision Blizzard Deal Is a Move Toward the Post-Console World

Microsoft is betting on a future more focused on games than hardware.

Photograph: Kevork Djansezian/Getty Images

Microsoft’s war chest is a dynamo. With revenues that rival the GDP of a small nation, it’s got enough cash on hand to buy whatever it wants. When it does, it just acquires another money-making machine. Its latest gadget? Video game company Activision Blizzard, which Microsoft announced yesterday it was buying for a staggering $68.7 billion—more than the $26.2 billion it paid for LinkedIn in 2016, almost 10 times the $7.5 billion it paid for Bethesda's parent ZeniMax Media last year. Microsoft now owns Call of Duty and Halo; it owns The Elder Scrolls and World of Warcraft. It owns Candy Crush. It also owns Diablo, Overwatch, Spyro, Hearthstone, Guitar Hero, Crash Bandicoot, and StarCraft. Its chest is full—but not with machines.

It’s tempting to view the acquisition as the latest shot fired in the console wars, a ploy to use Activision Blizzard’s deep catalog to sell Xboxes. But that would be shortsighted. If anything, the deal shows that Microsoft is far more concerned with acquiring gamers—it’ll gain 400 million monthly active players as part of the deal—than with moving units. "The fantastic franchises across Activision Blizzard will also accelerate our plans for Cloud Gaming,” the company said in a statement announcing the deal, “allowing more people in more places around the world to participate in the Xbox community using phones, tablets, laptops, and other devices you already own." This is Microsoft’s move to a post-console world. It’s not about getting you to buy a gadget; it's about luring you into an ecosystem.

When discussing online video game services like Stadia, Sony's PlayStation Now, and Microsoft's Cloud Gaming, insiders often reach for the same descriptor: X is “Netflix for games.” The goal of each service is to become a player’s go-to hub, month after month. Indeed, Phil Spencer, who, with the acquisition will be anointed CEO of Microsoft Gaming, uses this comparison often. “You and I might watch Netflix. I don't know where you watch it, where I watch it, but we can have conversations about the shows we watch,” he told WIRED in 2020. “I want gaming to evolve to that same level.”

This is telling, particularly because of just how much it belies Spencer’s seeming indifference to where people play Microsoft titles. That in itself is a repudiation of the console wars, which have historically been tied to Nintendo, Microsoft, and Sony's alluringly shaped plastic boxes. These “walled gardens” Spencer said, are a “1990s construct” that he’d like to see dismantled. Microsoft's new ownership of Candy Crush fits into this vision, giving the company an immediate presence in mobile gaming that transcends discussions of Xbox Series X.

“They're not getting out of consoles, but they're trying to reduce the degree to which they're tethered to the Xbox,” says Joost van Dreunen, a New York University business professor and author of One Up, a book on the global games business. “That's just going to be one of the entry points into their ecosystem.”

The goal here is one streamlined service—Activision Blizzard's back catalog is the carrot for attracting users into that space. It could take 12 to 18 months for the deal to close, but when it does, Microsoft “will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass, both new titles and games from Activision Blizzard's catalog,” Spencer said in the company’s announcement of the acquisition. “They clearly see gaming as an entry point that leads to a much broader universe,” says van Dreunen. “The Game Pass service has benefited greatly from this."

Microsoft’s focus on Game Pass can have knock-on benefits. It creates what’s known as a “flywheel,” says Alex Connock, a fellow in management practice at Oxford University in the UK, “where more subscribers fund more content, driving more subscribers.” Subscription models, Connock says via email, are “much more reliable than one-off software purchases.” Game Pass just topped 25 million subscribers; the acquisition may bring in many more.

Of course, it isn't just subscriptions. Unlike Netflix, which is largely non-interactive, gaming has a social fabric all its own. Once you lure the player into these ecosystems, it's a lot easier to up-sell them on things like in-game purchases and battle passes. Microsoft's contention that the Activision Blizzard purchase is “a building block for the metaverse” fits into this narrative. The term has been much maligned—aren't many games already metaverses?—yet whatever these spaces eventually end up looking like, it will be games that draw us into them. Meta knows this, of course; just look at how many people FarmVille lured onto Facebook.

Short term, players are likely to fret over which games might become Microsoft-only titles. (It's been suggested the company plans to continue offering Activision Blizzard games on Sony's PlayStation but will also offer Xbox exclusives.) But in the long term, exclusives don’t seem to be central to Microsoft’s strategy. “I think they are ultimately trying to gobble up the whole of the ecosystem rather than make a few dollars per unit or per user by keeping things in pieces,” van Dreunen says.

Still, consoles aren't, just yet, going to vanish into the cloud. Sony, for example, still remains committed to the strategy of offering exclusives and selling PlayStations (and they continue to outsell Microsoft console for console). There are also serious structural concerns about the viability of cloud gaming. “I don't think consoles are dead,” says van Dreunen. “But we are seeing the emergence of a new model that is changing the dynamic between physical goods and digital services and thereby impacting the existing competitive landscape.”

The console wars and the fragmentation of how players access games has been a source of frustration for gaming companies and gamers themselves for years. Mass consolidation could be a way to end those headaches. And that feels like a quite possible endgame; the Microsoft news brought rumblings of other tech giants eyeing studios like EA and Ubisoft. But players may rightly wonder how these mergers and acquisitions will throttle creativity. Games are, at bottom, still an art form. Microsoft’s move may be a shift away from gaming machines, but it’s also a move toward an industry of nothing but cogs.