Microsoft Gaming: Key Takeaways (Premium)

Microsoft’s planned acquisition of Activision Blizzard is big news, but there are a lot of other changes happening. Let’s dive in.

First, let’s start with the numbers: this $67.8 billion acquisition isn’t just the biggest in Microsoft’s history---and by far---it’s the biggest in tech industry history. The next closest was Dell’s (and Silver Lake’s) acquisition of EMC for $67 billion in 2015. To date, Microsoft’s biggest acquisitions are LinkedIn ($26.2 billion, 2016), Nuance ($19 billion, 2021), Skype ($8.5 billion, 2011), GitHub ($7.5 billion, 2018), Bethesda ($7.5 billion, 2021), and Nokia ($7.2 billion, 2014).

If/when the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony(!).

It is perhaps notable that, assuming the Activision Blizzard deal goes through, four of Microsoft’s top five acquisitions have occurred under Satya Nadella: this man does not mind spending money to improve Microsoft's competitive advantages. And that this new deal also dwarfs the mammoth $44.6 billion that the software giant had offered for Yahoo! back in 2008. Looking just at gaming, it also makes the $7.5 billion Bethesda acquisition look like pocket change.

From an organizational perspective, Phil Spencer, who was added to Microsoft’s Senior Leadership Team in 2017, now runs a new business within Microsoft called Microsoft Gaming. He also has a new title, CEO, Microsoft Gaming. Previously, his title was the more frivolous sounding “Head of Xbox,” a title I always thought of as “invent your own.” But Xbox has evolved in major ways under Spencer, so this title and this new business name make sense.

But this also says something about the Xbox brand. Today, most people still associate Xbox with the four generations of Xbox consoles that Microsoft has released over the past 20 years. But Xbox is much more than that today. Thanks to Spencer’s unprecedented game studio acquisitions and an associated renewed push into PC gaming, and with its Xbox Game Pass and Xbox Cloud Gaming services providing a way forward, Xbox is now more diverse in every way. So Microsoft Gaming makes sense as an umbrella business for that.

That said, I don’t think that Xbox, which is a terrific brand, will ever get deemphasized (as happened when Office 365 became Microsoft 365, as an obvious example). And it is important to remember that Microsoft previously renamed its Microsoft Game Studios to … wait for it … Xbox Game Studios. The Xbox brand isn’t going away.

Activision Blizzard is an enormous company with many hugely successful game franchises, many thanks to acquisitions and mergers of its own. Because of the timing, we don’t have a handle on the firm’s 2021 revenues yet, but it earned a net income of $2.2 billion on revenues of $8 billion in 2020.

Many probably know that Activision Blizzard owns the iconic Call of Duty franchise, for example, but other t...