Jan 21, 2022 - Technology
Column / Signal Boost

Microsoft's metaverse maneuvering

Illustration of a VR headset with the Microsoft logo reflected in the lens
Illustration: Annelise Capossela/Axios

Microsoft is pitching investors and regulators that its $68 billion Activision Blizzard deal is all about the metaverse, that nebulous buzzword taking the tech world by storm.

What they're saying: By my colleague Stephen Totilo's count, Nadella used the word "metaverse" at least five times in his conference call discussing the deal. Activision Blizzard CEO Bobby Kotick mentioned the metaverse four times, while Microsoft gaming chief Phil Spencer used the term twice.

Why it matters: Microsoft has long been big on many of the technical building blocks that a metaverse will demand — but the connection between this week's giant gaming deal and that vision of the internet's 3D future looks tenuous to many.

The big picture: The metaverse — a vision of the internet becoming a kind of alternate 3D dimension that people move through via an avatar — became a hot trend last year when Facebook embraced the idea and changed its name to Meta.

  • But the social networking giant is not alone in building toward this future, and even Facebook argues that it will only evolve if lots of companies work together.

In some ways, the "let's build a metaverse" movement is old hat for Microsoft.

  • Its Hololens headset allows a digital universe to be overlaid onto the real world, a concept known as augmented reality.
  • A metaverse will need tons of cloud computing power, which Microsoft has with Azure.
  • It will also need compelling digital worlds to draw in early adopters. Microsoft already has Minecraft, which is popular with the younger crowd, as well as Flight Simulator — which has, at its core, a digital twin of earth's geography.

This is where the Activision Blizzard deal's metaverse dimension shimmers into view: The gaming giant would add some additional digital universes to the Microsoft portfolio — World of Warcraft as well as Call of Duty Warzone, the company's Fortnite alternative.

Between the lines: Calling it a "metaverse deal" could also help Microsoft defend the acquisition from antitrust objections.

  • Microsoft is already trying to position the deal as a way to strengthen its hand against the power Apple and Google wield through their app stores. Invoking the metaverse notion also lets Microsoft position itself as a counterweight to Facebook/Meta's push in this realm.
  • "When we think about our vision for what a metaverse can be, we believe there won't be a single centralized metaverse and there shouldn't be," Microsoft CEO Satya Nadella said on a conference call this week.
  • "In gaming we see the metaverse as a collection of communities and individual identities anchored in strong content franchises accessible on every device, and bringing fantastic entertainment together with new technologies, communities and business models is exactly what this transaction is about," he said.

Yes, but: If that sounds mostly like window dressing, it kind of is. The real value in the deal — and why Microsoft is spending more than on any previous acquisition — is what it adds specifically to three key areas of Microsoft's gaming business.

  1. Console/PC gaming: Microsoft is unlikely to make most Activision franchises exclusive to the Xbox, partly because of competitive issues, but also because it's just not good business. On Thursday, Spencer confirmed Microsoft would like to keep Call of Duty on PlayStation, for example. That said, Microsoft may well do some exclusives selectively, as it has already done with its recent Bethesda acquisition. (Key competitors here are Nintendo and Sony.)
  2. Subscription and cloud gaming: Microsoft has been pushing hard to shift from a world of Xbox and PC gaming to one in which people can play games anywhere, often streaming from the cloud. Adding Activision's titles can strengthen its Game Pass monthly subscription service. Microsoft's goals here include expanding the total number of subscribers beyond the current 25 million as well as supporting play on all manner of devices.( Key competitors: Epic, Apple, Google, Nvidia.)
  3. Mobile gaming: this has been an area where Microsoft hasn't been as strong. Activision Blizzard, through its King acquisition, owns franchises such as Candy Crush. (Key competitors: Tencent, Zynga.)

These are the areas where the deal is likely to get scrutiny from regulators and legislators — along with Activision Blizzard's many recent issues around workplace harassment.

  • "Activision Blizzard — already a gaming giant — has a pattern of bullying workers to evade accountability for rampant sexual misconduct," Rep. Jerry Nadler (D-N.Y.) said on Thursday. "I expect this deal to be closely scrutinized to ensure that it won't harm American workers or competition."
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