Activision; a hefty piece of puzzle in Microsoft gaming vision (Part I)

Intro

On January 18, 2022, Microsoft made an announcement about their plans to buy Activision Blizzard King (ABK) for $95 per share, amounting to a total value exceeding $68 billion. As someone who has been a dedicated gamer and closely following the industry for the past two decades, I've been considering sharing my views on this acquisition and its potential impact on the gaming world. Several factors have deterred me from doing so until now: primarily, my inclination to procrastinate when it comes to writing, and secondly, my desire to avoid introducing any negativity into the acquisition process, given my support for it. However, with the journey now progressing towards its conclusion, it becomes both reasonable and essential to thoroughly examine this significant point in the history of gaming.

Brief history of gaming

The purpose of this article is not to delve deeply into the history of gaming, but it's worth taking a brief look at how the gaming industry has developed to gain a more comprehensive understanding of the current situation. The commercial origins of the video game industry trace back to the 1970s when the game "Pong," created by Atari, gained popularity. From that point onward, companies like Atari, Sega, and Nintendo played a role in shaping the early stages of video gaming. Concurrently, gaming on computers was becoming increasingly mainstream.

During the early 1990s, Sega and Nintendo dominated the specialized market of console gaming, primarily appealing to a younger audience, while more intense gaming experiences (targeting an older audience) were largely centered on personal computers. However, the landscape began to shift in 1994 with Sony's entry into console gaming. This move not only increased the popularity of console gaming among more hardcore gamers, but it also fueled substantial growth throughout the industry. The remarkable success of PlayStation during this generation compelled Nintendo and Sega to enhance their competitive stance.

Meanwhile, prominent tech companies recognized the potential within the gaming industry and contemplated entering the market. By the early 2000s, as Sony was developing its second PlayStation console, Sega was phasing out of the industry after failure of Dreamcast and Nintendo was striving to maintain its dominance in the youth-oriented sector with Gamecube, Microsoft officially entered the scene with the Xbox console. The objective was to attract the hardcore gaming sector, accompanied by the exclusive launch title "Halo." Despite Microsoft's earnest efforts, Sony's established presence remained formidable, and the Xbox struggled to capture more than a sixth of the sales achieved by PlayStation 2 during that generation.

The next chapter will elaborate on the subsequent generations of the Xbox, leading up to the current stage and Microsoft's endeavor to acquire ABK. In summary, it's important to note that the gaming industry has rapidly evolved over the past three decades, showing no signs of slowing down. With a global worth of approximately $200 billion, the industry's swiftest growing segments are mobile gaming and cloud gaming. However, this article focuses more on console gaming, as initially targeted by the acquisition. Moreover, because of its distinct audience and market segment, I have excluded Nintendo from the comparisons going forward, even though it is also one of the three major console manufacturers.

Xbox history

Before delving into the ABK acquisition case, I'd like to provide more insight into the history of Xbox after its initial generation. As mentioned in the previous section, Microsoft couldn't replicate Sony's triumph with its first console generation. The market was already saturated with the dominance of PlayStation, boasting a dedicated fan base and a slew of successful exclusive franchises under Sony's belt. By the end of that era, Sony had managed to sell approximately 150 million PlayStations, whereas Microsoft had only reached a modest milestone of 25 million units sold.

In response, Microsoft reevaluated its strategy to establish a more formidable presence in the forthcoming generation. They adopted a two-pronged approach: acquiring or forming alliances with renowned gaming studios, such as Lionhead (Fable), Bungie (Halo), Rare (Perfect Dark), and Turn 10 (Forza), alongside securing exclusive contracts to cultivate new franchises like Gears of War in collaboration with Epic Games. They also gained an edge by launching their new console almost a year prior to Sony PlayStation 3.

In November 2011, Microsoft unveiled Xbox 360, which to this day remains their most successful console release. Despite grappling with notable issues (notably the "red ring of death" problem), the Xbox 360 managed to attract a global audience of gamers and went head-to-head with the PlayStation 3 throughout its generation. Xbox 360 sold over 84 million units worldwide, compared to the PS3's 87 million, an impressive feat considering the Xbox's modest beginnings (3.5 times increase). Furthermore, many of its franchises gained substantial success and popularity, particularly in the shooter genre. The introduction of the Kinect, a unique add-on device, extended the lifespan of Xbox 360.

Following this prosperous era, Microsoft had all the right components to replicate their triumph in the next console generation. Regrettably, the former president of Xbox made a series of detrimental decisions that thwarted this success. This included overemphasizing the next-generation gimmick add-on device (Kinect), positioning the console as a home entertainment device rather than solely a gaming platform, setting a higher price compared to its Sony counterpart, and imposing unpopular online-only policies. The outcome was a lackluster launch and a backlash from fans directed at the new console, called Xbox One in November 2013.

Furthermore, the absence of major franchises like Halo and Gears of War during the launch period, coupled with the underwhelming appeal of highly anticipated exclusives such as Ryse (Crytek) and Dead Rising 3 (Capcom), exacerbated the disastrous launch.

Conversely, Sony learned from their missteps during PlayStation 3 era and executed a highly successful launch of PlayStation 4. Unable to sustain in-house studios, possessing a smaller market share, relying heavily on third-party developers, waning interest in Kinect, and lacking a clear long-term strategy placed the Xbox's very existence in jeopardy.

In a last-ditch effort, Microsoft reversed some of its initial strategies and appointed Phil Spencer as the head of Xbox. Phil promptly phased out the Kinect entirely and managed to salvage some of the Xbox console's tarnished reputation. However, the efforts were too little and too late to reach the zenith of the Xbox 360 era. Ultimately, the Xbox One sold approximately 50 million units in contrast to the nearly 120 million units of the PS4.

Current generation and ABK acquisition

Microsoft's leader Satya Nadella generously authorized Phil Spencer to avert a repeat of the previous scenario in Microsoft's fourth gaming console generation. Consequently, Microsoft initiated early planning for a new approach. This new console generation commenced in November 2020 with the introduction of two options: the high-tier Xbox Series X and the low-tier Xbox Series S. Through this dual-console strategy, Microsoft aimed to cater to a broader audience with varying preferences. Nonetheless, the distinctive aspect that set Microsoft apart, starting in the final years of the prior generation, was the Xbox Game Pass subscription platform. This platform's success relies not only on console sales, but also on PC and cloud gaming. Essential components for its triumph include a reliable infrastructure, which Microsoft benefits from through its expansive Azure presence. Equally important are the number of games available, their quality, and their frequency. However, Microsoft faced a major hurdle in terms of lacking exclusive games.

In contrast, Sony managed to uphold numerous high-performance studios, enabling them to release a minimum of two blockbuster AAA titles annually. Meanwhile, Microsoft had only a handful of studios that struggled to produce even a single AAA title. This prompted Microsoft to embark on a spree of acquisitions, procuring several large studios like Playground (Forza Horizon), Ninja Theory (Hellblade), and Obsidian (The Outer Worlds), along with promising mid-sized studios including Undead Labs (State of Decay), InXile (Wasteland), Compulsion (We Happy Few), and Double Fine (Psychonauts). However, Microsoft's ambitions didn't halt there. They set their sights on an even bigger acquisition: ZeniMax Media, which housed successful gaming studios such as Arkane (Dishonored), id Software (Doom), Machine Games (Wolfenstein), and Bethesda (Elder Scrolls and Fallout).

As these studios gradually assimilate into Microsoft's fresh gaming strategy, a slew of games are being developed to rival Sony's preeminent franchises. Undeterred in their growth strategy, Microsoft is betting on one of the largest gaming conglomerates globally: Activision Blizzard King.

Up to this point, I've discussed the history of Xbox, the current state of the hardcore gaming landscape, and Microsoft's novel strategy. In the subsequent section, I will delve into the comprehensive significance of the ABK acquisition, which has the potential to be a pivotal moment in the gaming industry. I will also explore what the future holds for the Xbox platform and the gaming industry as a whole.

To be continued…