What Microsoft’s Activision Blizzard deal means

So, what does Microsoft purchasing Activision Blizzard actually imply for routine video game designers — and video game platforms? Well, to start with — it’s fractally complicated. Nobody offer like this is transformative, and nobody offer can considerably speed up the course to “the future.”

However this acquisition — which utilized the equivalent of over half of Microsoft’s $130 billion “cash on hand,” by the method — feels considerably various to the ZeniMax/Bethesda offer, and not simply in regards to large cash paid.

The Bethesda offer, which was “just” $7.5 billion, felt a bit more like “we would like to own more great content and give Game Pass a large boost, and this is a great way to spend some money.” This $68.7 billion Activision Blizzard offer feels more like “we see what other big companies like Apple and Facebook are planning for the future of the Internet and games, and this is our response.”

So let’s drill down into the several angles on this offer. And we’ll wind up at a location where we can translate implications for everybody else making video games not, uhh, owned by Microsoft.

What even is a platform? Or (ugh) the metaverse?

Where it gets made complex is how the concept of a “game platform” is progressing. Sure, Xbox is a hardware platform — that’s the standard usage of the word. However Video game Pass is a platform that covers several kinds of hardware — Xbox consoles, PCs, cloud-enabled mobile phones, and beyond.

And beyond that, games — Minecraft, Call of Duty, World of Warcraft, you get the idea — can be platforms. Perhaps, in Microsoft’s current parlance, “metaverse platforms.” Though I know a lot of us aren’t fans of the word metaverse being slung around too aggressively, given its mushy nature, and Facebook’s attempted commandeering of the conversation around it.

But large companies need to stake out their own views on what is a stock-moving word right now. Which is why Microsoft CEO Satya Nadella said as part of the Activision Blizzard announcement: “In gaming, we see the metaverse as a collection of communities and individual identities anchored in strong content franchises accessible on every device.”

So this is a clear indication that Microsoft believes a monolithic approach is going to fail. And Microsoft’s point appears to be that “cool video game stuff for everyone on all devices” is the way to go. Thus, by combining so many of these in-app purchase, microtransaction, or subscription-based business models, you can:

  • make profitable revenue on all other people’s hardware platforms with your game platforms (such as Minecraft), while also…
  • creating growth and profit on game subscription platforms (Video game Pass) that include games with several business models, including “pay to play once” video games.
  • generating revenue — but not necessarily pushing for lots of profit — on your actual game hardware platforms (the Xbox Series X).

Think I’m getting a bit hung up on the definition of a platform? This isn’t just semantics, and it has real ramifications for game developers. For example, imagine if the only serious money you could make as a game dev was to make your game inside an interconnected universe controlled by a single company.

This is probably the ultimate ideal — implicitly, if not explicitly — for some of the largest platform companies out there. Facebook, in particular, has a closed approach to its platform, and seems to dream of the successor to the mobile Internet being one company with a dominant metaverse offering. But that is not where Microsoft is going.

Microsoft’s semi-forced pivot to “open”

Possibly it’s a hangover from the antitrust lawsuits of the ’90s, and how they affected Microsoft culturally, but Windows by and large being an “open platform” for developers, and recent wars between Microsoft and Apple (in particular!) means that Microsoft has an allergy to restrictive hardware platforms and distribution “taxes.”

Another quote from Nadella during today’s announcement that includes clear Apple shade built into it: “Today we face strong global competition from companies that generate more revenue from game distribution than we do from our share of game sales and subscriptions. We need more innovation and investment in content creation and fewer constraints on distribution.”

It’s notable that Microsoft sees Apple as the “bridge troll,” sitting there waiting for its 30% tax on any goods and services that pass over it on the way to iOS platforms. Of course, Xbox platforms also levy the same tax on third parties, albeit far less of them.

But being the underdog in the console wars vs. Sony, and having a corporate parent with deep pockets has allowed Xbox to pivot away from this traditional model and aggressively scale Game Pass.

(In particular, if your first-party games aren’t really firing on all cylinders, that gives you carte blanche to change your entire business model — you’re not really losing much money in doing so. So this Xbox disadvantage got turned into a plus.)

And you can definitely argue that “we make or package together something and demand money for it” is better, perception-wise, than “we build a hardware platform and sit there to tax everything coming through it.” Xbox has been getting very good PR from fans and developers alike for this approach.

The deal’s real ramifications for devs?

There just won’t be major changes to how game developers see the market immediately: not today, tomorrow, nor the day the Activision Blizzard/Microsoft transaction closes.

But the deal does allow more of the industry’s biggest games to be shifted toward Microsoft’s business model. And that will nudge the industry further towards that model, over time.

If you were to ask me what the model for games is going to be in 5-10 years, I suspect it may be the following:

  • If you’re making a “pay once, play once” PC/console video game of any significant budget, or if you want multimillion player distribution for it at launch, you may need to put it a subscription service to be successful. Whether that be Game Pass, PlayStation Plus, or others such as Netflix. These types of games will absolutely still exist, though!
  • If you’re making a “Games As A Service” game which is paid but also has microtransactions in it, such as Grand Theft Auto 5/GTA Online? You have more ability to go it alone, but you may want to use a subscription service to find new players. And you get the bonus that a) the Game Pass-like service has to pay you for inclusion, and b) you’ll get more money from its subscribers over time
  • If you’re a smaller game dev, and you want to keep making games with whatever business model you’d like for open, non-subscription services like Steam? Then go for it! I don’t believe Steam intends to change its business model at any time in the future. And there’s always going to be space for breakout hits created on these open services.

In the medium term, there are clear possible disadvantages for traditional game developers here. Here’s some of the most obvious that I see, and most are Game Pass-centric:

  • If Xbox is moving a lot more big games into Game Pass — first from Bethesda, and now from Activision Blizzard — it’s going to give even more choice and attention on the top end of titles. If Microsoft can keep scaling its user base, people will still check out smaller games on Game Pass. But there’s definitely a “big get bigger” situation here, especially given microtransaction-centric Games As A Service are often so large, polished, and attention-grabbing.
  • It continues a larger trend, which is that Microsoft is highlighting Game Pass on its hardware platforms at the expense of “regular pay once games” not in Game Pass. Indie devs never did that well anyhow on Xbox. But the lack of focus/discovery going forward will continue to disadvantage them.
  • As Game Pass and similar services get more important, the games that do make it into those services reach a massive audience. But those that don’t may have issues. And negotiation with Game Pass-like entities is essentially a disintermediation. You now have to pass another gatekeeper — a content gatekeeper, in this case — to make it to the “big stage.”

Ultimately, I think most game developers won’t really understand what to think about this deal. It’s another “big get bigger” deal, and it’s another “large tech companies are eating the world” deal, which is at least mildly disconcerting.

However it’s definitely coming from an organization that seems to currently care about video games and preserving the creative independence of devs. Which is something that can’t always be said for a number of other massive tech business in the “we want the metaverse” space.

Microsoft is an organization that is doing a great job of spinning its new role as the provider of high quality content to everyone. But it’s using the parent company’s cash hoard to do it, which is massively disadvantaging competitors like Sony and putting their perfectly reasonable service model on the back foot.

Is that fair? I guess various global governments will have to decide that. And if they’re fine with that, then … that’s capitalism, folks, and we’re all just along for the ride.

Simon Carless is the founder of GameDiscoverCo, a company for video game developers and publishers based around one simple issue: how do players find, buy and enjoy your premium PC or console video game? They run the GameDiscoverCo newsletter.

Jobber Wiki author Frank Long contributed to this report.