[Global Focus] Big Tech Partnering with Game Companies... The Big Picture of the Metaverse
[Asia Economy Reporter Yujin Cho] On the morning of the 18th at 8 a.m. (Eastern Standard Time), Microsoft (MS) released a press statement to the media and investors, announcing the historic merger and acquisition (M&A) between the world's largest software company MS and North America's largest game developer Activision Blizzard. The acquisition price is $68.7 billion (approximately 82 trillion KRW). This represents a 45% premium over the previous day's closing price, making it the largest deal in the global IT industry. The transaction is expected to be completed around June next year after review by the U.S. Federal Trade Commission (FTC), European regulatory authorities, and shareholder approval.
Founded in 1975, MS ushered in the personal computer (PC) era with DOS and has dominated the global PC market by expanding into nearly every software domain, including the Windows operating system, office programs, web browsers, and cloud services. However, with the advent of smartphones and the rise of mobile devices, MS began to struggle in its core business. To diversify revenue, it launched the 'Xbox' console game in 2001, expanding into the entertainment sector. Although MS was the undisputed leader and the 'top of the top' in the PC era, it remained stuck in 2nd or 3rd place in the entertainment field, enduring 20 years of stagnation.
Activision Blizzard owns blockbuster online games such as 'StarCraft,' 'Warcraft,' and 'Diablo,' as well as King.com, famous for the mobile game series 'Candy Crush.' Formed through a merger with Vivendi Games in 2008, the company has established itself as the undisputed number one game developer in North America in terms of market capitalization, revenue, development, and publishing. Currently, about 400 million people worldwide enjoy Activision Blizzard's games monthly across 190 countries.
With this acquisition, MS will become the world's third-largest game company, following China's Tencent and Japan's Sony. This is not just about size. MS aims to revolutionize the game distribution paradigm with this acquisition. The strategy is to release a large number of popular Activision Blizzard games, including the three PC online game giants Diablo, Warcraft, and StarCraft, on its game subscription service 'Game Pass,' aiming to become the 'Netflix of gaming.' MS has already secured game content by acquiring Mojang, the developer of 'Minecraft,' in 2014, and ZeniMax Media, owner of 'The Elder Scrolls,' in 2020.
Xbox, currently trailing far behind Sony's PlayStation, is expected to dramatically change the game market landscape by leveraging Activision Blizzard's intellectual property (IP). The market has responded accordingly. Following the acquisition announcement, Sony's stock price recorded its largest drop since 2008. The Economist predicted, "The combination of MS and Activision Blizzard will increase their global game market share by 10-15%."
The meeting of the number one software and gaming companies also includes a grand plan to respond to the 'metaverse' (extended virtual world). After solidifying its position with game subscription services, MS aims to dominate the game entertainment sector based on cloud technology within the metaverse trend. Satya Nadella, MS CEO, declared, "This acquisition will accelerate the growth of MS's gaming business across mobile, PC, console, and cloud, and provide building blocks for the metaverse."
The metaverse platform, similar to game screens, can infinitely expand through game content. In this regard, Activision Blizzard has powerful content and communities to gather users in virtual spaces. According to MS, the global number of game users reached 3 billion as of the end of 2020, indicating vast market potential. Bloomberg News predicted, "Gaming will be the first industry to make huge money in the metaverse," and "MS can fully embrace Activision Blizzard's loyal community through this acquisition."
One of the biggest assets of game companies, 'graphic quality,' is emerging as a key factor in metaverse development, making the MS and Activision Blizzard combination an optimal synergy. For this reason, Meta (formerly Facebook), a latecomer to the metaverse, reportedly also approached Activision Blizzard for acquisition. Epic Games is also developing games that combine gaming and the metaverse, reflecting the trend of game developers with superior graphic quality entering the metaverse business.
The metaverse has already become a battleground for global big tech companies. Giants like Apple and Google are pouring billions of dollars into developing augmented reality (AR) and virtual reality (VR) hardware and software. Nvidia, a computer graphics chip manufacturer, has declared its entry into the metaverse, and Meta (formerly Facebook), which renamed itself last year and declared the metaverse as the 'next frontier,' has also joined the race.
Meta plans to announce a successor to its VR headset Oculus, first released in 2020, within this year. MS is already a leader in the metaverse field. Several years ago, MS released HoloLens, a mixed reality (MR) device combining VR and AR for metaverse services, and introduced metaverse features into its office collaboration tools.
Like other big tech companies, MS experienced rapid growth over the past two years due to the COVID-19 pandemic. However, with digital paradigm shifts and regulatory pressures, it urgently needs new growth engines. This is why big tech companies harbor ambitions in various fields, from autonomous vehicles to quantum computing. According to The Economist, MS and the other four major U.S. big tech companies?Alphabet, Amazon, Apple, and Meta?invested about $280 billion (approximately 335 trillion KRW) in new businesses last year, accounting for 9% of total U.S. corporate investment.
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