Microsoft's Biggest Acquisition Is All About Moving To Metaverse

On January 18th, 2022, MIcrosoft announced its intent to acquire Activision Blizzard for $68.7 billion in an all cash offer.  As the metaverse economy heats up, this move gives MIcrosoft several advantages including:

• Beefed up market presence in the gaming industry and a base in the creation of metaverse worlds.  Constellation estimates that the combined deal will give MIcrosoft more than 10% of the gaming market. Activision titles such as Warcraft, Diablo, Overwatch, Call of Duty, and Candy Crush join Microsoft's Xbox game pass and PC Game pass. The massive collection of titles and digital assets can be leveraged to grow the 25 million subscribers on XBox Game Pass. 
  
  POV: Gaming software companies along with movie studios are a great place to build a platform for future worlds.  The acquisition is a bet on building a metaverse platform to rival Apple, Epic, Meta, Niantic, Roblox, and Unity.  In 2021, MIcrosoft added to its gaming library with its acquisition of Bethesda for $7.5 billion.  While this may seem aggressive, MIcrosoft has had to compete with Tencent and Sony's buying sprees.

• Pressure to improve Hololens hardware and retain metaverse talent.  Microsoft has had the hardware aspects of the metaverse stack and a significant gaming library.  While Hololens was innovative when launched in 2015, the pace of development has been slow and competitors such as Meta's Ocuclus, Sony, HTC, and Valve have run rings around Microsoft's Hololens 2 in quality, battery life, speed, and price.
  
  POV: The doubling down on gaming and metaverse should give Microsoft's gaming chief, Phil Spencer, new ammo to make the improvements in Hololens 3 that will take the hardware to the next level and drive cross-sell.  Hopefully these actions will stem the defections of metaverse talent from Microsoft as the Wall Street Journal has reported a brain drain to Meta.  Recruiters have confirmed key talent headed to Apple, Epic, Nviidia, Unity and others.

• Win over Google Cloud for gaming workloads and loss to YouTube Ad revenue.  Blizzard's origiinal footprint included 10 AT&T data centers for hosting World of Warcraft.  At some point, AWS played a role in the hosting but over time Jacques Erasmus, CIO of Activision Blizzard, consolidated the sprawling network of data centers and colocation contracts.  Candy Crush was an origiinal Google Cloud customer.  Eventually, Google won the Activision Blizzard account in 2020 amidst much fan fare.  Google even paid Activision Blizzard $160 million over three years for exclusive streaming rights for events and eSports leagues on Google's YouTube properties.
  
  POV: The win puts MIcrosoft Azure in a great position for hosting the significant gaming workloads.  With a handover expected in 2023, Google Cloud will lose a key tenant and ad driver for YouTube.  Microsoft will gain valuable experience in hosting metaverse worlds and attempt to bring more users onto Microsoft platforms.

The Bottom Line: Expect More Partnerships And Mergers As Vendors Rush Into The Metaverse

Constellation predicts that advances in the metaverse economy will provide a critical element of the “Great Refactoring” ahead and a $21.7 trillion market by 2030.  Massive consolidation ahead will come as metaverse players seek to gain proficiency across the five layers of the Metaverse Economy (see Figure 1).  There will be an arms race for all aspects of the metaverse economy which includes the interfaces (hardware), the metaverse worlds, the DAOs, the value exchanges in crypto, tokens and coins, and the Web 30 infrastructure. 

Figure 1. The Five Layers Of The Metaverse Economy

Enterprises interested in the metaverse economy can start by applying the 43 enterprise use cases that focus on engagement and experiences to support the future of work, employee experience, customer experience, and commerce.

To access the report: go to the Constellation website

Catch the media coverage here:

The Wall Street Journal: Microsoft’s Activision Deal May Bring ‘Metaverse’ to Enterprise Tech

Enterprise AI: Microsoft’s Activision Blizzard Purchase Could Bring Microsoft’s Metaverse Closer

Microsoft's $68.7 bn 'Call Of Duty' for the metaverse

Your POV

Are you ready to monetize the metaverse? Do you have a digital transformation agenda that needs to address the Great Refactoring? Do you know the 43 use cases to get started with?

Add your comments to the blog or reach me via email: R (at) ConstellationR (dot) com or R (at) SoftwareInsider (dot) org. Please let us know if you need help with your strategy efforts. Here’s how we can assist:

• Developing your metaverse and digital business strategy
• Connecting with other pioneers
• Sharing best practices
• Vendor selection
• Implementation partner selection
• Providing contract negotiations and software licensing support
• Demystifying software licensing

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