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Microsoft Bid to Purchase Activision-Blizzard Is Less About the Metaverse and More About Marketing

Feb 02, 2022

By: Gary Brubaker

Don't buy into the hype about this being a move by Microsoft to own the Metaverse. But it is a strong signal that MS is in the game to stay.

The Metaverse is coming, and it will change our lives. However, Microsoft purchasing Activision-Blizzard is about making Game Pass the dominant game subscription service.

Consumers have shown they prefer the all-you-can-eat subscriptions for consuming media, including books (Kindle), music (Spotify), and movies/TV (Netflix). Subscriptions provide corporations with valuable consistent revenue. However, none of the current subscription strategies map clearly to video games. Many companies have tried to bring the Netflix model to video games. To date, they have ranged from failures (Stadia) to moderate successes (Apple Arcade), but none has at the Netflix level.

A successful Netflix of gaming will replicate the old-fashioned linear media (movies) model. It will require an initial depth of content and be able to add more to stay ahead of the competition. A recognized and trusted brand will need to be carefully built and maintained.

Microsoft has been building out both its back catalog of games, and a pipeline of new games, by acquiring a number of game developers to create this library of titles. The purchases of Bethesda, and now Activision-Blizzard, take their IP catalog to the next level. This acquisition is analogous to Disney buying Marvel and Lucasfilm. The acquired brands had a huge beloved back catalog with decades of traction in the marketplace. There is plenty of room for Microsoft to grow the brands just as Disney expanded Star Wars and the Marvel MCU. Microsoft will have World of Warcraft, Doom, Call of Duty, and Halo.

Some aspects of a successful Netflix of gaming will be unique to games.

Foremost, it cannot be a streaming service. This may change, but currently, streaming games are not ready for prime time. Streaming of any kind requires depending on a third-party provider (ISP) to provide a quality connection. Movies require enough bandwidth to prevent buffering and provide HD pictures. Netflix wrestled with ISPs in the early days to provide that bandwidth without having to pay for priority network access. It is now a solved problem for most consumers.

Video games not only require sufficient bandwidth, but also low latency. Latency, roughly, is the time between pushing the button on the remote/controller and seeing the image change on the screen. If you have to wait five seconds from selecting “play” to starting a movie, no one minds. Gamers expect to see a character jump over an obstacle in a fraction of a second. Game Pass can avoid this problem by not streaming games, but downloading to the consumer before starting play. Thus, allowing consumers with dodgy internet to still use the service.

Unlike movies, video games can be saved; players can save their place and accomplishments in a game. This includes completed puzzles and unique and valuable inventory items. When a game leaves a subscription service, players often purchase the game to retain access to these previous game accomplishments. Interestingly, it is common to purchase a game to retain access to a character created by a player but never play the game again. Just knowing that they can revisit past glory provides value. While it is rare to purchase a movie when leaving Netflix, games are the opposite. When a game leaves a streaming service, it drives sales.

The last requirement shares some aspects, but is still unique. The games must be available on every device. Microsoft has a start in that it already has games that are cross-platform. Minecraft is a shining example.

You may have missed it, but Microsoft and Apple are fighting over terms from the AppStore. Apple has provisions that would prevent Microsoft from offering a gaming service on iPhones. Clearly, Microsoft is motivated to offer its game service on all platforms. Some pundits have suggested that Microsoft will make most games exclusive to the XBOX in order to drive XBOX sales. However, the lesson of history is that Microsoft makes money from selling software, not hardware.

Microsoft is successful because it leaves the hardware to other vendors and focuses on the profitable part, software. Why should games be any different? This is a classic Microsoft strategy: Own the software that consumers are willing to buy at regular intervals.