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How Microsoft plans to conquer the gaming world

callofduty

Microsoft will become the third largest gaming company in the world with its proposed acquisition of Activation Blizzard. So what exactly are Microsoft's ambitions in the gaming world? And what role does platforms play in that?

Microsoft recently announced its intention to acquire the game makers of Activation Blizzard (they make Call of Duty and Candy Crush, for example) for almost 69 billion dollars. The acquisition will make Microsoft the third largest gaming business in the world after Sony and Tencent. Part of Microsoft's gaming strategy is to gain a firm grip on the distribution of games, which is taking place in more and more of a Netflix kind of way as opposed to the old-school way via the store. After all, Microsoft has the Xbox Game Pass, which now has 25 million users. According to Newzo, the global turnover of the gaming industry amounted to 180.3 billion dollars in 2021. Microsoft's market share will increase from 6.5 to 10.7 percent with the acquisition of AB.


Top priority
According to Joost van Dreunen, lecturer at the NYU Stern School of Business and author of One Up: Creativity, competition and the global business of video games, the acquisition is perfectly in line with Microsoft's big ambitions in the gaming world. "Microsoft has made video games a top priority. The combination of the success of Minecraft (Microsoft acquired Minecraft publisher Mojang for 2.5 billion dollars in 2014, BH) and the transition to digital distribution and the cloud convinced Microsoft its time had come." Gaming- and techjournalist (fi Mashable Benelux) Jan Meijroos explains that Microsoft has been working on gaining market share for many years. "Of course, they started with the successful launch of Xbox around the turn of the century and they acquired various studios in the years that followed. Now that 'Gaming as a Service', where you buy games via a platform for a fixed sum per year, is becoming more and more current, you can already see those activities coming together.''

Game Pass
The Xbox Game Pass is certainly important to Microsoft's gaming business strategy, explains Van Dreunen. "With 25 million subscribers, Microsoft is the third largest provider of cloud games. Sony is still the biggest, but Microsoft is busy catching up.'' Van Dreunen thinks Microsoft has much to offer in terms of becoming the place to be for new and old games. "Microsoft has committed to actively subsidising this new service because it knows that building a broad subscriber base quickly is of primary importance. They have both the financial means and the necessary infrastructure for that." Meijroos explains that you can download over 100 games for 10 euros per month. "When it would normally cost 40 or 50 euros per game, so it is logical that many people are doing that. That shows it is less relevant whether you play via Xbox or PlayStation. The basis is always the bond between players and the game.''

Deep pockets
Of course; not only does Microsoft have deep pockets, they also know exactly how to approach distribution via the cloud. After all, Windows packages once came on a disc that you bought at the store, but these can now be downloaded and - not entirely unimportant to the revenue model - updated via a platform. The person responsible for determining Microsoft's gaming strategy is Phil Spencer. He recently gave an interview to the Washinton Post: "I think we do have a unique point of view, which is not about how everything has to run on a single device or platform. That's been the real turning point for us looking at gaming as a consumer opportunity that could have similar impact on Microsoft that some of those other scale consumer businesses do for other big tech competitors. And it's been great to see the support we've had from the company and the board."
He already had interesting things to say to host Neil Patel in the Decoder Podcast in 2020. About the accelerated popularity of gaming during the Corona era: "You've seen Twitch, you've seen the power of gaming on YouTube. You've seen Discord and other places where people come together to talk about games, watch games, watch others play games. I say the acceleration — and I don't know if I'm accurate in my timeline — but I feel like it's a little more gradual for us in gaming because we've already been so far along using community and virality as a way for people to get into gaming. But we've definitely seen a surge. And I don't think it's something that's going to reverse. I think we've just become more and more a part of the way people entertain and connect.''

Not all or nothing
He does not think it is a question of all or nothing in the gaming industry. "It's not a world where in order for us to win, Sony has to lose, or Nintendo has to lose, or Steam has to lose, or something. If it is, it's not really a Microsoft business. (….) Our ambition has to be a global business that's growing, that's going through transformation, where Microsoft has some real opportunity to help with that transformation and play an important role. That's how we frame our opportunity in gaming.''

Distribution
Of course, those opportunities lie mainly in the distribution of games via a platform that is developing rapidly. Naturally, the success of Netflix and Spotify is being looked at, but he believes those parties could also learn something from the gaming world. For example, how to capture an audience. "What do you do with people's interest when they get to the last episode that's on Netflix? Gaming knows how to do that. Our gaming partners, whether it's an annualized franchise that comes out so you're building an audience for the next release, or it's an ongoing perpetual game, like Destiny 2 is in Game Pass right now. Those developers know how to continue to manage and grow communities.''

Exploring other worlds
Meijroos is observing a development that revolves, more than ever, around the bond that develops between games and their audiences. As a player, you get the game via the pass, play on your favourite console, or perhaps on your phone abroad. Ultimately, the value in the gaming world lies - as always in media - in the quantity and quality of fans. If you are a fan of a particular game, you often play alone or with friends, you watch people who play your games and you might also watch a film that is based on 'your' game. Meijroos: "You now see those crossovers being created between gaming and film with the Halo series on Paramount Plus, that is an interesting development and the same applies to merchandise. It is naturally very logical; why would you not offer those fans even more? What is important if you understand that fans of games are important is that the relationship between Microsoft and the studios they acquire should not just be about money, but also about offering scope for creativity. You hear about good experiences in that respect, but they must not lose sight of that.'' 

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