Can Activision Truly Elevate Microsoft’s (MSFT) Metaverse Vision?

Since the announcement, Microsoft Corporation's (MSFT) plan to acquire Activision Blizzard, Inc. (ATVI) has sparked widespread attention and analysis. Every detail—from the frequent references to the metaverse in the announcement to the deal’s impact on the gaming sector—has been thoroughly examined.

This intense scrutiny is understandable given the deal’s scale and timing. Valued at approximately $69 billion, it stands as Microsoft’s largest acquisition ever and significantly enriches the Xbox content portfolio. However, the deal arrives amid heightened regulatory focus on major tech companies, making antitrust reviews likely.

Key Insights

• Microsoft presents its Activision acquisition as a strategic move toward the metaverse.
• Activision currently lacks the core technology to be classified as a metaverse company.
• Positioning the deal as metaverse-related might be a tactic to mitigate regulatory pressures.

Microsoft has emphasized the metaverse angle in discussing the Activision acquisition. The term “metaverse” gained widespread attention recently, popularized by Meta Platforms, Inc. (FB), formerly Facebook. Yet, analysts view this connection skeptically since Activision is not recognized for significant metaverse technology or development.

Microsoft’s stock has surged during the pandemic, and framing the purchase as a metaverse investment ahead of earnings calls could appeal to investors captivated by emerging tech trends. Nonetheless, investors should maintain realistic expectations about the metaverse’s current state.

Activision and the Metaverse: A Closer Look

The metaverse concept broadly encompasses various technologies like virtual reality, gaming, and cloud computing. Activision Blizzard is a powerhouse in gaming, with its popular titles creating immersive worlds that have captivated players for over 20 years.

However, Activision’s virtual environments are not fully metaverse experiences since they rely on platforms like consoles and mobile devices and lack complete immersion—the user remains anchored in the real world. This explains why Activision did not highlight the metaverse during its 2021 earnings calls, despite the buzz surrounding the concept at that time.

To genuinely embrace the metaverse, Activision would benefit from Microsoft’s strengths in cloud computing and virtual reality. Cloud gaming offers seamless access from anywhere, while devices such as HoloLens can deliver immersive alternate realities.

Bernstein analyst Mark Moerdler recently noted that Microsoft has developed “the broadest and deepest set of capabilities needed to build a metaverse platform.”

John Egan, CEO of market intelligence firm L’Atelier BNP Paribas, suggests that Microsoft could overlay “virtual layers” on urban infrastructure using mixed reality lenses, transforming physical spaces with game-like features—but such innovations will take time to materialize.

Is Microsoft’s Move a Genuine Metaverse Strategy?

When comparing acquisitions and patents as indicators of metaverse commitment, Meta leads the pack. The Economist reports Meta has acquired eight of the 13 companies specializing in augmented or virtual reality—critical technologies for the metaverse. More than half of Meta’s patent filings since 2019 involve AR or VR, underscoring its relentless focus on the metaverse.

Microsoft, while the biggest spender on acquisitions among tech giants, has diversified its investments across sectors like healthcare and quantum computing, seeking the next transformative innovation.

Though not trailing in the metaverse race, Microsoft’s acquisition of Activision appears more aligned with strengthening its gaming division than advancing metaverse ambitions. Activision’s games could help balance Xbox’s revenue streams between hardware and software, enhancing overall profitability.

Labeling the acquisition as a metaverse initiative may also serve a strategic purpose—potentially helping Microsoft avoid intense antitrust scrutiny. The last major regulatory challenge it faced was in 1998, which resulted in diminished market dominance as competitors like Apple surged ahead.

Since then, Microsoft has regained its footing and largely sidestepped regulatory crackdowns that have targeted other tech giants. Presenting this acquisition as entry into a nascent metaverse market allows Microsoft to argue it is competing in a new arena, distinct from the established gaming industry.

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