Is Microsoft’s Activision Deal a Test of Trust?
Microsoft was at the center of one of the biggest technology stories of the young year when the company announced the $68.7 billion acquisition of troubled Activision Blizzard. The planned merger could help Microsoft assert a leadership position in the emerging metaverse; it’s also a test of Microsoft’s corporate values.
The News and Takeaways
On January 18, Microsoft indicated that it would acquire, in an all-cash deal, the once-celebrated-but-now-tarnished company behind popular gaming titles Call of Duty and Overwatch. Before the announcement, Microsoft was already a leading gaming company. Microsoft said that post-merger, Microsoft “would accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.” That quote, from Microsoft’s press release, has pretty big implications:
- Microsoft extends the reach of its gaming empire. Microsoft said that upon close, Microsoft will have 30 internal game development studios, along with additional publishing and esports production capabilities. The company will be the world’s third-largest gaming company by revenue, behind Tencent and Sony. This is important because the $200 billion gaming industry counts three billion people who play games each day. Gaming is a content powerhouse. Gaming platforms such as Fortnite and Minecraft create opportunities for businesses to create content such as in-game ads, for instance. They’re also becoming platforms for special events such as virtual concerts.
- Gaming is also a building block of the metaverse, an emerging world of connected platforms where people (and companies) exist through their avatars. The metaverse is one of the most talked about topics in business and technology because of its potential for creating economic value beyond the web as we know it. “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Satya Nadella, chairman and CEO of Microsoft. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.” Gaming is one very popular way that avatars exist in worlds such as Roblox and Fortnite. Microsoft and its competitors still need to figure out how to work together to connect those worlds so that avatars can move seamlessly between them. But the content needs to be compelling, which is where owning more gaming titles becomes so important.
And yet, there’s also a complication to consider with the Activision Blizzard deal: values. As we’ve blogged, compatible values are necessary for corporate mergers to succeed in the long run. To say the least, Activision Blizzard has been found sorely lacking with its values. The company has been embroiled in an ongoing scandal related to reports of widespread employee misconduct. In fact, the financial blowback and public scorn over Activision’s troubled culture reportedly factored into the company’s decision to sell to Microsoft. Culture matters. Failure to build a positive employee culture can weaken a company so much that it loses its independence.
What's Next?
Microsoft is in a delicate place now. The company recently pledged to review its own sexual harassment and gender discrimination policies and be more transparent amid a report of misconduct among high-ranking executives, including former CEO and founder Bill Gates. (And, it must be noted, Activision had recently announced it was taking action to address its own issues, and the company had dismissed many employees right before the Microsoft deal was disclosed.)
“Our culture remains our number one priority and the entire Board appreciates the critical importance of a safe and inclusive environment for all Microsoft employees,” said Nadella in a statement announcing the company’s plans. “We’re committed not just to reviewing the report but learning from the assessment so we can continue to improve the experiences of our employees. I embrace this comprehensive review as an opportunity to continue to get better.”
Microsoft, already focused on addressing its own issues with company culture, now takes on the baggage that comes with Activision Blizzard. But the acquisition also creates an opportunity for Microsoft to demonstrate its intent to be even more accountable to corporate values throughout all levels of its business, including the companies that become part of the Microsoft universe. Microsoft lists on its website corporate values such as respect, integrity, and accountability. The company should lean on its site to provide regular updates on how it will deliver on its values by holding Activision accountable for improving (even as Microsoft restores confidence in its own culture). The company can do so on many fronts:
- Updates to investors on the progress of the acquisition – not just legal or financial matters, but culture-based ones.
- Sharing on its site personal testimony from employees on how the company is improving.
- Performance data – such as how well Microsoft (and Activision) are closing the gender pay gap and building an inclusive culture. For instance, how well are Microsoft and Activision retaining women? How many women are gaining management-level positions?
The news on January 18 was certainly big. Now comes the hard part: building long-term trust with stakeholders.
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Investis Digital helps businesses build trust with all their audiences through an approach known as Connected Content, in which we align all aspects of a brand’s narrative with its values and culture. To learn more, contact us.