Monday, December 26, 2022

The Microsoft/Activision Merger Is A Terrible Idea. Here's Why.

A few weeks ago, I stopped into my local game store. The manager of the store, a very nice and knowledgeable guy named Drew, asked me this question: “What do you think about the Microsoft and Activision merger?”

To that point, I hadn’t really given a lot of thought to it. I have a reflexive, knee-jerk reaction to big corporate mergers about them being anticompetitive, but without giving a lot of thought, I mumbled out an answer and took my leave when the store got a little too crowded.

After some reflection, I’ve come to the conclusion that not only is this merger a bad idea, it could be the single worst idea to hit gaming in a long time, almost on par with “let’s make a game based on ET.”First of all, the details of the merger: Microsoft, a company valued currently at 1.78 trillion dollars, has decided it wants to purchase Activision and offered 69 billion dollars. (Nice.) The Federal Trade Commission has blocked the deal for now, and Microsoft is pushing back.

Since we’re going to be dealing in big numbers, I think it’s appropriate to write out the zeros here, as well as the size of Microsoft’s competitors in the gaming space:

    Microsoft’s market cap: $1,780,000,000,000
    Activision’s market cap: $59,000,000,000 (Microsoft is overpaying to get the deal done.)
    Sony’s market cap: $97,200,000,000
    Nintendo’s market cap: $49,560,000,000

Microsoft obviously does much more than make video games and video game consoles, but it’s clear which company has the most money here. At any rate, it’s worth looking at Microsoft and how they got into the gaming space in the first place.

The foundation of the XBox is DirectX, an API that Microsoft built back in the days of Windows 95. Before DirectX, making games for a Windows-based machine was a laborious process that wasn’t worth it to most game devs. Most PC developers made their games for MS-DOS instead. (Oh, incidentally, MS-DOS was a version of DOS that Microsoft basically stole and rewrote. Just remember this.)

Alex St. John and a team of devs decided this wasn’t a good thing, so they started work on a set of APIs (application programming interface) that would connect games directly through to the guts of the computer and make it easier for developers to make games for Windows. The name of their project was “Manhattan Project,” and I’ll let Alex St. John tell you why:

You'll never hear this from anybody else because they probably don't know. The original codename for Direct X was "the Manhattan Project," because strategically it was an effort to displace Japanese game consoles with PCs and ultimately the Xbox. We called it "The Manhattan Project" because that was the codename for the program developing the nuclear bomb.

To repeat, the stated intent of DirectX was to displace Japanese game console manufacturers. Ultimately, Microsoft entered the console gaming space in 2001. One of the first casualties? Japanese developer Sega, who discontinued the Dreamcast in 2001. Don’t get me wrong, Sega was on thin ice anyway, but there was no chance they could compete with a behemoth like Microsoft.

Hey, as an aside, what was the original codename for the XBox?

“As the PS 2 worries spread, the musketeers decided to create their own console, based on DirectX. The secret, politically incorrect code name was Midway, cleverly named after the World War II battle where the Americans finally kicked the asses of the Japanese.”

Huh. Weird. Anyway, Microsoft tried repeatedly to create their own game studio and never could make it work, so they purchased companies repeatedly It started with Bungie, who was making Halo. Microsoft wanted an exclusive for their big console launch, and Halo fit the bill. More acquisitions followed: Ensemble Studios, Rare, Mojang, Obsidian and finally culminating in ZeniMax, makers of Elder Scrolls and DOOM.

Hey, here's a fun bit of Microsoft history: Microsoft has long had a habit of trying to squeeze out other companies. In the 90s, there were two big operating systems for computers: Windows and IBM’s OS2. Microsoft had helped develop OS2 and then had a falling-out with IBM. Microsoft put the squeeze on OS2 and forced them out of the market. They then took the code from OS2 and built Windows NT, which eventually turned into the backbone of Windows XP.

They also destroyed competitors to their office suite. Corel had made a competitor to Office that was superior in a lot of ways. Microsoft eventually ground them down and won that battle, as well as crushed WordPerfect and a whole slew of other companies along the way.

This is Microsoft’s MO: They purchase companies that do what they want and then freeze out competitors. This is what they have done since their inception. It’s part of the company’s DNA. They are who they are.

So, Microsoft is now saying that they want to acquire a third-party developer that makes games for Sony, the company that they explicitly have been trying to beat for the past quarter-century. They claim that they’re going to allow future Activision games to come out for Sony products, and that business will proceed as normal.

Look, if you believe that after knowing just a teeny bit of their history, I don’t know what to tell you. Let’s break down some arguments for the merger and why they’re bullshit.

“Microsoft just likes money!” Yeah, so does every company. So what? You tell me: Will Microsoft make more money if their console is the only one on the market? Oh, sure, they’ll let Nintendo stick around, much in the same way that they invested money into Apple to keep them afloat until they could land on the iPhone. They want the illusion of competition without a real competitor.

If Microsoft could make Sony third-party and get all of those juicy Sony exclusives, do you think they’d take that deal? In a heartbeat! Once again, Microsoft wants to be the only company in a space. It’s what they do.

“Microsoft’s going to let Call of Duty stay third-party!” Of course they’d say that. Call of Duty is big, no doubt, but let’s say that Microsoft/Activision releases a new big franchise. Call it “Warfare Evolved.” They stop making yearly Call of Duty games and just start making Warfare Evolved games. Are they going to put Warfare Evolved on Sony consoles? Are they under any legal requirement to do so? Why would they?

"They haven't stopped Minecraft from coming out on other consoles!" OK, you're correct there. Microsoft has engendered a lot of goodwill by doing this. That's a fair point. However, there's a big difference between buying a studio known for one (very, very popular) game and buying a behemoth of a company that's home to multiple very popular franchises. If you spend $69 billion, you want more out of your investment than the company you paid $2 billion for.

“Microsoft has the better monthly subscription service anyway!”
Yes, GamePass has a ton of games for a really cheap price. However, look at those company values above. Microsoft can afford to piss away money on GamePass forever if they choose. I mean, Sony’s PS Plus offerings aren’t bad at all, they’re just bad in comparison to Microsoft’s. That’s what Microsoft wants!


Look, it’s really annoying to cast Sony as the underdog here. I get it! However, if someone tells you who they are, you need to believe them. Time and time again, Microsoft has shown that they like to squeeze competitors and crush them into the ground. Time and time again, they’ve said out loud, “This is who we are and what we want to do.”

If you’re rooting for Microsoft to make this acquisition, why? What will you gain? Will Call of Duty be better? Doubtful. Will Activision be a better company? Unlikely. However, what will happen is that Microsoft will have another tool to make video games anticompetitive. Nothing good will come of any of this except more zeroes on Microsoft’s balance sheet.

Why on earth would you root for that?

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