BCP Business & Management PGMEE 2022

Volume 35 (2022)

Analysis Microsoft's acquisition of Activision Blizzard based

on SWOT
Xueqing He1, *
1Beijing No.4 High School, Beijing, China
*Corresponding author: 100237@yzpc.edu.cn
Abstract. The acquisition between Microsoft and Activision Blizzard shocked the whole world for its
huge amount and, mostly, potential huge impact on the development of some influential industries.
Thus, further analysis has been done in this passage with latest statistics. An objective description
on the prospect of the acquisition is also involved. The results come out as that, for both parts,
entrepreneurs' personal willingness has a role to play in the decision-making process of an
enterprise's developing strategy. Meanwhile, the attractiveness of the counterpart is even more
powerful to influence the attitude of the decision-maker, as it is about what benefits the acquisition
can bring to the company. To conclude, after careful balance, the acquisition will accelerate the
promotion of the merged enterprise if the joint leader can successfully union the original two separate
companies.
Keywords: Acquisition, Microsoft, Activision Blizzard.

1. Introduction
Acquisition always refers to the property right transaction which allows the acquirer to take over
the control of the acquiree. It is sometimes financed by paying cash at an offer price in excess of the
market price of the shares, but, more frequently for large acquisitions, by the exchange of shares or
loan stock, possibly with some cash adjustment, issued by the acquiring company for the shares of
the acquired company [1]. It is a widely used form of enterprise capital management for economic
reasons which both benefit the acquirer and acquiree. For the acquirer, opportunity cost is often
hidden and should be taken into account when making economic decisions [2]. This acquisition
enlarges the scale of its original company, which further brings it the effect of economies of scales,
because of which the company's cost per unit will decline with the increase in total units. Obviously,
the acquirer will earn more profits after the acquisition. Also, with the rising need of raw material
from the merged larger enterprise, it will have more leverage during negotiation for a more favorable
price. In addition, acquisitions can bring up the market share occupied by acquirers and also their
strategic status. With the improvement of productivity and overall capability of the acquirer followed
the acquisition, it will gain much more powerful leadership and voice in its target industry. What's
more, besides capital, acquirers may have access to advanced technologies, management experiences,
expertise and business network and so on through acquisitions, which will enhance their competence
in general and further help realize the development strategies. Last but not least, some acquisitions
also allow acquirers enter a new industry which may have a more promising future than the old one.
From this point of view, acquisitions can ensure companies' future development to some extent, too.
For the acquiree, being acquired is not a totally bad thing, as it can improve its own ability and even
make its original vision come true with the engagement of power of the acquirer. For some companies,
it can also be seen as a way to better the unsatisfying present situation. All in all, a proper acquisition
is a win-win deal for both counterparts. Therefore, acquisitions between companies are universal
because company leaders always believe that they are in the position to make the right and most
beneficial resolutions.
In April 2021, Microsoft acquired Nuance, whose core project was Dragon Anywhere, an engine
using deep learning to recognize speech. This decision was seen as the first step for Microsoft to
establish its industrial chain in metaverse. The acquisition of Activision Blizzard is the follow-up
measure for it to apply metaverse in the consumer market. Even though Microsoft has invested a lot
in Xbox, it's still not strong enough as its content mostly relies on the purchased finished products
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which was developed by other companies. In the other hand, Activision Blizzard will have a broad
world to try out its creative ideas in Microsoft and bring benefits and original games to it and, at the
same time, help it form consumption worldview in return. Microsoft hoped to increase its marginal
utility, which measures the additional satisfaction obtained from consuming an additional amount of
a good [3]. In January 2022, Microsoft proclaimed that they would acquire Activision Blizzard at $95
per share which adds up to $68.7 billion. The transaction is expected to finish by 2023, which will
then break the record for Microsoft of the highest price of an acquisition and also make Microsoft the
third biggest game company only to Tencent and Sony. The deal is also one of the three acquisitions
which exceed $40 billion in the first half of 2022. In July, Microsoft claimed that they had responded
to the requirement from Federal Trade Commission (short as FTC), whose aim is to carry out antitrust
actions and laws protecting legitimate rights and interests of consumers, of sending the document for
the second time to the department. FTC now has thirty days with the right to ask Microsoft to provide
more detailed information. Otherwise, they will have to approve the acquisition. As a result, the deal
between Microsoft and Activision Blizzard will become reality as early as August.
Risk analysis seems quite important. Many factors should be in consideration, including market
risks, technology risks, political risks and the whole economic environment [4]. Experts believe that
game industry is the pioneer of metaverse because there are lots of things that the constructor of
metaverse can learn from games. The iteration of games contribute to the fast-developing technology,
also the improvement of hardware and software. In addition, games promote their technologies and
ideas to other industries. The virtual scenes built in games play an important role in metaverse, too.
For companies like Microsoft which have a vision to own a integrated game industry chain, there is
no doubt that buying Activision Blizzard will benefit them a lot in general. It is also a rational choice
for Activision Blizzard as Microsoft will provide them with a broad platform for further development
in game industry and more chances to explore the metaverse which is a promising field agreed by
almost everyone. For what has been discussed above, this essay is going to analyze the acquisition
happened between Microsoft and Activision Blizzard.

2. Data and Method

Microsoft is currently pioneer and the biggest supplier for personal computer software around the
world and is also renowned globally for its Office and Windows system. It was originally founded in
1975 by Bill Gates with Paul Gardner Allen after he dropped out from Harvard University. The
mission of Microsoft, according to its official website, is to empower every person and every
organization on the planet to achieve more, which had shaped its development strategy and all the
small decisions made by its leaders. It is also dedicated to human and organizational achievement.
Microsoft has a strong sense of social responsibility. It claims that it will be carbon negative by 2030
and also try other ways to make contributions to the process of environment protection. Besides,
Microsoft believes that technology is a powerful medium to ensure a sustainable future and make it
accessible to everyone that the benefits and opportunities created by technology. The three main
departments of Microsoft are Intelligent Cloud, More Personal Computing and Productivity and
Business Processes. The proportion of these three departments of the total revenue is nearly equal.
The Intelligent Cloud is relatively a bit higher than the other two. According to its annual report of
2021, its total revenue was $168,1 billion, nearly five times higher than Oracle, the company with the
second largest revenue, in the field of Packaged Software with the year on year growth of 17.69%. It
can be concluded that Microsoft has already recovered from the downturn of previous years.
Microsoft has understand this field with its deep business investigation, including field
development, market sale pattern, the relationship between employee and employer, financial reports,
R&D plan, law issues and so on [5]. Activision Blizzard was founded in 1979, close to the founding
of Microsoft. It mainly focuses on producing a wide variety of games and equipment players needed,
including personal computers, consoles, handhelds and mobile interactive entertainment products. It
has four major segments, which are Activision Publishing, Blizzard Entertainment, King Digital

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Entertainment and Others and Adjustments. According to its annual report of 2021, the total revenue
was $8.803 billion, in which Activision Publishing accounted for the most and, except Others ad
Adjustments, the proportion of Blizzard Entertainment was the lowest. Its total revenue in 2021 was
only about $0.1 billion less than the most profitable company, Polaris in the field of Recreational
Products. According to the official introduction, the Activision Publishing segment delivers content
through both premium and free-to-play offerings and generates revenue from full-game and in-game
sales, as well as by licensing software to third-party or related-party companies that distribute
Activision products. The Blizzard Entertainment segment is engaged in delivering content through
both premium and free-to-play offerings and generates revenue from full-game and in-game sales,
subscriptions, and by licensing software to third-party or related-party companies that distribute
Blizzard products. The King Digital Entertainment segment is focusing on delivering content through
free-to-play offerings and generates revenue from in-game sales and in-game advertising on the
mobile platform. Activision Blizzard also has some independent studios, some of which has owned a
lot of fans. It claims that its products help build community and create social platforms that bring
people together. Its main goal is to make every day more fun with games. It also has some advanced
technologies in the production of games.

3. Results and Discussion

The acquisition between Microsoft and Activision Blizzard, whose extremely high purchase price
not only shocks the world but also arouses people's desire for having a deeper insight of it, is mainly
discussed. Microsoft evaluates its cash flow impact for this deal, especially the additional cash flow
generated from this deal [6]. Microsoft didn't hide its ambition in metaverse, the general trend of
future, and also in restructuring the game industry with its XGP service . It is not odd for Activision
Blizzard to be acquired as it had already done the similar thing for several times. Also, if only from
its current disappointing operating conditions and the constantly going down reputation, the company
is looking urgently for a new competent leader or company to have a fresh start. Otherwise these
downhill performances can all be interpreted as the prelude made by Mike Ybarra to make
preparations for the acquisition by Microsoft.
3.1 Reasons for willingness to acquire
3.1.1 Enterprise strategy reform orientation
Founded in 1975, Microsoft was once the leading company in the world out of the Windows
system and Office software under the leadership of Bill Gates. At the turn of the century, Microsoft
was also at the peak with the highest market value, which had skyrocketed to about $600 billion, in
the whole world at that time. However, with the sudden arrival of Mobile Internet Era, Apple revived
while Microsoft only had disabled smart phone business which could hardly survive in the fierce
competition. The similar situation happened again in the field of meta calculation dominated by
Amazon. It can be said that business of Microsoft was limited in Windows and Office. It also seemed
that the leader of Microsoft didn't have the ability and vision to save it from the valley. Thus, its value
began to decline gradually but ultimately led to an surprising consequence. At the beginning of 2013,
its market value was only about $300 billion, less than half of the highest.
Satya Nadella became the third CEO of Microsoft in 2014, which is a breaking point for Microsoft.
After Nadella taking over the CEO, he was ambitious and confident about that he could reverse the
situation, thus he took determined measures for a thorough reform. He highlighted cooperation and
openness, both of which laid a solid foundation for the spiritual identity of employees and other
deeper changes which would be made in the orientation of enterprise development strategy. Up to
then, Nadella opened a new era for Microsoft. It also began to reorganize its technical map. He
adjusted the five departments to three, Productivity and Business Services, Intelligent Cloud and
More Personal Computing. Nadella has places high values on the Intelligent Cloud department, which
focuses on cloud services. It was proved that he was right. The Intelligent Cloud has already became

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the business segment with the highest income and fastest growth rate. Also because of the rapid
development, the market value of Microsoft was back to the highest level of $600 billion and
continued to rise. Till 2020, it exceeded Apple and became the listed company which had the highest
market capitalization. The revival of Microsoft can be seen as the successful application of the second
curve theory, which implies that if a company wants to survive in the constantly changing market, it
has to start the second curve before the first one reaches its limit point. Microsoft's forecasts are based
on the furture demands such as the potential demand, market penetration and potential supply [7]. It's
also believed that the second curve always has a brighter future, as its exponential growth, than the
first one. In spite of the above, Microsoft still has a lot to do to ensure its future development prospects.
3.1.2 Entrepreneurial willingness orientation
Personally for Nadella, he was inspired by Snow Cash, which later gave birth to the concept of
metaverse, to enter the technology industry. Besides that, as what many experts and strategists believe,
metaverse is part of digital network, the new generation of network different from communication
network and information network. But the basis for it is cloud calculation, which has been the most
important part of Microsoft since Nadella came to power and also is the greatest contributor to
Microsoft's rejuvenation, because calculation based on ordinary computers can't stand the huge
amount of codes that construct the metaverse. From this perspective, it's clear that Microsoft has great
ambitions in the field of metaverse, which can be briefly understood as a virtual world, and is willing
to be the pioneer. Strategies for many other advanced companies are also focusing on the metaverse,
which further proves that metaverse has great potential to be the platform where most of the
innovation in the future will take place.
3.1.3 Product demand orientation
Beyond the metaverse, Microsoft also has the ambition to restructure the game industry. Microsoft
has been keen on game industry for a long time, even though it has already changed three CEOs, but
it still seems tough for Xbox which was founded by Microsoft to win the competition with Sony.
When Xbox was first released, its sales were only one sixth of Sony. But they didn't give up, so they
didn't stop losing the race. If it succeeds in the reconstitution of game industry, it will certainly defeat
Sony. Their strategy is to promote XGP, short of Xbox Game Pass, a subscription based service. After
buying XGP, users can play all games on the platform. This will significantly reduce the decision-
making cost for players. For game companies and also individual developers, this will reduce their
development cost and publicity cost, which is terribly high nowadays. What's more, as the only
criteria for the entrance of the XGP platform is the quality of the game, players will have access to
more high-quality games. For the platform, it will also benefit in the purchasing process. So from this
point of view, XGP is a win-win option.
But the development of XGP is not available for all the companies, and Microsoft just meets the
requirements. Microsoft now owns not only two important game platforms, PC and Xbox, but also
many outstanding first party game studios and lots of household and easy-playing IP in EA Play, also
adding the future Activision Blizzard, all of which are enough for Microsoft itself to form an
extremely huge and varied game library to attract players to substitute the XGP. Obviously that not
many game companies have the similar backing. Furthermore, a macro environment permitting
subscription service is also essential. Otherwise, the likelihood is that Tencent Games and Netease
Games will also focus their business on this profiting area. But as the majority of games made in
China are working in the model of being free to play but charging for some functions, game skins or
game equipment, they don't fit the base for game subscription system which is buyout system, the
basic consensus agreed by manufactures and players in European and American markets. As a result,
it is much easier to implement subscription system in those markets. There is no doubt that if XGP
functions well, many consumers are willing to pay for it for its affordability and convenience.
Activision Blizzard is certainly a satisfying object to acquire to enrich the game library as it is an
old game company for its goodwill, which may arise from the good reputation of the business or the
fact that it is making profits above the average due to some particular advantage of location [8]. It has

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not only high-quality and absorbing game products in general, but many loyal fans who are always
willing to pay for games produced by it. Many of the most popular games and IP are belong to it
which have already covered a lot of game categories. In addition, it owns many great game engineers
which establishes a great advantage and assurance for its game quality. It is also younger and more
energetic than Microsoft, so it may have a larger audience of young people.
What's more, Microsoft's mission is to empower every person and every organization on the planet
to achieve more. This deal will push M to develop in this direction because people will be accessible
to more games through XGP and then have greater sense of achievement during exploring their
favourite games and playing.
To conclude, Microsoft actively cater to the general trend of the times, metaverse, by preparing
necessary techniques to build it which is supported by the game industry to a huge extent. On the
other hand, equipped with Activision Blizzard, Microsoft will have a much more attractive game
library for its XGP game subscription system, a promising service which may help it restructure the
game industry.
3.2 Reasons for willingness to be acquired
3.2.1 Enterprise's own reasons
Activision Blizzard is a combination of three companies, Activision, Blizzard and King. It has
become the benchmark for the quality of game industry after accumulating a great number of loyal
users. But the quality of games, for who know why, and the moral reputation of the company both
declined sharply. The later was because of the endless scandals which further led to marches taken
by employees fighting for their legal rights. Thus, many old fans of Activision Blizzard have been
really down and doubtful about the prospect of this once prosperous company. But some guesses
about what suddenly led it to the downhill path are widely spread across the Internet. Some say that
as Mike Ybarra, the current CEO of Activision Blizzard, was once the Vice President of Microsoft,
when he became the leader of Activision Blizzard, he tried his best to make the company behave
badly and therefore lower its price of stock to make the price favorable for Microsoft. This statement
makes sense at some extent. For instance, as soon as Microsoft announced that it would acquire
Activision Blizzard, the later became much more active, even the update of Mike's twitter became
more frequent. The amount of new game dynamics announced in the recent months has already
exceeded the sum of past four years. It even tried to explore new types of games. So it is clear that
the acquisition has began to fuel Activision Blizzard to reverse the decline and better itself.
3.2.2 Microsoft's powerful capital flow
In addition, Microsoft, as the biggest software provider in the world, has sufficient funds, which
will stimulate further promotion in relatively less competent and developing companies like
Activision Blizzard. The time value of capital should be considered when evaluating the profit and
loss of the deal [9]. Besides, it has been in a vital position in the market for such a long time out of
its advanced technologies and services, which helps it accumulate a good reputation, become an
attractive partner and also have a solid and stable foundation of loyal clients. All of those will help
Activision Blizzard broaden its user groups, which will also benefit Microsoft in turn.

4. Conclusion
There is obviously some uncertainty, the state in which the number of possible outcomes exceeds
the number of actual outcomes and when no probabilities can be attached to each possible outcome
[10], during acquisition. Many entirely unsuccessful acquisition has been witness by the whole word.
The main reason for their failure is that they failed to merge in each other in order to become a whole
but were still two separate companies. Thus the merged company was worth even less than each of
them. However, if they succeeded in doing so, they would be more powerful than the simple sum of
the two. To overcome the universal difficulty, Microsoft and Activision Blizzard have a long way to

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go as they have different corporate cultures, ways of management and views on other core issues.
They are both leading companies in their own industries, so the fusion may be much more difficult
but valuable. Hope leaders of them can come up with inspirations to make such a promising deal a
turning point for the world.
In conclusion, according to the above case analysis including data analysis and classical models,
this big deal is suitable for both Microsoft and Activision Blizzard's vision and development strategy.
At the same time, how will the senior leadership respond to the challenge of truly merging the two
companies is also an essential factor that will shape the result of the acquisition.

References
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London, 416, 1992
[2] Robert S. Pindyck and Daniel L. Rubinfeld, Microeconomics, Prentice-Hall International, Inc., Beijing,
195, 1997
[3] Robert S. Pindyck and Daniel L. Rubinfeld, Microeconomics, Prentice-Hall International, Inc.,
Beijing ,87,1997
[4] Lang Rongsen and Li Gu, Investment, China Renmin university Press, Beijing, 201-203, 1994
[5] Zhong futai, Corporation Merge Operation Guide, Economic Press China, Beijing, 65, 2003
[6] Zhao Xijun and Jing Xia, Modern Corporate Finance, China Renmin university Press, Beijing, 155, 2001
[7] Wang Xu and Guo Huirong, Economic Analysis of Investment Decision, Sun Yat-Sen University Press,
Guangzhou, 162,1992
[8] Michael Greener, The Penguin Business Dictionary, Penguin Group, London, 224, 1994
[9] Lang Rongsen and Li Gu, Investment, China Renmin university Press, Beijing, 88, 1994
[10] Graham Bannock, R. E. Baxter and Evan Davis, The Penguin Dictionary of Economics, Penguin Group,
London, 431, 1992

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