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Microsoft’s metaverse plans are getting clearer with its $68.7 billion Activision acquisition

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Microsoft CEO Satya Nadella speaks during the Next: Economy conference in San Francisco on Nov. 3, 2015.
Liz Hafalia | San Francisco Chronicle | Hearst Newspapers | Getty Images

Microsoft's planned $68.7 billion acquisition of gaming company Activision Blizzard isn't just a weapon in the tech giant's battle for video game domination.

It's also about the metaverse — a buzzy topic at the moment, with brands from Disney to Walmart working to carve out their own niche in the digital space, which promises virtual worlds where people can eventually explore, work and play.

Gaming appears to be a particularly large part of Microsoft's metaverse plans. In a press release on Tuesday, the company wrote that buying the "Call of Duty" and "Warcraft" maker "will provide building blocks for the metaverse." Later in that press release, Microsoft CEO Satya Nadella was quoted as saying that gaming "will play a key role in the development of metaverse platforms."

The move may have been a long time coming. Corporate metaverse interest seemingly exploded after Facebook, now called Meta, changed its name to reflect its bet on a virtually focused future. But Microsoft and Nadella were talking publicly about the idea's potential even before Mark Zuckerberg — and acquiring companies with large gaming communities to give them a leg up.

In 2020, Microsoft paid $7.5 billion for ZeniMax Media, the parent company of gaming studio Bethesda. And back in 2014, the tech giant paid $2.5 billion for Mojang, the maker of "Minecraft."

"As the virtual and physical worlds converge, the metaverse…is emerging as a first-class platform," Nadella said in April 2021 during a quarterly earnings call. Microsoft's gaming communities, like "Minecraft" and its then-140 million monthly users, could grow into huge commercial marketplaces "as games evolve into metaverse economies," he added.

That earnings call came about three months before Zuckerberg first revealed his plans for Facebook and the metaverse, teasing the company's eventual transformation into Meta in October.

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At Microsoft's Ignite 2021 conference in November, Nadella compared the promise of the metaverse to the way the tech world looked at the nascent internet in the 1990s.

"When we talk about the metaverse, we're describing both a new platform and a new application type, similar to how we talked about the web and websites in the early '90s," Nadella said in a keynote address at the conference. "It's no longer just playing a game with friends. You can be in the game with them."

Microsoft does not yet offer the sort of commercial virtual reality headset that would be needed for such an immersive gaming experience. But in June, Nadella described the economic impact that metaverse gaming can already provide: During a conversation with Phil Spencer, the head of Microsoft-owned Xbox, Nadella noted that the creators of tens of thousands of "Minecraft" game modifications have collectively pulled in more than $350 million, by building new landscapes for other players to explore.

"They're creating entire college campuses on 'Minecraft,'" Nadella said. Microsoft also profits off communities of gamers making in-game purchases, he noted.

A market report last year estimated that in-game purchases could top $34 billion in revenue in 2021. The Activision deal could help increase Microsoft's cut: It includes Candy Crush Saga, one of the world's most popular mobile games, which is estimated to pull in more than $1 billion per year from in-app purchases.

Of course, Microsoft's metaverse bets aren't limited to gaming. The company launched a Mesh cloud collaboration service for virtual 3D business meetings last year, which Microsoft said "can serve as a gateway to the metaverse."

And at Microsoft's Build conference in May 2021, Nadella's keynote address delved into what he describes as the "enterprise metaverse," where companies can use Microsoft's business software products to monitor their supply chains in the metaverse, building "a complete digital twin" to their real-world infrastructure to better track products from the manufacturing stage to delivery.

But Tuesday's agreement to buy Activision shows that Microsoft could view gaming as a way to compete with Meta and any other metaverse giants going forward. Indeed, Nadella has already hinted at the idea of multiple metaverses just under the umbrella of Microsoft's gaming divisions.

"If you take 'Halo' as a game, it is a metaverse. 'Minecraft' is a metaverse, and so is 'Flight Sim,'" Nadella told Bloomberg in November. "In some sense, they're 2D today, and the question is: 'Can you now take that to a full 3D world?' And we absolutely plan to do so."

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