On Monday, Microsoft announced a surprise acquisition of Activision, the embattled gaming company. At a price tag of $68.7 billion, it marks Microsoft’s largest deal, by far, eclipsing the $26 billion it paid for LinkedIn. It’s also one of its most important–at least as far as its cloud gaming ambitions are concerned.
If there was any question of how important, Microsoft also promoted the head of its Xbox division, Phil Spencer, to a new role: CEO of Microsoft Gaming. That’s not just a change in title. Microsoft has been on a bit of a buying spree when it comes to gaming companies, most notably Minecraft and Zenimax, the creator of Doom. All told it has spent more than $10 billion on a dozen game studios.
The goal is to feed the company’s Game Pass strategy, which has failed to gain traction among developers who aren’t particularly excited about handing over their flagship properties to a subscription service when they can easily command $50 or $60 apiece. Microsoft wants to let users pay $15 a month to play any game.
“Upon close, we will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass, both new titles and games from Activision Blizzard’s incredible catalog,” Spencer said in a statement.
Despite its importance to Microsoft, it’s also a deal that comes with a considerable amount of headache. Activision has been under fire for a ‘frat boy’ culture amid a string of reports that it mishandled sexual harassment complaints. Bobby Kotick, the company’s CEO, came under fire for his response to those complaints.
Kotick later apologized, but not before the California Department of Fair Employment and Housing (DFEH) sued the company, alleging it fostered a culture of harassment. The company also faces a Securities Exchange Commission (SEC) investigation that focuses on how Kotick handled complaints. Kotick is expected to leave once Microsoft and Activision complete their deal.
Even without Kotick, it seems pretty clear what Microsoft’s biggest challenge will be in acquiring Activision: Culture. And, for Microsoft, it’s not a new problem.
Microsoft is facing its own criticism related to sexual harassment in the workplace, including the behavior of founder and former CEO, Bill Gates. Gates and his former wife, Melinda, filed for divorce last year as allegations of inappropriate workplace relationships and conduct were made public. The company has said it will conduct an investigation and make the findings public, including any related to Gates.
“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,” the company’s Chairman and CEO, Satya Nadella, said in a statement last week.
The thing is, in Activision, Microsoft is acquiring a company with a toxic culture. That’s not something you can simply hope will go away once the Activision team reports to Spencer.
Certainly, Kotick’s departure will likely make a difference, but Microsoft says the deal is expected to close sometime during its 2023 fiscal year. That means it could take 18 months or so before Microsoft makes whatever changes it thinks are appropriate. It also means 18 months before any real change happens at all.
I believe Nadella is genuine when he says culture is important, but it doesn’t matter how much you say it’s a priority. Your culture is an outflow of what you value. It’s not what you say you value, but what you do. It’s the result of how you interact with and treat the people you work with. It’s the way they follow your lead and treat each other. That’s especially true for the people at the top. That’s what determines the culture of any organization or company. And it’s about to become Microsoft’s biggest challenge.