Microsoft had considered shutting down its Xbox division back in the year 2021, but it ended up opting for studio acquisition instead in order to boost Game Pass.
The Information has learned from sources that Microsoft CEO Satya Nadella had faced the pivotal decision of shutting down the company’s Xbox and cloud gaming business in 2021. With Game Pass in its infancy at the time, the software giant could either invest heavily to bolster its gaming division or shut it down altogether. Nadella ended up going with the former, initiating a bold acquisition strategy that included purchasing Bethesda Studios for $7 billion in 2021 and Activision Blizzard for $75.4 billion in 2023.
As per the source, the acquisitions were intended to fortify Microsoft’s position in gaming and cloud services. By adding major franchises like Elder Scrolls and Call of Duty to its portfolio, the company aimed to make Game Pass indispensable to gamers, thereby driving subscription growth. However, convincing top game studios to participate in Game Pass has proven challenging for Xbox. Despite offering fees to include their titles in the service, many developers remain hesitant. Gus Zinn, a portfolio manager at the Macquarie Science and Technology Fund, remarked, “I just think the majority of the game market doesn’t really want a Game Pass”.
Beyond Game Pass, Microsoft also envisioned leveraging the Activision deal to promote its Azure cloud platform. The hope was that game developers would shift to Azure for their cloud needs. However, despite the acquisition, the Call of Duty developer continues to rely on rented servers from Google Cloud and Amazon Web Services for games and its own servers for development.
Based on the details shared, before finalizing the Activision deal, Microsoft had set a target of over 100 million subscribers by 2030, a goal that requires tripling its current subscriber base within five years. Achieving this necessitates an unrealistic annual growth rate of 40%.
