Microsoft purchasing Activision after the purchase of Zenimax / Bethesda is a clear indication that it believes its future is in its Streaming bundle. 

Let’s consider the Fallout (heh)

This is an acknowledgement that Sony’s the better player at console gaming market. With its robust IP leading console sales with a keen eye on what matters for this market, Sony’s clearly leading the charge.

IMO, Microsoft’s done playing that game (and losing). It’s flipping the rules of the game and trying to position itself for the next round – IP and streaming and subscription revenue.

The benefits are vertical integration (for Microsoft), more optimized subscription revenue, less churn in IP and deals and while at the same time, taking future IP _away_ from Sony, and Nintendo and Steam.

This is an inspired play and while no longer novel in the Satya-era of Microsoft, is definitely positioning itself for the future. However, the killer move isn’t here – yet. Here’s a hypothesis on the next parts of the play

What does Sony do?

Kickstart a buying spree of IP to protect its moat. The end result is most publishers / studios will eventually end up as Sony / Microsoft.

1. Microsoft has MORE money

2. Microsoft has potential for future revenue with Game Pass

Adv: Microsoft

to note: This also will likely fragment the hardware market, which has increasingly consolidated towards x86 heterogenous computing led by AMD.

Opportunities

intel / qualcomm have a shot at improving in-house heterogenous computing 

But, this is a potential opportunity for Intel / Qualcomm. This is a valuable market (both console and server hardware) to truly upgrade their knowledge and delivery of heterogenous computing systems.

Microsoft will increasingly push for cloud streaming because that’s its advantage + pushes for subscription and the potential to pull the killer play – also become a cloud streaming services provider to further dis-intermediate Sony.

Gaming studios are not going to have much of a say in this. They are not the “profitable” part of the value chain and will have to face increasing costs in the future (modulo Epic/Unity) in this increasingly bifurcated future, unless they have a strong IP.

google / nVIDIA / amazon

Now, if they have a strong IP, they could potentially play along by being the Disney+ / HBO Max to Microsoft’s Netflix – integrate upwards and become also becoming a streaming service / subscription player. There are some inherent bearishness to this plan. Not every studio can transition to a successful subscription revenue player (see Peacock / Paramount+ etc).

I believe Take Two and possibly Ubisoft are the two players i see potentially popping up here. Specifically for streaming service provider, there are some additional cloud providers to consider – NVIDIA’s GeForce Now, Google’s Stadia tech along with Amazon’s Luna. At least 2 of them are strong cloud players and can potentially sway the strong studio IPs.

Losers

This brings us to the game engine developers – Epic and Unity. They currently power the x-platform genre. Yes, there are some companies developing their own engine, but they also do that for their own _strong_ IP and I assume will be bought out by Sony / Microsoft in this battle / choose their own destiny with integrated streaming. In a world where streaming tech + Sony + Nintendo become the future, Epic and Unity take on a more diminutive role. Their best bet is to be purchased by one of the platforms – Microsoft, Sony, Nintendo or develop a relationship with cloud providers to become a target for them.

The next 2 years in gaming is going to be … epic.