00:00:00
well the closing of the Activision Microsoft deal is a big step forward for the two companies themselves the next
00:00:06
question is how the two sides come together and the impact that they may provide on the video game industry
00:00:13
pleasure to be joined by harier Singh who's a management Professor here at the
00:00:17
Wharton School he is also co-director of the Mac Institute for Innovation management harb great to talk to you
00:00:23
again yes thanks for inviting me thank you all right so obviously this is a deal that's been talked about for a
00:00:29
while it's now starting to move forward what was your reaction to the deal itself and the potential impact of these
00:00:37
two companies well it was actually quite a remarkable deal it was the largest deal
00:00:43
that Microsoft had made and at 68.7 billion it was a very very large step uh it was also truly
00:00:52
transformative and you could see that in the impact on Sony when the stock price
00:00:56
of Sony on that particular period went down by 1% so it was a significant impact on the what people saw as the the
00:01:05
PlayStation oriented gaming business um but also it was a way for Microsoft to really get time to Market this was
00:01:13
something that uh they had kind of been envisioning and they had several offerings based on the Xbox and
00:01:20
applications on the Xbox but um activation brizard gave them uh you know large numbers of users with Candy Crush
00:01:29
and Call of Duty and other such uh uh games and also multiple platforms including the mobile the cloud um and
00:01:38
and many others uh so I think this is truly a transformative deal and the other point that's worth making is that
00:01:45
uh tech companies have been growing through acquisition at a remarkable Pace um and so in the just a few years ago
00:01:54
they were relatively skittish about making Acquisitions because worrying about loss of talent which is is a real
00:02:00
issue and also about organizational culture differences and so on but they have gone into this with both feet so
00:02:08
then is the expectation that maybe we will continue to see even more types of Acquisitions in this Tech space as we
00:02:15
move forward because especially if if these two companies are able to come together uh re relatively
00:02:21
seamlessly I think that's exactly right the question is what is the competitive
00:02:25
reaction from other players and uh they will also uh need to sort of access this
00:02:31
Market which is moving very very fast uh it's a source of Revenue but there's
00:02:35
also platform sharing people are working across platforms users are working across
00:02:41
platforms um and I think the key issue which is tied to my uh interest in technology and Innovation is uh that
00:02:49
firms are recognizing that uh internal development is a bit slow and therefore even though you might have fewer
00:02:56
cultural differences sometimes you don't win with your internal products uh Partnerships are useful alliances are
00:03:02
useful but then there's a question of you know the end game and when it comes
00:03:06
to in the end game as in how do we share the returns over time and is there an opportunity where in fact uh one player
00:03:13
needs to take charge and I think that's the issue with this gaming industry that
00:03:18
uh there's you cannot have Microsoft and Activision being offered as a as a pair
00:03:25
over the long run so you really have to sort of decide whether you want to access control but then you have to
00:03:32
manage the relationship why then does a company like Microsoft go ahead and make an
00:03:39
acquisition like this of Activision when they certainly have the resources to probably build out a lot of
00:03:46
their own aspects of what they're going to be getting from Activision right um
00:03:51
well you can think about you know uh Google buying YouTube right even though they had tremendous resources to do so
00:03:58
and it was because YouTube was a platform that actually was you know had users and was was already integrated
00:04:05
fully as a platform uh they also invested in Android which became a huge ecosystem uh so these companies have
00:04:13
recognized unlike previous years where you had previous decades really where you had companies getting disrupted by
00:04:20
the startups they're still getting disrupted but what they're seeing is maybe I should buy the startup or
00:04:26
partner with the startup that's actually winning in their space now you're going
00:04:29
to make some mistakes but then um those mistakes are small in relation to the payoff if you get some of these right
00:04:37
Sati Nadella after this deal was announced mentioned that he felt that this allowed Microsoft to make a real
00:04:44
contribution to Consumer markets and I found that interesting because I think of Microsoft and all the different
00:04:51
products that they bring to Market as one that has already connected with the consumer I guess he didn't feel that way
00:04:58
and that activ Vision really gave him that path to be able to do so yes uh and it's fascinating you
00:05:05
mention that because uh you know Steve bomber who preceded Satya did a phenomenal job in many many ways but his
00:05:12
idea was to focus really on the office platform right and uh those kinds of applications and so they did well with
00:05:19
that and they never really had enough of a strength in the entertainment area and
00:05:24
I think Apple kind of showed that you can be seamless across on the on the mobile device
00:05:30
um and Xbox you know in a sense was always a little uh you know it was a hardware based second platform right
00:05:37
whereas Apple had this digital Hub across all platforms so and in fact Satya was um when he came in he had to
00:05:44
resar to the mobile business now that meant that there were developers already there but to sort of give them the
00:05:49
visibility and the resources and this is sort of a step where you're getting to
00:05:55
the entertainment desktop but it's no longer a desktop it's the mobile PL
00:05:59
platform it's the cloud it's streaming it's all those possibilities how much does Microsoft
00:06:07
need to put its own fingerprint on Activision as it moves forward or is it easier just to I mean obviously
00:06:16
Activision has been a very successful company do you leave it run primarily the way it has run maybe with just some
00:06:23
minor touches here and there I think that's an excellent question and that's
00:06:28
the core issue um what Microsoft did with LinkedIn perhaps is uh the way they need to manage Activision uh which is
00:06:37
they left LinkedIn largely alone and this was the fear when they bought LinkedIn that they might actually lose
00:06:43
the community because you know Microsoft still has this complex image right of being kind of a you know more a business
00:06:51
application kind of firm and now you're in a territory of individual users of
00:06:56
all ages in the case of Activision so um they have a template with their acquisition of
00:07:03
LinkedIn which they would be you know it'll be advised to pursue that uh in other words autonomy to the unit giving
00:07:12
it the complimentary resources it needs um and also sort of ensuring that the that the culture of Activision uh
00:07:22
remains um what brought it to this point you know you might actually manage the you might may disrupt the culture
00:07:29
through this acquisition that was going to be my next question because you obviously want this to be as successful
00:07:36
a deal as possible and for Microsoft they probably have to be aware of not trying to overdo it as as they kind of
00:07:43
bring all these elements on board absolutely and you know there's a real danger of this is where Tech firms have
00:07:50
had a long history of failures where uh they send in you know armies of people who have good intentions but they're
00:07:57
saying you have to adopt this system you have to up this way of doing things this
00:08:01
is our process for making decisions um and you know immediately you're imposing
00:08:06
bureaucracy on the other side um and I think that is a real danger that they have um they seem to have done well with
00:08:14
many of the more recent acquisitions so but this is something that they have to continue to follow and the reason why
00:08:20
I'm bringing this up is that culture really is about shared Norms values and
00:08:24
beliefs and those are already all set in activism it's a big big organ $69 billion in value yeah it's it's got
00:08:33
revenue it's got you know developers it's got It's got lots of Assets in
00:08:37
place and the first question they would have is is this a penalty for Success you know we did well and now we being
00:08:43
bought by this company luckily Microsoft's image is positive and and can actually be helpful
00:08:50
but that's not enough you know you need to ensure that the Innovation engine
00:08:55
remains intact so then look at this from the other side from Activision side and
00:09:00
and where do they see the the the best paths to success and adding on to the success they've already had as they move
00:09:08
forward so on that front this is a great transaction uh because uh they can get the scale of Microsoft uh they can get
00:09:17
the complimentary resources um they have long-term durability in their strategy uh and I
00:09:24
think a way to manage this and there are some templates actually going quite a quite far back IBM bought Lotus for
00:09:31
networking software and actually the way it was managed was Lotus was accessing the resource so they were asking them to
00:09:39
use the parent as a uh as a as a menu of possible resources and you kind of cherry pick what you want so that would
00:09:48
be an ideal kind of situation if Activision kind of uh drives the uh the the the choice of complimentary
00:09:57
resources for Microsoft uh capital of course is easy but the rest of it uh you know how to how to seamlessly connect to
00:10:04
the platforms Microsoft also has the cloud for example those are important issues to think about how do you think
00:10:12
then the the uh the remainder of the tech sector looks at this at this acquisition as it's gone through and
00:10:19
obviously the other side to it is also the process that it went through uh with all the regulatory hurdles that it had
00:10:26
to clear both here in the US and and abroad as well how does the industry as a whole look at this deal this is a
00:10:33
transformative deal it is changing uh you know you can almost think about the ecosystems you know of users and the now
00:10:41
Microsoft has a position as um into a major player and actually providing their ecosystem in addition to that of
00:10:50
Activision so um players in the industry uh now need to recognize that there are
00:10:56
Deep Pockets that is uh there is a long-term perspective um and so um how do how do the sort of the relationships
00:11:04
among different players with long-term connections between them how do those relationships change within their own
00:11:11
ecosystem so that's the first point the second point is speaking to the antitrust issue which is I think a a
00:11:17
really really important issue uh it was a real surprise to many that because the
00:11:23
antitrust authorities had actually mentioned that they're going to take a very hard look at there lots of scrutiny
00:11:29
uh but the European side actually um you know the British Authority in particular
00:11:35
the competition markets Authority um sort of indicated that they were willing to go along with this and I think that
00:11:42
was the the signal that uh other players kind of saw as indicative of uh how this
00:11:49
will go forward because the very thing that we say is a good deal for Microsoft can be seen as anti-competitive from an
00:11:55
anti point of view you mentioned the word ecosystem a moment ago you mentioned a couple of times in the
00:12:01
interview and I guess from Microsoft's perspective there's an element of of
00:12:06
what Sati nadela and the company wanted to kind of reach looking at as you said what Apple has kind of set up yes and I
00:12:14
guess to degree Amazon is is kind of in that same boat as well they have both built
00:12:19
ecosystems that allow people to come in maybe at One Touch point but also be able to benefit from so many other touch
00:12:28
points and and I guess that's what Microsoft's looking to try and build as
00:12:31
well yes I think the complimentary resources the complimentary activities uh and users have kind of you know there
00:12:38
was a the thought kind of just a few years ago that an ecosystem has to be open but the Apple evil ecosystem is
00:12:45
kind of partially open it's also very proprietary the iOS and people have been
00:12:50
willing to live with that for now this is always a question um I think Microsoft has had traditionally a more
00:12:56
you know open ecosystem uh and the seamlessness of you know these kinds of applications like games and the other
00:13:03
activities that you can get from other parts of the ecosystem that Microsoft has uh is potentially a real a real
00:13:11
asset and by the way it's all about time to Market and the other concept for you
00:13:15
that's interesting in this discussion is market value versus replacement value
00:13:20
okay so $69 billion what it would take to actually replace activism through Microsoft's own activities whether it's
00:13:26
internal or through Partnerships and without doing proper calculations there aren't you know these are not tradable
00:13:33
assets you have to buy them you can't sort of if they don't want to partner
00:13:36
with you there's no other choice yeah yeah you're talking about the investment that it would take for
00:13:41
for Microsoft to build out each of the components that they would need to get to where Activision is right now and
00:13:47
they have tried of course they've had the xbo ecosystem and so on and you know
00:13:52
the the user base is not as strong I mean this happens you know you you realize you're not winning a particular
00:13:58
race um but you have complimentary asset there's value on both sides here it's
00:14:03
not as they're just buying into it and and holding let me finish up by asking
00:14:07
you one of the questions that's obviously been out there a lot around Ai and and thinking about this deal and
00:14:13
thinking about tech in general how AI will be impacting these companies and these types of deals moving forward
00:14:22
right I think that's a also a very very important question we are so early in
00:14:26
the evolution of AI you know it's almost like the early stages of uh you know
00:14:31
microprocessor chips and look how far they came and this is not even Hardware based so the possibilities are still
00:14:38
emerging uh but there's no doubt that there will be an impact uh in many many
00:14:42
ways including how users uh end up using AI U but also how developers use AI so I
00:14:50
think that from the development side you might see uh dramatic changes uh within
00:14:56
um The Gaming Arena you know and and also in applications harbe always great to get your Insight thank you very much
00:15:03
thank you so much thank you harbe sing man management Professor here at the Wharton School also co-director of the
00:15:09
Mac Institute for Innovation management