This analysis was first published in SvD Näringsliv, in Swedish, on January 19th, 2022.

Microsoft says it is doing the largest gaming deal in history to take on Facebook. But the real story points somewhere else — toward Netflix, and a gaming world on the brink of a revolution.

“Culture eats strategy for breakfast.”

Satya Nadella, CEO of Microsoft, quoted the legendary thinker Peter Drucker in his memoir about reshaping the Seattle tech giant. Apparently the line — that corporate culture beats strategy — is one of his personal favorites, and something he returns to often.

Tuesday’s deal, however, suggests almost the opposite. Nadella picked strategy over culture. He was willing to look past the criticism directed at Activision Blizzard’s top leadership, three dozen firings, and 700 reports of misconduct in order to get closer to his vision for a new Microsoft. The deal is worth more than SEK 600 billion — the largest in the company’s history.

Over the past five years, Microsoft has grown its market cap by more than 380 percent and rebuilt its position as one of the largest, most important, and most influential companies in tech. Bets on the cloud service Azure, the Xbox console, and turning the Office suite into a subscription have all paid off. Nadella has every reason to be pleased with both the strategy and the share price.

But as every big tech giant is starting to realize, more success also means more scrutiny. Lina Khan, the newly installed head of the US antitrust authority FTC, is an outspoken tech critic and is pushing a legal case to unwind Facebook’s acquisitions of Instagram and WhatsApp — despite those deals being ten and eight years old, respectively.

Microsoft has its own complicated history with antitrust law. The high-profile 2001 case about the Internet Explorer browser and its market dominance ended in a settlement. But it also marked, in some sense, the end of an era for Microsoft.

Nadella does not want to end up there again. Which is why it isn’t enough for him to make Microsoft’s and the gaming industry’s largest acquisition ever — he also needs to package it for the outside world, and for regulators, in the right way. And he does it by positioning himself against Facebook, and its new bet on the metaverse.

“When we think about our vision for what a metaverse can be, we believe there won’t be a single, centralized one. There shouldn’t be.” That was Nadella’s comment in connection with Tuesday’s purchase.

But Activision Blizzard is not a metaverse company. It is a collection of successful game studios behind some of the world’s best-known gaming brands, like World of Warcraft, Call of Duty, and Candy Crush. Sure, they can contribute something to the futuristic three-dimensional world that Facebook, Roblox, and Tencent have all described as the future. But the masterstroke here is framing the acquisition as a way to compete with Mark Zuckerberg’s big bet (the one that also led him to rename Facebook as Meta), rather than what it actually is — a massive consolidation of the biggest media category of our time. If the game studios help out with metaverse ambitions later on, it should probably be treated as a bonus.

Gaming is not new to Microsoft — the company has been active here for over 20 years. It already owns well-known studios like Bethesda, Double Fine, and Sweden’s Mojang, the studio behind Minecraft. In 2019 the gaming division was renamed Xbox Game Studios, which is a useful hint about where the focus lies. The Xbox console, which competes with Sony’s PlayStation and Nintendo, gives a far more plausible explanation for why this deal is happening now.

The answer is Xbox Game Pass. It is a subscription service where players get access to a large library of games for a fixed monthly price. Does the model sound familiar? If gaming continues to head in the same direction as movies and TV series, the big deal is really a step toward becoming a new Netflix — but for games. Owning one of the world’s largest gaming companies is a major move in that direction.

Just like Netflix, the game is to offer the best content. You get there by buying gaming’s equivalent of hit shows and star directors. Microsoft’s game portfolio will now include brands like Diablo, Fallout, and the already-mentioned World of Warcraft and Call of Duty. A better setup for growing on the already 25 million Xbox Game Pass subscribers is hard to imagine.

Nadella has the strategy clearly in front of him — and the confidence to bet more than SEK 600 billion that he is right. If he can just keep the antitrust regulators at bay, he may well manage to reshape Microsoft into something that was almost unthinkable 20 years ago: a bigger and more influential tech company than ever.