For the last decade, Microsoft has largely evaded scrutiny from antitrust regulators in the US and abroad. Despite a market capitalization larger than any other US company aside from Apple, regulators in the US and Europe greenlit its purchase of the social network LinkedIn for $26 million in 2016, the software development platform GitHub for $7.5 billion in 2018, and the speech recognition software Nuance for $26 billion in 2021.
While the rest of Big Tech has come under withering scrutiny on Capitol Hill, Microsoft’s focus on enterprise software has helped it “avoid political pressure in the content moderation and predatory pricing discussions that embroil the other Big Tech companies,” said Sarah Oh, a senior fellow at the Technology Policy Institute, a Washington, DC think tank.
Antitrust regulators have repeatedly focused on Microsoft’s peers while largely ignoring the world’s second most valuable tech company. When the House antitrust subcommittee investigated anticompetitive behavior in the technology sector in 2020, it wrote 450 pages about the market abuses levied against competitors by Amazon, Apple, Facebook, and Google. These companies have also faced numerous lawsuits in recent years from US Justice Department, the Federal Trade Commission (FTC), and state attorneys generals targeting their monopoly power in social media, mobile apps, e-commerce, and digital advertising, among others.
But that may change after Microsoft’s recently announced deal to purchase video game giant Activision Blizzard. The $69 billion acquisition is likely to raise eyebrows among global antitrust regulators. Activision Blizzard is one of the world’s largest video game publishers that owns popular franchises like Call of Duty, World of Warcraft, Overwatch and the mobile game Candy Crush (including titles licensed for Xbox rival PlayStation, owned by Sony).
If approved, the deal would expand Microsoft’s massive gaming presence, particularly games for its Xbox console, but will also put the company back on regulators’ radars at a time when such corporate dealmaking is coming under heightened scrutiny.
Microsoft’s antitrust history
Microsoft once faced a far more skeptical environment in Washington. In the early 2000s, Microsoft was front-and-center as regulators grappled with the emerging market power of internet companies. In a multi-year case, the US Department of Justice successfully argued that Microsoft violated antitrust law forcing it to unbundle Windows, its operating system, with the Internet Explorer web browser. While Windows remains operating system of choice for 80% of desktop computers, Microsoft Edge (its current web browser) has a paltry 6% market share.
In the decades since U.S. v. Microsoft, the personal computing pioneer primarily became an enterprise software company, focusing on its Azure cloud services business. But one of Microsoft’s top consumer businesses is gaming, where it owns the Xbox console, the video game publisher Xbox Game Studios, and the popular multiplayer game Minecraft (bought for $2.5 billion in 2014).
Its biggest transformation may have been rehabbing its reputation among policymakers. Thanks in part to Microsoft’s president Brad Smith, the company has successfully ingratiated itself with politicians who now view the former monopolist as an ally in their quests to curb the power of Silicon Valley’s tech giants to dominate most people’s experience online. Microsoft has even pushed competitive legislation that would make rivals like Facebook and Google pay for the news content they rely upon. (Microsoft-owned LinkedIn is a relatively smaller player in social networking and news distribution.)
But if Microsoft was flying under the radar until now, its pending purchase of one of the world’s largest video game studios may prove a wake-up call to every major antitrust authority.
Winter is coming
By law, US regulators will be taking a close look at the Activision Blizzard deal. Any merger valued at more than $92 million triggers a review from the US Federal Trade Commission, which is tasked to root out anticompetitive practices that could harm consumers. And the same day as the Microsoft deal was announced, FTC Chair Lina Khan and Justice Department antitrust chief Jonathan Kanter said they are rewriting the merger guidelines.
The deal is also certain to attract attention from global players like the UK’s Competition and Markets Authority. The UK’s CMA took the unusual step in November 2021 to order Facebook to sell the GIF search engine Giphy, unwinding a merger of two US companies.
Despite a relatively muted response by Congressional lawmakers, US senator Elizabeth Warren, an antitrust crusader on Capitol Hill, has called for scrutiny of Microsoft’s proposed deal, saying “a few giant corporations already dominate the gaming industry” and this could hurt entrepreneurs and smaller publishers trying to compete.
Diana Moss, the president of the American Antitrust Institute, said that any antitrust review would focus on how Microsoft’s acquisition would reshape the gaming industry, any hardware and software exclusivity, and whether Microsoft might dominate any emerging markets.
Microsoft will need to prove that the deal is neither anticompetitive nor harmful to new firms or consumers. Benjamin Sirota, an attorney at the law firm Kobre & Kim and a former prosecutor for the DOJ’s antitrust division, said regulators will be investigating how acquisition affects competition with platforms such as Sony, as well as smaller game-makers. The Activision Blizzard deal would allow Microsoft to vertically integrate—it will own a big chunk of the gaming ecosystem from studio to distribution to console—and expand horizontally since the established game studio and publisher is acquiring a major rival in the sector.
Microsoft clearly thinks a tough anti-trust review will be worth it. Acquiring Activision Blizzard could not only aid its gaming business, but it could also help it dominate the metaverse. CEO Satya Nadella is one of the major figures in Silicon Valley talking about building the metaverse, an immersive version of the internet powered by virtual and augmented reality. Microsoft’s expanded gaming prowess could help it win more of the VR and AR market, and validate its major investments in its HoloLens headsets and digital twins technology.
But it’s unclear if regulators will accept this expansive view of its market (and thus less likely to trigger anti-competitive regulation), says Oh at the Technology Policy Institute: “Whether the metaverse is a catchphrase or a definable place is still to be determined.”
A new antitrust regime
Today more than ever, antitrust authorities in the US and abroad are trying to be “crystal ball gazers,” says Sirota. Officials at the FTC and Justice Department are trying to predict what effects deals will have on emerging markets when deciding whether to block, clear, or modify them.
This deal could put Microsoft back on the antitrust radar for the first time in decades. It is likely prepared for a long, drawn-out approval process. Even an acquisition approval may come with plenty of strings attached. “I don’t know if Microsoft is going to become synonymous with antitrust enforcement like it was in the ‘90s,” Sirota said, “but it’ll certainly come back into the public consciousness in some way.”
Regulators, wary of repeating their mistakes of the past, still have “egg on their face,” after approving tech deals in the past such as Facebook’s acquisitions of Instagram and WhatsApp, wrote Michelle Meagher, the co-founder of the antimonopoly-focused Balanced Economy Project, by email. Meagher, who has worked for both UK and US antitrust regulators, says “they won’t want to miss the Next Big Thing again, especially if it’s the metaverse.”