Microsoft Becomes Second $3 Trillion Company As It Continues To Eliminate And Consolidate Jobs In Activision-Blizzard

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ZombiePie

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#1 ZombiePie  Staff

Everything's going up, except the number of employees.
Everything's going up, except the number of employees.

The reporting about Activision-Blizzard recently have been dire. Following initial reports that Microsoft had eliminated approximately 1,900 positions, more details began to emerge about what else had been impacted. For example, Odyssey, an unfinished survival MMO was cancelled, with those working on its admitting that the project was a mess with it constantly struggling with "engine problems." Additionally, this week it was reported that Mike Ybarra was leaving his position as President of Blizzard, and would be replaced by Johanna Faries, the content executive behind the Call of Duty games. If I can interject, it is worth calling attention that Ybarra is not an entirely sympathetic figure even if he was attached with Blizzard for decades. Ybarra was single-handedly responsible for demoralizing many of his staff by sending an email imploring everyone to return to in-person work while slashing promised bonuses and had a mixed track record on addressing the toxic work environment levied against former Blizzard co-lead, Jen Oneal, when you consider he called Oneal his righthand man until his ousting. That said, with Microsoft tapping an executive from Activision to fill Ybarra's position, they are ending what many have called the tatical independence Blizzard has had from Activision's influence.

On top of all that, Microsoft has finalized the almost complete gutting of Activision-Blizzard's eSports division. Again, this was a wind-down and write-off that started even before Microsoft finalized its purchase of Activision-Blizzard, with the dissolution of the Overwatch League being a slow and painful process in 2023. Nonetheless, 83% of Activision-Blizzard's eSports related staff have been terminated, and as a replacement, Blizzard Entertainment signed a deal with ESL-FaceItto become the partner on the Overwatch 2 esports league. The ESL, need I remind you, is bankrolled by the Saudi government.

The news of these layoffs also take place under the backdrop of Microsoft reporting massive gains in terms of its overall revenue with Forbes and Fortune both declaring Microsoft to be the second company in human history to achieve a market value of $3 trillion. Admittedly, Microsoft's acquisition is not the primary driver of this explosion of wealth, as the company's stock price has increased 1,006% since current CEO Satya Nadella took over. Instead, it has been Microsoft's continual investments in cloud computing and its roundabout manner last year of gaining a foothold in OpenAI's board of directors after it attempted to oust Sam Altman.

Nonetheless, Microsoft's Q2 FY4 net income has jettisoned to $22 billion, and in terms of its gaming and Xbox content brand, overall revenue from Xbox content and services has jumped 61% since the company acquired Activision-Blizzard.

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brian_

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Phil... We're going to have a real tough time building this narrative of you as the hero who vanquished the evil Bobby Kotick and saved the people of Activision-Blizzard if no one works at Activision-Blizzard anymore.

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ThePanzini

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After two failed consoles and with game pass not taking off, I don't see how Spencer has a job.

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bigsocrates

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@brian_: What are you talking about? This is exactly like in a Diablo game where you go into an evil prison, kill the jailer, and free all the captives!

@thepanzini: Lots of executives keep their jobs despite repeated failures. Not everything Spencer has done has been bad. Xbox's revenue is up and Spencer has had the most success of any games exec of moving from games as packaged or digital goods to games overall as a service (Game Pass may not be taking off like Netflix but it's doing better than its competitors.)

Spencer's real problem as an executive (beyond firing people, which is really bad but not something Microsoft cares about), and one that has caused the other issues, is that he doesn't seem to be able to shepherd enough hit games. There are reasonable excuses for it for much of his tenure (he inherited an intentionally depleted portfolio as Matrick relied on third party exclusives during the bad back half of the Xbox 360 generation) but Microsoft has bought a ton of studios under him and none of them except Playground Games seem capable of consistently putting out industry leading stuff. I think he'll be given a few years to see what he can get out of Activision, but really he's still around because he's executing the Microsoft vision well even if the results have been mixed at best.

The mass firings while Microsoft has enormous profits and valuation are par for the course for big companies. They always happen after mergers and I think a lot of other people got swept in too this time. Some of it seems reasonable from a sociopathic money first perspective (canceling games you don't think will perform and getting out of unsuccessful Esports businesses) and some of it seems counterproductive (cutting team members from teams already not performing great) but it's pretty par for the course.

I'm not excusing it, but this is just how corporate America is. They like cutting jobs. It makes expenses go down in the short run and you don't generally feel it for at least a little while in terms of revenue so it's a good way to boost your stock price even higher in the short term, which is the only term that matters to these people.

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ThePanzini

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#5  Edited By ThePanzini

@bigsocrates: All very true, but Spencer has made some really costly bets.

Xbox's upper management has been consistently poor at reading the market, and this has continued with Spencer.

The Series is losing $100-200 per box already having fire sales over xmas in only its third year it's cost them ~$2b to subsidize, both rivals are either close to breaking even or in a small profit. The Series with likely sell at least 30% fewer consoles over the XB1, they initially predicted to sell more.

Game Pass is a risky strategy that would be difficult to walk back it's target was 100m sub by 2030, it has no chance not even getting halfway close.

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bigsocrates

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#6  Edited By bigsocrates

@thepanzini: Okay, but the question is what could he have done differently?

Why has the Series underperformed (if not exactly failed, since it's still at least somewhat relevant)?

Spencer blames it on the Xbox One, saying that people being able to port their libraries on via backwards compatibility and having friends already established on PSN made it very hard to break Sony's hold. This is at least somewhat true (similar to why none of the Steam competitors have done all that well) but isn't the whole story.

The other part of the story is the games. Sony continues to have must play exclusives like God of War and Horizon and Spider-Man. It used to be that you could argue that Xbox was shooting itself in the foot with putting everything on PC, but Sony is doing that too now (just with a delay) so that's not really the issue. The issue is that Xbox hasn't had a mainstream must play game in a very long time. The old "system seller" thing.

On the flip side, Spencer and Xbox have been market leaders in some ways. For example Sony is putting its games on PC now, following Xbox's lead. Sony also built a Game Pass competitor. Game Pass may not be the massive success they hoped it would, but everyone is trying to get into that business and Game Pass is the market leader there. So the fact that competitors are following Microsoft's directions under Spencer is at least some evidence that not all the ideas have been bad.

I think the question you have to ask is given the position Microsoft was in when Spencer took over, what moves COULD it have made that would have improved its fortunes and prevented its continued decline in the gaming space. And I think the answer is that it needed some big must-play exclusives (even if also on PC) to drive its business. It's not like Spencer could rewind time and undo the Matrick disaster of the back end of Xbox 360 or the pathetic launch of the Xbox One.

Other than the failure to produce big hits, I think all of Xbox's moves have been at least reasonable. And they have been buying big publishers to try and get those hits into the pipeline. They're really not that far into the Bethesda exclusives era, so I think Spencer's being given a little more time to see if any of those games can turn things around, not necessarily for Xbox Series but for the next console. I think the next 2-3 years of Xbox games may define Spencer's tenure. Everything else seems, in my opinion, to be in place.

They just need more Forza Horizon and a lot less Redfall.

Meanwhile Sony has had some misfires of its own with things like PSVR2 and the PS Portal but because it's the default console for everyone and it has God of War and The Last of Us it keeps racking up wins. It's not like the PS5 is a significantly better piece of hardware.

And Nintendo is off on its own doing great, but basically in a different market altogether.

It's also worth noting that Sony has also had layoffs despite stellar results. So I don't even think these layoffs are necessarily the result of Spencer's poor management of Xbox.

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ThePanzini

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#7  Edited By ThePanzini

@bigsocrates: I wouldn't put the layoffs or the poor XB1 directly down to Spencer.

It not about being better, the Series being a higher quality box doesn't really help.

Sony built the PS5 with cost savings in mind and had several revisions since launch they announced it was profitable a year later, weather its still true we don't know but it likely close. The Series is squarely on Spencer if the console had more functional design that wasn't bleeding money that $2b could have be used elsewhere like games.

Game Pass has been a bit of a poison chalice while having a lot of subs and reccuring revenue its clearly killed first party sales on console. If your most dedicated and high spending customers already have your game, what the point advertising? MS hasn't advertising as much likely because less people are buying which creates a vicious circle. Being less visable is also having an impact on console sales, first party titles in GP a year later would have been a better idea.

Sony like many other industry people have said that big expensive games are not a good fit for the subscription model, you'd have to wonder how MS decided otherwise.

While Sony has aped GP its not gone all in, its gotten a lot of sub while increasing first party sales. Does it also really matter how well PSVR2 or PS Portal do, both are high margin items being sold to enthusiasts.

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bigsocrates

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@thepanzini: I don't really know the specifics of why the Series has been worse from a revision perspective than the PS5 and how much of that is on Spencer. It's not like he personally engineered it and Microsoft is a big company with a lot of engineers so who knows what teams were involved or what decisions were made by whom.

But I think a lot of it leads into the major issue that you're getting at but maybe not recognizing or articulating, which is that Xbox is and clearly has been in user acquisition mode rather than profit mode like Sony is with PlayStation. It explains a lot of these decisions, such as the Series S (get them into the ecosystem) and putting the big games on Game Pass even if that's not the profitable move now.

I think it's pretty clear that Microsoft is mostly interested in Xbox if it can become a major player in the next phase of gaming, like the Netflix of games, and has been spending the money to make it happen because Microsoft is almost infinitely rich and can afford to take these flyers. Sony relies a lot more on PlayStation to actually make money while Microsoft's big money makers are elsewhere in the company. It wants to turn Xbox into that and it's willing to take risks. Like buying Activision.

That's one of the reasons that these layoffs were more surprising than they should have been post merger. Because up until now it has been in gear up acquisition mode, and then it cut almost 10% of its staff. Now maybe that's just a refocusing or reflects other forces in the company (a lot of what got cut was duplicative or related to businesses Microsoft is not so focused on like physical games) but one thing's for sure, it impacted a lot of people's lives all at once and not for the better.

But as I said I think Spencer's still there because he's executing the broader game plan the company has, not because of year to year financial performance.

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mellotronrules

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#9  Edited By mellotronrules
@bigsocrates said:

But as I said I think Spencer's still there because he's executing the broader game plan the company has, not because of year to year financial performance.

honestly it might come down to relationships and war chest. you can't really take it at face-value (it's still CEO-speak, after all)- but in almost every interview i've heard/read- Satya has nothing but unprompted glowing things to say about Phil. so as long as he's satisfied with his performance, that's a lot of job security. especially from the guy (Satya) who's largely credited with all of Microsoft's grotesquely expansive market value.

and the truth is Xbox just doesn't financially matter the same way to Microsoft as Playstation does to Sony. businesses won't burn cash forever- but as a matter of attrition, Microsoft can afford to treat Xbox as an expensive hobby while Sony NEEDS Playstation to put up numbers. when the stakes are lower, there's probably less pressure to hit a specific mark.

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ThePanzini

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#10  Edited By ThePanzini

We saw from the FTC trial Xbox does need to be profitable, if they weren't losing as much the Series X availability would have been better earlier and they could have had more games.

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I think the question you have to ask is given the position Microsoft was in when Spencer took over, what moves COULD it have made that would have improved its fortunes and prevented its continued decline in the gaming space. And I think the answer is that it needed some big must-play exclusives (even if also on PC) to drive its business. It's not like Spencer could rewind time and undo the Matrick disaster of the back end of Xbox 360 or the pathetic launch of the Xbox One.

That's the thing though - barring a viral hit out of nowhere (see Palworld), the thing that Spencer could have at least tried to do (depending on internal Microsoft politics - Cloud really is the tail wagging the dog) is insulate studios from the economic cycle so they have the time to develop in-house talent to increase the odds of a massive hit (or at least something that has enough buzz to be a system seller.) Everybody thought that's what Spencer was trying to do -- but, instead, it looks like he's following the EA playbook. And we all know how well THAT ended up working out in the end.

Game dev takes time and game development expertise doesn't just appear on trees. One of the most damning stupid things about the current gaming lifecycle is that people with years, decades of experience, are walking out the door and the studios have nothing to show for it.

At the very least, Spencer could have bought Blizzard another year of dev time on the new game. In a world where Microsoft desperately needs new IP, they blew up a project that had 4 years of clock time on it. Even if it was a mess, you try to salvage something from the wreckage. You don't just blow everything up and start over again as soon as you get the keys.

It has an immediate positive impact on revenue, but it's a terrible long term decision -- which is corporate America in a nutshell. But just because everybody else is jumping off the cliff doesn't mean you have to jump off the cliff as well.

To be fair, he's probably hamstrung by internal Microsoft politics. God knows the infighting at the C-suite level is pretty damn vicious, esp. if you have aspirations to a CEO role. But man, don't make promises you can't keep.

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bigsocrates

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@mellotronrules: I mostly agree with this but I don't think Xbox is an expensive hobby. I think it's an expensive bet. I think MS sees it as having a chance of getting big in the next evolution of gaming (subscription/cloud) and being the kind of company MS would normally look to acquire. The cloud/subscription part also fits into the MS business model well.

@thepanzini: Obviously profitability matters to some degree, but Series availability was constrained by the Pandemic (as was PS5) and has been a non-issue for awhile. And despite the Series being expensive to make Microsoft tried aggressive price cutting over the holidays. So it's clear that acquisition is still a huge focus and arguably the driving focus. That doesn't mean that the budget is totally unlimited, but they DID buy Activision so they're not exactly pinching pennies.

@turtlefish I think that Microsoft's recent experience with trying to salvage games has made them gunshy. They should have canceled Redfall and didn't. Halo has been an ongoing headache. I understand why Spencer would want to kill troubled projects at this point because his experience has been poor (to be fair Overwatch is one of the greatest salvage jobs of all time so Blizzard does have experiences here.)

I totally agree that firing a bunch of good and experienced devs is counterproductive to Microsoft's goals and stated goals and it just seems like the way corporate America works.

As I said it's not unique to Microsoft at all. The fact that Sony (which is doing great!) has been quietly closing studios and laying off people even at their KEY studios like Insomniac and Naughty Dog shows that it's just what these companies do.

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#13 ZombiePie  Staff

So... some of you are really doom and gloom about Microsoft's console and gaming fortines when the entire division just superseded the Windows division in terms of market value an raw revenue.

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ThePanzini

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#14  Edited By ThePanzini

@zombiepie: The console is in a pretty bad spot, having two generations of downward trajectory is gonna be very difficult to turn around.

I'd say overall though Xbox is in a much better place with ABK, a bigger pivot to third party with the console aimed at enthusiasts would give them a unique place and a chance to stand out.

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@zombiepie: They did that by buying Activision Blizzard. That chart is misleading because it doesn't represent any big strategic payoff other than "spend a lot of money to buy another business and your revenue will increase." The trend before that was that LinkedIn was going to overtake, and at the beginning of 2018 gaming was significantly bigger than LinkedIn. Gaming has been more or less flat for five years (maybe a slight increase because the troughs aren't as bad) while their spending has increased with the cost of the Series X and the acquisitions etc...

I think we need to differentiate Microsoft gaming from Xbox. Microsoft gaming is clearly here to stay at least for the medium future and with Activision folded in it has opportunities to do well, though Call of Duty may be falling off and Activision has almost literally nothing else (Blizzard also has some live service stuff going I guess, and the mobile side is bigger than people on this forum including myself fully understand.)

Xbox, on the other hand, is losing ground and market share and this generation is more or less over for it in terms of any chance of catching up. It's an open question as to whether it will try to reset by starting the next gen early (Big Sega energy) or maybe get out of the console business altogether. Or it could just trundle along I guess. But regardless, Xbox is having a poor generation. Maybe not Wii U bad, but pretty bad. And Xbox One was a bad generation. The only "good" generation was Xbox 360, and that included red ring of death and totally losing the plot in the back half with Kinect and studio divestment.

At some point Microsoft has to be asking if they really want to be in the console business and if they do want to stay in that business how they're going to make it a valuable business to be in.

Because honestly if I was at Microsoft I would be running the numbers to see what the business would look like as a third party publisher with Game Pass and maybe a Windows-lite PC Steambox solution for hardware just to have something on the market.

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So... some of you are really doom and gloom about Microsoft's console and gaming fortines when the entire division just superseded the Windows division in terms of market value an raw revenue.

I don't think it's a fair comparison to make though because around a decade ago, Microsoft started to put Windows on the back burner as a means of making money (notice how on that chart Windows revenue growth is on average completely flat, or even slightly negative at times? That's not a coincidence).

Around 2014 or so Microsoft aggressively shifted away from focusing on Windows to instead focusing on everyone using other Microsoft products, especially their new (at the time) Azure cloud services (remember "Microsoft <3 Linux"? That was one of the first public acknowledgements of this shift). As it became clear that Linux was going to win in the server space, Microsoft went all-in on making their server products compatible with Linux. As another example, as Macs started to become much more common in office environments, Microsoft stopped their old playbook of trying to convince people to stay on Windows and instead started offering actual competent Office products with feature parity on Mac/iOS and made their cloud services work just as well on Apple devices. The other major factor to keep in mind is that over the last decade or so, PC sales have dramatically slowed down as PCs have largely become comfortably fast enough for everyday office tasks. Microsoft could no longer rely on the OEM licensing revenue from people and companies buying new, much faster computers every couple years so they had to pivot.

It has to be emphasized that Microsoft has done everything they can to make most of their services platform-agnostic. They even put out things like Powershell on Mac/Linux and have put in massive efforts to make using their products as easy as possible, no matter where you are working from. On this account it's been a huge success for them. Visual Studio Code is now the default code/text editor for the majority of developers and Visual Studio Code is designed to work in a trivially easy manner with Microsoft's cloud services (but they also don't prevent you from installing add-ons to allow VS Code to work with competitor services. Microsoft just wants you using their stuff). They even give developers 60 hours of free server time a month now as a means of developing remotely using their new Github Codespaces tool (It's a super slick setup. It's like two clicks and you're in a remote server with decent specifications that you can install whatever dev tools you want on. It also hooks in seamlessly with VS Code or Jetbrains IDEs so you can edit on the server using those tools instead) as a means of getting them in the door.

I don't even like Microsoft and have a great deal of disdain for modern Windows but I still use a few of their services because they're genuinely quite good.

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mach_go_go_go

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Sidenote, but are there like 7 people left using these forums?

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ALLTheDinos

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That's good to hear on this!

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ZombiePie

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#20 ZombiePie  Staff

@mach_go_go_go: oddly enough, I just completed a meeting with Fandom reps about the site and while I cannot reveal everything, there are some ideas on how to get new blood on the boards. I'm not going to say any of these ideas will get things back to a self-percieved "Glory Day," but it is something that's being discussed and will be tested in the future.

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Ben_H

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@mach_go_go_go: oddly enough, I just completed a meeting with Fandom reps about the site and while I cannot reveal everything, there are some ideas on how to get new blood on the boards. I'm not going to say any of these ideas will get things back to a self-percieved "Glory Day," but it is something that's being discussed and will be tested in the future.

That's good to hear.

That year or two where the forums weren't on the front page anywhere did seem to do a big hit to the number of people using the forum. That combined with the rise of Discord has caused a lot of folks to be over there instead of here. I'm not a big Discord user anymore which is why I'm mostly here.

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#23 Nuttism  Online