Microsoft Latest M&A May Put It in Regulatory Spotlight

Microsoft’s $70 billion bid for Activision may be the trigger that puts Microsoft on regulators’ radar, together with Google, Amazon, Facebook and Apple, something the company has avoided for a long time.

Microsoft was in the regulatory spotlight in the early 2000s when the EU antitrust regulators found that Microsoft abused its dominant position by tying its Netscape explorer to its operating system. At that time, Microsoft received a $1 billion fine, the highest antitrust fine ever imposed by the European Commission, including a penalty for failing to comply with an initial settlement. Even so, the hefty sum was a far cry from a $5 billion fine imposed on Google for a similar infringement in 2018.

However, the company has escaped the regulatory scrutiny that other Big tech firms have suffered for the last decade. This is in part because Microsoft was not competing directly in some of the markets that caught regulators’ attention, for instance, mobile ecosystems or online advertising. In part, the Redmond, Washington-based company also kept a lower profile by focusing on building its own ecosystem with smaller diversified acquisitions.

See also: Microsoft’s Activision Bid to Draw Scrutiny Across Regulatory Agencies and on Capitol Hill

Perhaps the first acquisition that raised some questions, but fell short of causing any trouble to the company, was the $26 billion LinkedIn acquisition in 2016. Right when Facebook was battling to acquire WhatsApp and Instagram, Microsoft bought the professional networking site, with which it has no overlaps. The move was approved with minor concessions.

The second was the $7.5 billion GitHub acquisition in 2018. Again, regulators reviewed the deal and raised concerns about whether Microsoft would close the open-source GitHub platform. In the end, regulators didn’t find any conflict of interest because the companies did not overlap, and other theories of harm, such as foreclosure, were averted with minor commitments.

One of the latest acquisitions was the $16 billion Nuance deal in 2021. Nuance offers transcription technology software to healthcare and enterprise businesses, transcribing health-related speech using artificial intelligence (AI) to help physicians conduct administrative tasks more efficiently. This deal was cleared unconditionally.

All these acquisitions have something in common: They helped Microsoft to build a position in markets where it was either not present, or its presence was very small amid strong competition. This enabled Microsoft to fly under the regulatory radar as regulators only looked at these markets separately, not as full ecosystems.

But the latest proposed acquisition of Activision will draw more regulatory attention than the previous ones. Besides the whopping $70 billion bid, the overlaps in the gaming market are far more obvious than before, and the possibility of Microsoft leveraging users’ data to improve other areas of its ecosystem will warrant further scrutiny.

Just last year, the European Commission cleared Microsoft’s $7.5 billion ZeniMax Media deal, a video game outfit, because it didn’t pose any threat “given the combined entity’s limited market position upstream and the presence of strong downstream competitors.” However, after all these acquisitions, the commission’s findings may change in future merger reviews.

“Big Tech is in trouble,” Ioannis Kokkoris, a competition law and economics professor at Queen Mary University, said in an interview to PYMNTS. “This is the new era of authorities looking at Big Tech under the microscope… so things will become trickier for them. That doesn’t mean that business will stop; it just will not be business as usual.”

While the company may not be in hot water as it was in the 2000s, this deal may be subject to lengthy regulatory reviews in Europe and the U.S. and may guarantee that from now on, Microsoft’s future acquisitions will be closely monitored by antitrust regulators.

Another question is whether this transaction will help Microsoft to take the gaming sector to the next frontier, the so called metaverse.

Read more: Microsoft’s $69B Activision Blizzard Buy Begs the Question: Is the Metaverse Gaming, Commerce or Escapism?

“There won’t be a single, centralized metaverse and there shouldn’t be,” Microsoft’s CEO Satya Nadella said early this month in the Activision deal announcement. “We need to support many metaverse platforms, as well as a robust ecosystem of content, commerce and applications.”

If it does, it may bring new business opportunities. But one thing will be certain: regulators will put Microsoft in the same basket as Apple, Amazon, Google and Meta.

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