Microsoft Acquisitions

Microsoft’s first acquisition in 1987, Forethought, was the developer of a presentation program that would later become PowerPoint. Since then, the company has made an average of six purchases every year, with fourteen of those exceeding the $1 billion mark. Today’s Microsoft business model spans various segments thanks to an acquisition strategy, which saw Microsoft involved in multiple acquisitions.

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Activision Blizzard

Microsoft acquired Activision Blizzard in January 2022 in a mega-deal worth $68.7 billion.

The deal to acquire the videogame developer became the company’s largest, far eclipsing its purchase of LinkedIn (see below) in 2016.

Such was the magnitude of the deal that Microsoft became the third-largest gaming company in the world by revenue – second only to Tencent and Sony.

Nuance Communications

According to the company, Microsoft’s purchase of Nuance Communications would “combine solutions and expertise to deliver new cloud and AI capabilities across healthcare and other industries.”

In so doing, the all-cash transaction would become the third-largest Microsoft acquisition at $19.7 billion.

With Nuance Communications on board, Microsoft was able to accelerate the development of industry-specific cloud solutions.

One such product was Microsoft Cloud for Healthcare, a product introduced in 2020 to provide support for companies in the dynamic and rapidly evolving healthcare industry.

LinkedIn was acquired in 2016 for $26.2 billion in cash. In a statement, CEO Satya Nadella noted that he expected LinkedIn to be a source of competitive advantage for Microsoft.

More specifically, the platform would complement the company’s existing business-focused software products such as Office and CRM tool Dynamics.

LinkedIn co-founder Reid Hoffman was more philosophical, expressing that the deal was “a re-founding moment” for the company and that the “relationship with Microsoft, and the combination of their cloud and LinkedIn’s network… gives us a chance to change the way the world works.”

ZeniMax Media

Microsoft acquired ZeniMax Media – parent company of video game developer Bethesda Softworks – in 2021 for $7.5 billion. Responsible for titles such as Fallout and Doom, the Bethesda purchase bolstered Microsoft’s first-party Xbox line-up.

Bethesda’s creative team would also be incorporated into the company to make it an industry leader and enable it to honor a commitment to the wider Xbox community.

Affirmed Networks

Affirmed Networks is a company with a core focus on virtualized, cloud-native networking products for telecommunications businesses. Particularly attractive to Microsoft was the company’s 5G and edge computing capabilities with customers such as Orange, Vodafone, Telus, AT&T, and STC. Previously, these customers were inaccessible since they tended to build their own data centers and manage them with proprietary hardware and software.

Mojang

Mojang is a Swedish game developer best known for creating the popular game Minecraft. Mojang spokesperson Owen Hill said that the $2.5 billion Microsoft deal was approved because the co-founders found it increasingly difficult to manage the company on their own.

Moving forward, Microsoft intended to add new content and features to the game without sacrificing its appeal and alienating the game’s loyal core audience.

The OpenAI Deal

In 2016, Microsoft became the leading provider of supercomputing capabilities for OpenAI as the – at the time – research lab embarked on scaling up its large language models.

Indeed, the interesting thing about the current AI paradigm is that large language models could be pre-trained with an unsupervised approach, which enabled them to learn patterns from the massive data fed to them.

In addition, those large language models had a very simple object function to generate a text-to-text prediction.

And yet, to perform that simple function at scale, these large language models had to learn patterns from massive amounts of data and billions of parameters, which required a huge amount of computational power.

Here Microsoft enters the picture, thanks to its Azure could provide infrastructure, which became the go-to supercomputer for the development of OpenAI’s AI models.

openai-microsoft — OpenAI and Microsoft partnered up from a commercial standpoint. The history of the partnership started in 2016 and consolidated in 2019, with Microsoft investing a billion dollars into the partnership. It’s now taking a leap forward, with Microsoft in talks to put $10 billion into this partnership. Microsoft, through OpenAI, is developing its Azure AI Supercomputer while enhancing its Azure Enterprise Platform and integrating OpenAI’s models into its business and consumer products (GitHub, Office, Bing).

Key takeaways:

Microsoft has made an average of six acquisitions per year since its first purchase in 1987. Fourteen of these were deals exceeding $1 billion.
Activision Blizzard is the most significant purchase to date, with the resultant deal making Microsoft the third-largest video game developer in the world.
Microsoft has also acquired Mojang and ZeniMax Media to further its video game aspirations, while Affirmed Networks and LinkedIn are more related to cloud and networking solutions for business.

Key Highlights

Microsoft’s Acquisition Strategy: Microsoft’s acquisition strategy has been ongoing since its first purchase in 1987. On average, the company has made around six acquisitions each year, with fourteen exceeding $1 billion.
Activision Blizzard: Microsoft’s largest acquisition was Activision Blizzard in January 2022, valued at $68.7 billion. This deal made Microsoft the world’s third-largest gaming company by revenue, trailing only Tencent and Sony.
Nuance Communications: Microsoft’s acquisition of Nuance Communications for $19.7 billion aimed to leverage cloud and AI capabilities across healthcare and other sectors. This deal enabled the development of industry-specific cloud solutions, including Microsoft Cloud for Healthcare.
LinkedIn: Acquired in 2016 for $26.2 billion, LinkedIn complemented Microsoft’s business-focused software products. CEO Satya Nadella anticipated LinkedIn as a competitive advantage, while co-founder Reid Hoffman saw it as a transformative moment.
ZeniMax Media: In 2021, Microsoft acquired ZeniMax Media, parent company of Bethesda Softworks, for $7.5 billion. This strengthened Microsoft’s Xbox lineup with popular titles like Fallout and Doom.
Affirmed Networks: Microsoft’s acquisition of Affirmed Networks centered on virtualized, cloud-native networking products, particularly their 5G and edge computing capabilities. This allowed Microsoft to access previously inaccessible customers in telecommunications.
Mojang: Mojang, creator of Minecraft, was acquired by Microsoft for $2.5 billion. The acquisition aimed to enhance the game while maintaining its core audience’s loyalty.
OpenAI Partnership: Microsoft partnered with OpenAI in 2016 to provide supercomputing capabilities for scaling up large language models. The partnership evolved, with Microsoft investing $1 billion in 2019 and discussions about a $10 billion investment. Microsoft’s Azure infrastructure supported OpenAI’s AI models and integrated them into various products.
Key Takeaways: Microsoft’s acquisition strategy spans various sectors. Notable acquisitions include Activision Blizzard for gaming, Nuance Communications for healthcare solutions, LinkedIn for business software, ZeniMax Media for video games, Affirmed Networks for networking, and Mojang for game development. The partnership with OpenAI enhanced Microsoft’s Azure capabilities and integration of AI models into products.