Microsoft has a hissy fit, but Big Tech ain’t nothing new or innovative any more.

Blain’s Morning Porridge – April 27th 2023: Microsoft has a hissy fit, but Big Tech ain’t nothing new or innovative any more.

“People grow old when they stop pursuing dreams. ”

This morning: Microsoft would rather do business in Europe than the UK when it comes to global gaming. Name me a famous European game? BIG TECH is turning stale. Bring on the next new, new thing.

I can’t help but wonder what’s happened to innovation in the BIG TECH Sector. It’s all got a bit “meh”. The big tech lords have let me down. They haven’t given me a Jet-Pack, flying car, home replicator, transporter beam, or even the comparatively simple Robot-to-walk-the-dog and do-the-laundry. Despite Elon’s promises I still have to drive my car back from the station. I’ve been patiently waiting for my computer to do more, better, easier, for decades. But, nothing ever changes; except a marginally faster chip or a screen that is apparently better in ways only the most sophisticated optical equipment on the planet can measure.

Tech lords sound like accountants these days.. talking about returns, costs, the bottom line and markets.

Boring… But also dangerous. These BIG TECH firms, including Apple, Microsoft, Alphabet, Meta, etc.. have to keep giving us, or bigging up, the next New, New Thing. Their glamour depends on it. If they don’t they will wither and become ITTs or GE’s, dimly remembered in a few decades time. When was the last time Big Tech gave us something really new?

That may be why everyone – absolutely everyone – is telling me the future is all about Artificial Intelligence, and how well all these BIG TECH firms are positioned. I doubt we will be pulverised into grey goo by rogue AI’s called SKYNET, but I’m also trying to discern the hype through the reality of what AI will actually give us. I am willing to listen – but retain my right to expect disappointment. Especially from mature companies run by older chaps in suits pretending they can change the world.. maybe they can.. but…

But, let’s start off with an extraordinary “throwing toys out the pram” moment from Microsoft this morning. I was up early doors, and found myself on BBC Radio Five Wake-Up-To-Money listening to a harangue from a furious Brad Smith, Co-Chair of Microsoft. He accused the UK of closing itself to new business by not approving Microsoft’s $75 bln predatory acquisition of Activision, the gaming publisher. It was a classic rant. Nothing is quite so hectoring as an American being told No.

Smith is not happy. It’s “bad for Britain” he said, adding the European Union is a much better place to do business. In a fury of disbelief and righteous indignation at the temerity of small people getting in his way, he told us the UK competition authority – which DK’d the deal – hadn’t taken up Microsoft’s offer to discuss any further issues. He managed to get in a dig about Brexit failure, government short-sightedness, and, when given the opportunity, delivered a direct message to Premier Rishi Sunak to “make it right”, which can only be done by giving Microsoft everything it wants.

In short, it was a classic Ugly American stuff. Smith dispensed American Business Imperialism upon the poor, hopelessly led and ignorant savages of the UK. Listen to it on Five Live – should be available later today.

The deal makes some commercial sense from a business perspective for both firms. Microsoft wants Activision’s titles to boost and consolidate its dominance across expanding cloud businesses. Games or data, I doubt Microsoft much cares, except what the add to the bottom line will be and how much it will deprive rivals of bandwidth. Activision is at a stage in its life cycle where its’ acquisition made sense – putting a cap over a troubled corporate culture and allowing its ranks of senior consigliere to make off with the loot.

The role of the UK’s Competition and Markets Authority is to consider the wider interest, not to make it easy for merging firms, or to facilitate pecuniary gains by their executives. They have valid concerns about consumer choice and fostering innovation – which, in view of the UK’s creative place in the highly valuable gaming sector should be considered from a long-term perspective, not in terms of Mr Smith’s bonus package.

The fact Mr Smith would now rather Microsoft does business in Europe than the UK demonstrates a disturbing ignorance of the gaming industry. It’s not the platform, but the game that counts. Gamers will go find the game they want to play, not necessarily the ones they are offered.

To illustrate, let’s play a variation of the famous “Five Famous Belgians” game: Name me a single famous computer game originated in Europe?

Gaming is bigger than Hollywood. Film goers don’t go see a single studio’s products – they pick and choose the films they want to see, and where; the cinema or telly, cable or streaming. These are maybe reasons not to overly worry about Microsoft buying Activision. However, the best games often originate from here in the British Isles. The UK and Ireland have achieved a reputation at the creative heart of the global gaming sector. Many of the most successful games and gaming companies hail from these small islands.

British Isle Game developers understand what gamers want. The skill sets in producing a better version of Windows n+1 and designing the best game on the planet are diametrically opposite. Microsoft’s leadership seems to be missing that. To them, they are all just numbers on a spread sheet.

There will be pushback at declining Microsoft’s deal. Everyone wants to cash out at some point. Game creators want to monetise their creativity and sell the products for at the highest valuation. That’s still entirely possible in a games sector not managed to suit Microsoft’s business model – but to meet the demand from gamers!

Microsoft’s stock price shot up last night… nothing to do with the Activision news. It’s all about expectations for the future growth of AI, where Microsoft is well positioned, largely through its’ stake in OpenAI (the guys behind our future AI omnipotence ChatGPT) and a massive upswing in its Azure cloud platform.

Meanwhile, Facebook – yes, I know its name is Meta Platforms, but it will always be Facebook to me, because that’s where its revenues are… jumped significantly last night because it’s making more income doing what it always did best: making money from advertising. Mark Zuckerberg spoke about AI for 6 minutes and the Metaverse for less than 30 seconds apparently… but after cutting costs and sacking workers it posted sales growth. How very normal for a mature, dull, boring company.. Reality Labs – its Metaverse sandbox (I guess that is the right description) lost $4 bln. Hmmm… sack more workers or close Reality Labs.. Easy call.. both.

Where next for Tech? Time for a revolution methinks. Big Tech are just businesses.. we need something new…

Elsewhere in the world, we have the ongoing meltdown in US second tier banking – that’s a comment for tomorrow!

Five Things to Read This Morning

WSJ                 First Republic Bank Is a Problem With No Easy Solution

FT                    US Companies in distress turn to debt exchanges to dodge bankruptcy

BBerg              Bank of England Shows ECB How To Shrink a Balance Sheet

WSJ                 SPAC’s Delivered Easy Money, but Now Companies Are Running Out

BBC                 Microsoft boss: Activision Blizzard deal block is bad for Britain

Out of time, and back to the day job

Bill Blain

Strategist – Shard Capital