Three years after the United Kingdom exited the E.U., London wants to remain relevant in global commerce. So, the world woke up Wednesday to a shocking development when British antitrust officials blocked the merger and acquisition of two American behemoths: Microsoft and Activision Blizzard.
The U.K.'s Competition and Markets Authority said in a statement that it was worried the Microsoft deal would lead to "reduced innovation and less choice for U.K. gamers over the years to come." Microsoft already holds a 60-70% share globally.
Of the top ten global software companies that produce tools for individuals and businesses, not one is British. In the engineering and technology world, the U.K. is a waning power. Famous British automobile brands of the 20th century, including Austin, Morris, Rover, Riley, Triumph, and Wolseley, are all defunct. German, Japanese, or Korean companies own all the automobile plants in the U.K.
Of the 18 U.K. companies in the Fortune Global 500, most are in established sectors like Energy (Shell, BP) or Banking (HSBC, Lloyds, Barclays). There are only two U.K. companies where technological innovation matters: pharmaceuticals giants GlaxoSmithKline and AstraZeneca. Arm, a Cambridge-based semiconductor design company not in the Global 500, remains the lone powerhouse in technology. Over 95% of the world's mobile devices use Arm chips.
Meanwhile, under Satya Nadella, Microsoft has become a global tech giant, regularly releasing products and services paving the way for followers. The company made a bold bet on Open A.I. (of ChatGPT fame) in 2017 by investing $1 billion when the group struggled to survive as a non-profit. Crosstown rivals Facebook, Twitter, and Google were then more interested in honing their woke credentials. When ChatGPT went live last December, Microsoft announced a $10-billion investment and said its search engine, Bing, would offer A.I. capabilities. Google, scrambling to launch a rival A.I. service, failed in its debut demo, resulting in its stock losing $100 billion in market value. Every company we cite in this paragraph is American.
The U.K. agency's reasoning is absurd and is what happens when regulators, who are civilian government employees, do not understand the impact of technology. In its desktop business, Microsoft has used cloud solutions to significantly strengthen product rollouts and improve reliability, such as with its Windows Operating System and Office franchise, where Microsoft enjoys even higher market shares. Why hasn't Microsoft's dominance reduced innovation in these markets?
The U.K. regulator should have deferred to Nadella's cloud expertise here. The Microsoft Chief Executive led the company's vast cloud service before taking over from Steve Ballmer in 2015. Microsoft was still shipping its desktop and Office software by CD/DVD at the time, using complicated product keys to verify purchases.
In one stroke, Nadella took the billions the company was spending to fight software piracy worldwide and wisely reinvested those resources into deploying Win 10 upgrades for free. The brilliant move was a tacit acknowledgement that Android became dominant only because Google offered it for free - and so, if Microsoft had to retain dominance in the shrinking P.C. market, Nadella had to make his O.S. free to existing Windows users. Microsoft already knew which computers worldwide had legal installations - so Nadella pushed the Win 10 upgrade seamlessly, from the cloud, into those desktops. In just four weeks, 75 million devices had the new software. There was nothing to back up, no hard drives to partition, and no techno mumbo-jumbo to fight.
Microsoft soon rolled out its entire Office suite through the cloud with its Office 365 offering. Since 2015, all Microsoft products automatically get updated from the cloud - resulting in a safer user experience. Microsoft's free WinDefender is a solid anti-virus and malware program built into the O.S. Because it is free and automatically enabled, more of the world's machines are more resistant to hacks.
It was this cloud expertise that Microsoft sought to bring to the video gaming market. Announcing its intention to acquire Activision Blizzard in January 2022, Microsoft was attempting to transform the gaming business by offering subscription-based services, much like Netflix does for its movies.
"Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms," Nadella said at the time. "We're investing deeply in world-class content, community, and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive, and accessible to all."
Now, a group of U.K. government bureaucrats has scuttled this vision. The E.U., eternally jealous of America's dominance in software and computing, is likely to follow the U.K.'s lead. That's right: if your fellow citizens can't create, throw roadblocks to creative enterprise.
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