Why Activision Blizzard Won’t Succeed—And How They Can Turn Things Around
The company’s SEC filings reveal troubling trends.
I’m going to be upfront with you: this won’t be an in-depth analysis of Activision Blizzard’s profit margins, MAUs, or liquidity.
What this is is an analysis of Activision Blizzard’s strategy and vision for the future, which is found on page three of the company’s SEC filing form 10-K.
As a tech writer and die-hard Blizzard gamer since 2004 (and a current Activision Blizzard shareholder), you could say I’m invested in how the company navigates through what have been some pretty treacherous waters lately.
So, I’ll be going over that strategy and vision statement here. If you are a numbers person, I encourage you to dig into the full filing and let me know what you think.
Activision Blizzard’s strategy is focused on hoarding cash instead of investing.
It’s evolving into the selfish dragon that sits on its pile of gold.
Activision Blizzard starts out their strategy and vision with an objective statement as bland as vendor trash. It’s pretty much what you’d expect from any company: we’ll continue to be a leader in the video game industry, etc., etc. Cue the air quotes.
But toward the end of this first paragraph is where it gets interesting.
“In pursuit of this objective we focus on three strategic pillars: expanding audience reach; driving deep consumer engagement; and providing more opportunities for player investment.”
Wait a second—these sound great! What’s the problem here?
Glad you asked.
Reach, engagement, and investment in themselves aren’t troublesome. What’s troublesome is how Activision Blizzard plans to achieve these goals. And once the company expands on these definitions, you can clearly see they’re greedier than a pack of goblins.
For example, “player investment” is the company’s fancy way of saying “microtransactions.”
Yup, microtransactions. That highly contentious way video game companies try to make a continued profit off of dedicated players through the sale of cosmetic items, loot boxes, and even pay-to-win items.
A recent example of this was the “Disney vault” approach to World of Warcraft mounts and pets that was pulled around the holidays. Players were told to buy a $50 bundle, including three pets, three mounts, and three transmoggable helms (that no one ever buys) before they retired from the shop.
Wowhead comments were generally negative, with many pointing out that this was a play on artificial scarcity and “par for the course” for Activision Blizzard lately.
Of course, other games take a much more hardball approach to microtransactions. Some require you to fork over your hard-earned cash to unlock all available characters and classes, like Evolve, or to “rent” a playlist for 24 hours, like Guitar Hero Live (which, not surprisingly, is another Activision title).
What really irks me is Activision Blizzard’s sudden reliance on player investment to create depth of content. To me, depth of content focuses on compelling storylines, unique player experiences, and dramatic player choices.
But Activision Blizzard flat out states that “additional player investment can increase engagement as it provides more frequent and incremental content for our players.” Are they saying I need to pay for microtransactions if I want to experience a new map or raid tier? Count me out.
Remember the huge controversy around EA’s Star Wars Battlefront II and microtransactions? It had EA’s Chief Design Officer Patrick Soderlund apologizing, and this statement he made really stands out: “It’s clear to us that players see the company differently than we do.”
Sounds familiar, right?
Activision Blizzard is like that raider who keeps standing in the fire. You know the one.
They’re just not paying attention.
So how can Activision Blizzard maintain a vision of itself that matches how we the players see it? How can it meet our expectations? The answer is actually pretty simple: feedback loops.
“Unsurprisingly, the top five most valuable US brands for 2018 are technology leaders—Google, Apple, Amazon, Microsoft, and Facebook,” writes Kostas Mallios, a member of the Forbes Tech Council.
“These companies engage their customers through built-in feedback loops in their products and services, making them informed and highly reactive to customer sentiment.”
Online forums are a continuous feedback loop. Sure, you’ll need to wade through trolls and garbage posts to get to the real info. But there is value in monitoring both in-house and third-party forums.
Many gamers are well-educated, knowledgeable professionals, and some are even willing to share credible, well-articulated thoughts. (Hey, I’m over here!)
The annual BlizzCon convention is another perfect feedback loop. It delivers an audience of thousands of gamers right to Activision Blizzard’s doorstep. And it’s here that the company can get an immediate litmus test of customer perception for new game and content announcements.
But last year’s BlizzCon was a shocking reveal of just how disconnected the company is from its players.
You probably already know where I’m going with this.
The “Do you guys not have phones?” response to a booing crowd after a member of the audience asked if the Diablo Immortal mobile game would ever come to PC was a textbook example of exactly what not to do.
When your audience reacts negatively like this, the best approach is for the company to dig into the why behind that negative sentiment. Not passive-aggressively mock them. That’s certainly not going to change their minds.
“Consumers no longer just consume,” says Carlos Dominguez, president of Sprinklr. “They push. They pull. Doing both with equal, and forceful, power. And what they choose to say—how they apply that force—comes down to their experience: the sum of how they feel across every touchpoint.”
Your players are pushing the conversation toward the possibility of the new Diablo game eventually coming to PC. And they’re unhappy when you say it will remain a mobile-only venture.
Why? I’ll take a stab at this.
You’re marketing the Diablo Immortal mobile game to a crowd of PC gamers who’ve been waiting on the edge of their seats for any tidbit of news about Diablo 4 for years. (Not to mention they spent hundreds of dollars to attend the event you’re announcing Diablo Immortal at.)
It’s no surprise to most of us that the crowd booed the presenters. Why did it surprise Activision Blizzard?
Activision Blizzard is too focused on the shareholders.
And it’s not focused enough on its playerbase.
Let’s take a look at the final paragraph of Activision Blizzard’s strategy and vision statement.
“Our strategy is ultimately aimed at creating shareholder value and enhancing returns. We strive to increase profitability, cash flows, and return on capital—and to do so while keeping our company a great place to work for our employees.”
At first glance this seems like normal company fluff. But when you realize what’s missing, it becomes a bombshell. (At least this is the part of the SEC filing that really opened my eyes.)
There’s no mention of the players—the customers—in this vision statement.
I’m not the only one who noticed this omission.
Wowhead forum user AlphaO analyzed the SEC filing, too, noting that “any company that forgets within their strategy to cater for the key stakeholder—the customer—has their priorities wrong [and] will find themselves with a reducing income stream.”
Why are customer-centric strategies so hard for video game companies to grasp? They’ve been around for years, and there are multiple examples of highly successful companies in other verticals using this strategy. Buffer, Trader Joe’s, and Zappos are just a few that come to mind.
I might even point out that before it was bought by Activision, Blizzard was the best example of a customer-first video game studio.
Sure, you might argue that the SEC filings won’t include customer-first chatter because they’re written for the shareholders. But if not in the SEC filings, then where else would a company embrace the customer-first philosophy?
“For a customer-first strategy to be successful it must align with the company’s overall objectives set by the board and senior management,” says Curtis Bingham, founder and CEO of the Chief Customer Officer Council.
When the board and senior management create a strategy and vision that completely omits the customer, how can they expect customers to keep paying for the product?
Is there hope? Possibly.
If Activision Blizzard can put customers first—by putting them second.
Not to sound dramatic, but there’s a glimmer of hope in that last part of the strategy and vision statement. Activision Blizzard states it wants to achieve its goals “while keeping our company a great place to work for our employees.”
David Burkus, author of Under New Management, writes that a team of Harvard professors studied the concept of putting employees first some 20 years ago.
“Therefore, the professors theorized, satisfied and productive employees are better able to ensure that interactions with customers are high-quality and lead to a higher perception of value,” Burkus says.
“The service-profit chain predicts that by putting employees first, customers will be better served and become more loyal, and the company will become more profitable.”
But recent layoffs haven’t set Activision Blizzard up as a great place to work. And it wouldn’t surprise me if the layoffs affect player loyalty and therefore profits too.
Despite achieving what CEO Bobby Kotick called “record results” in 2018, the company laid off 8% of its “non-development” and “administrative-related” employees. To put that in layman’s terms, Activision Blizzard laid off around 800 community developers, customer support representatives, and public relations staff.
To view “non-developer” roles as nonessential “ignores that the entire operation is necessary to bring games to market (and afterward, to get people to spend money on them over and over),” states Michael Futter, a writer for Polygon.
Wait, wasn’t part of Activision Blizzard’s strategy to expand its audience and increase player investment?
“No wonder why they are so out of touch, they keep firing the guys that have contact with their customers,” says Wowhead commenter Shirubia.
Holy cow. Your average World of Warcraft player recognizes the risk of eliminating customer-facing jobs where Activision Blizzard doesn’t.
Then there’s the (perceived or not) callousness with which the company’s executives described the layoffs during an investor call—“with the exception of Blizzard president J. Allen Brack, who expressed regret at the layoffs,” writes Futter.
A company whose executives can’t even express regret at having to let employees go is not one that values its employees—or its customers.
“Leaders must demonstrate that their loyalty is to employees first, trusting that their employees will then be more loyal and caring to their customers,” writes Burkus. “It’s a big gamble, but the results speak for themselves.”
Maybe Activision Blizzard could take a cue from Nintendo, whose CEO Satoru Iwata took a 50% pay cut when the company was struggling in 2014. It may have been more of a symbolic gesture, but it was still an action showing responsibility rather than shoving off the repercussions on employees.
Whatever the case, it’s clear that Activision Blizzard needs to rethink its strategy and vision to be successful in the years to come.
As an Activision Blizzard investor and longtime gamer, here’s hoping the company puts its employees first and its players second. Only then will success and profit follow.
What are your thoughts on the Activision Blizzard vision statement and recent changes to its games? Let me know in the comments below.