Guide: Strict antitrust review has deterred major technology companies such as Google and Meta from large acquisitions, but Microsoft has become more daring, such as the acquisition of Activision Blizzard for $69 billion. Last year, Microsoft, together with several large companies, proposed to the Federal Trade Commission of the United States to intervene in Nvidia's acquisition of ARM, and this large order of $44 billion was ultimately defeated. Today, Microsoft spent 69 billion dollars to buy Activision Blizzard, but faced the same dilemma: antitrust.
Compilation/Youya
The strict antitrust review has deterred major technology companies such as Google and Meta from large acquisitions, but Microsoft has become more daring, such as the acquisition of Activision Blizzard for $69 billion. To some extent, this is "thanks" to Rima Alaily, Microsoft's head of antitrust affairs.
Alery's main job is to help Microsoft pass the antitrust review, so as to complete some large-scale acquisition transactions. But at the beginning of 2021, Aleli had a different task: to kill a deal -- to prevent Nvidia from acquiring ARM for $40 billion.
Microsoft believes that this will increase the licensing cost of ARM chip design and damage the interests of Microsoft and other technology companies (Microsoft uses ARM based chips in servers and other products).
People familiar with the matter said that Alelie, together with her boss Brad Smith, president of Microsoft, and Jonathan Kanter, Microsoft's external legal adviser at that time, drafted Microsoft's proposal to urge the Federal Trade Commission (FTC) to intervene and block the deal. In addition to Microsoft, several large technology companies also expressed their opposition. Last December, FTC filed a lawsuit against the acquisition. In February this year, Nvidia announced that it would abandon the transaction.
But now, Aleli is facing the same embarrassing problem as "Nvidia's acquisition of ARM transaction": antitrust. In January this year, Microsoft announced that it would purchase Activision Blizzard with about $69 billion in cash, which is one of the largest transactions in the industry history. However, at present, this transaction is facing the investigation of the FTC in the UK, the EU and the US, as well as strong opposition from the game competitors.
On November 9, the European Commission launched an in-depth investigation into the transaction, because it was worried that the transaction might reduce competition in the distribution market of game consoles and PC games. It is reported that the European Commission will make a decision within 90 working days before March 23 next year.
Alelie also has to deal with some new legal proposals put forward by US lawmakers, which may restrict some services of Microsoft and its competitors. In addition, she encouraged policy makers to examine more carefully the markets (such as app stores) controlled by powerful rivals such as Apple.
Disappear from the antitrust target
Alelie's role is subtle. In the 1990s and early 21st century, Microsoft was the most famous antitrust target in the technology industry. On the contrary, regulators and legislators seldom target Microsoft.
The targeted peers are Meta, the parent company of Facebook, Alphabet, the parent company of Google and Amazon. They have almost given up large-scale acquisitions because they are likely to be subject to strict antitrust scrutiny. In the past two years alone, Microsoft has acquired at least 20 companies, including Nuance Communications, a voice recognition software company, for $19.7 billion, and RiskIQ, a network security startup, for $500 million.
One of the reasons why Microsoft has won the favor of regulators is that one of its main businesses, cloud computing, has been upstaged by competitors' Internet search, e-commerce, social media, smart phones and other businesses, attracting only a small part of the regulators' attention. In addition, Microsoft's attitude towards regulators is not "aggressive". Kantor, a former external legal adviser of Microsoft, is now the head of the antitrust department of the US Department of Justice.
David Balto, an antitrust lawyer in Washington and a former FTC official, said: "In the past decade or so, Microsoft has done a lot of excellent work and successfully removed itself from the target of antitrust law enforcers. They have a very cautious strategy to make regulators more worried about Google and Apple, but also distinguish themselves from them."
However, this acquisition of Activision Blizzard may be a test of Microsoft's previous "staying out" strategy and efforts. Some investors believe that this transaction is bound to be blocked, while Microsoft is still confident of completing the transaction, and a considerable part of Microsoft's confidence comes from the work done by the Alery team.
Alelie has worked at Microsoft for 13 years. Since 2018, he has led the antitrust affairs team and reported to the general counsel Hossein Nowbar. In addition, she often works closely with Microsoft President Smith. In the past 20 years, Smith has been widely regarded as the hero of reconciliation with regulators and legislators. Previously, Microsoft had suffered a series of serious antitrust lawsuits due to its dominant position in the PC market.
However, some competitors of Microsoft said that Microsoft was still playing the old tricks. In 2020, Slack, an American enterprise office communication software startup, filed a complaint against Microsoft to the European Union, accusing Microsoft of abusing its market dominance by bundling its team collaboration communication product Microsoft Teams with its popular Office software, thus eliminating market competition.
Compared with Smith, Alelie has always kept a low profile. However, insiders said that Aleli played a key role in guiding Microsoft's antitrust strategy and met regularly with Microsoft CEO Satya Nadella. The insider said that although Smith controlled every move of Microsoft in the public domain in no detail, he often consulted Alelie, including how regulators or the general public would accept these measures of Microsoft.
Some former colleagues commented on Alelie as a smart and calm strategist. Before implementing a measure, she often invites employees to raise some drawbacks of the measure.
Increasingly severe anti-monopoly threat
There are not many areas in which Aleli has made public statements, and the supervision of the app store is one of them. The app store is a software distribution center and has become a major means for Apple and Google to dominate their mobile platforms. For example, the Apple App Store's restrictions on in app payments and commissions have caused developers to complain, and these policies have also prevented Microsoft from releasing cloud game services on the iPhone.
Two former employees said that Alery has always been the main voice influencing Microsoft's response to the regulation of the app store. In 2020, she drafted a set of "App Store Principles", which Microsoft promoted to legislators who are reviewing other app stores.
In October of that year, Alelie said in his blog that these principles can promote free choice and healthy competition. Ariely also said that Microsoft would not block other competitive app stores on the Windows platform and charge developers reasonable fees. The spearhead is obviously aimed at the apple. But Ariely said that this principle does not apply to Xbox App Store, because Microsoft lost money when selling Xbox hardware, or its profit margin was very low.
Although this blog post did not mention Apple, a former Microsoft employee said that its purpose was to "find things" for Apple. In addition, Microsoft also lobbied for the Open Application Market Act (OAMA) proposed by Senator Richard Blumenthal, which would require device manufacturers to allow other companies' app stores to run on their devices.
But Microsoft has not been very supportive of other anti-monopoly proposals against technology companies. The Alelie team has worked with Microsoft lobbyists to establish Microsoft's position on some bills. These bills may affect the way Microsoft treats its own products on its own platform, rather than competing against them.
According to insiders, when legislators drafted a series of bills against the dominance of technology giants last winter, Microsoft lobbyists met with Amy Klobuchar, the chairman of the Senate Anti monopoly Subcommittee, the Democratic Senator of Minnesota, and his policy staff.
During the meeting with Clouchar, Microsoft employees expressed concern about a bill she proposed called the American Innovation and Choice Online Act (AICOA). Microsoft asked the staff of Klobchal whether the bill would restrict Microsoft to display which games in its Xbox store, and whether it would restrict Microsoft to charge higher fees to customers who run their software in the cloud computing environment of competitors such as Amazon or Google. In order to promote its Azure cloud computing business, Microsoft currently charges enterprises a lower fee for Microsoft 365 software running on Azure than Microsoft 365 running on competitor cloud services.
Microsoft has publicly refused to take a position on the Clouchar bill. If passed, this bill may become the first bill to restrict Microsoft's software licensing practices. In June this year, Smith said in an interview with the media that Microsoft did not lobby for this bill, but this does not mean that it is against it.
A representative of the Klobchal office said that if the bill was passed, the regulators of the federal agencies would decide whether Microsoft was regarded as the "key goal" of the regulation of the bill. It is unclear whether the bill will be voted before the mid-term elections in November.
In addition, a staff member of the Anti monopoly Subcommittee of the Parliament revealed that legislators are actively considering more legislation to regulate the software authorization of cloud service providers. For Aleli and his team, it may mean that they have to work hard to cope with new policies and regulations.
Another bill initiated by Senator Gary Peters will require federal agencies to renegotiate cloud contracts on more transparent terms, which may change the way Microsoft licenses software to the government. In this regard, Microsoft has shown signs of wanting to preempt. In August this year, Microsoft said in a blog post that it would not charge extra for Microsoft software running on most other cloud service platforms except Amazon and Google.
Promote the completion of Activision Blizzard transaction
A person familiar with the matter said that until now, Aleli's primary task is to complete the acquisition of Activision Blizzard. The deal could help Microsoft strengthen its Xbox business, as it will gain control of blockbuster games such as the Call of Duty series.
But Alery's team must convince regulators in the United States and Europe that this deal will not give Microsoft an insurmountable advantage over Nintendo and other game competitors. In the face of the investigation by the FTC of the United States and the Competition and Market Administration (CMA) of the United Kingdom, Alelie responded that Microsoft does not dominate the game industry and will not restrict access to Activision Blizzard's games in competitors' game consoles or game stores in the future.
Internally, Alelie met with various teams in Microsoft's game department, and together with Phil Spencer, the top head of the department, introduced the merger to Xbox employees, and reached consensus around Microsoft's position. A person familiar with the matter said that Alery explained Microsoft's plan to overcome the legal obstacles to the deal, including that it would not exclude other game studios from the competition.
To a large extent, Alelie followed Smith's approach to dealing with regulators to preempt early concerns raised by regulators. Previously, Alelie had helped Microsoft obtain regulatory approval in large transactions, including the acquisition of Nuance transaction by Microsoft last year with $19.7 billion.
This is also true in Activision Blizzard trading. In June this year, Lina Khan, chairman of the FTC, said in a letter to the legislator that the FTC was reviewing the potential impact of the transaction on the labor market, which raised concerns that the acquisition of Activision Blizzard might make Microsoft have too much influence on the "number of roles available to game developers", thereby impeding fair competition.
A few days later, Microsoft quickly took action and announced that it had reached an agreement with the Communication Workers Union (CWA) of the United States to respect their efforts to form a union after the transaction was completed. According to the agreement, Microsoft allows employees to communicate more easily with union representatives, and provides a simplified process for employees to decide whether to join the union.
However, Microsoft recently began to show its early and more aggressive personality when dealing with regulators. Last week, CMA of the UK released the full text of its decision to continue investigating Activision Blizzard's transaction, fearing that Microsoft would remove Activision Blizzard's popular games from its competitors' consoles.
Microsoft responded with a letter full of gunpowder. This statement was written by the Alelie team, saying that the decision of CMA in the UK was wrongly dependent on some selfish statements of Microsoft's game competitors. These statements exaggerate the importance of Call of Duty and ignore the coping ability of competitors.
