Kyle Nazario

Blizzard is not what it used to be. The company once known for only releasing classics has stumbled lately. Diablo IV earned good reviews, but Warcraft III: Reforged (Metacritic: 59) was so derided, the company gave refunds to anyone who asked.

This is a dramatic fall from grace for a developer so loved, it used to sell out a convention dedicated to its own games. What went wrong?

The answer is complicated, according Jason Schreier, author of the new book Play Nice: The Rise, Fall, and Future Of Blizzard Entertainment. He interviewed more than 350 people who worked at or encountered the company over its three-plus decades of existence and found a mess. There was no single smoking gun - it was the cumulative weight of many years of bad decisions. Some were the fault of those who worked at Blizzard. Others were from outside forces.

Over the next few weeks, I’m going to break down what happened, starting with Activision.

Blizzard failure cause #1: Activision management did not understand their real business

There is a certain clip of Steve Jobs explaining why Xerox never became a PC giant. Xerox was a tech pioneer in the ’70s and even had one of the first computers with a graphical user interface. But, they didn’t do anything with it.

As Jobs explains, a successful company can simply lose the ability to make great products that made it successful in the first place. This happens when, for whatever reason, the company brings in the wrong business people.

Sort of the product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies who have no conception of a good product versus a bad product.

They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product.

This is exactly what happened at Blizzard. The company merged with Activision in 2008. Despite promises to let them preserve their culture, Activision management spent the next decade injecting exactly the kind of managers Jobs derided. Here’s the CFO Activision pushed on Blizzard in 2015:

As the [CFO] search continued, [Activision COO Thomas] Tippl suggested [Blizzard CEO Mike] Morhaime talk to an old colleague of his named Armin Zerza. Like Tippl, Zerza was Austrian and had spent many years working for Procter & Gamble, where he’d marketed and distributed products like detergent, shampoo and diapers. Over the course of a few hours, Zerza interviewed with several of Blizzard’s top executives and game team leaders, who convened the following week and agreed: No way. They all had a similar takeaway: Zerza didn’t express much interest in gaming or Blizzard’s player-first culture—he just kept talking about how to make as much money as possible.

This is what Jobs was talking about. When a business person comes from an industry that places little value on product quality and innovation, they will actively impede people who can make good products, because they don’t see why that’s valuable. And why would they? Detergent, shampoo and diapers don’t require creativity. To business people like Zerza, video games should be the same - a commodity.

Needless to say, this is toxic to a company like Blizzard whose success rides on releasing great games. It’s not like Procter & Gamble, where you can just corner the packaged goods market. Make enough bad games and players will stop buying them. There are nearly infinite entertainment options for anyone with an internet connection. A game developer that wants to break through must be phenomenal.

For a while, Blizzard was! They built a special connection with their fans with great games that became an important part of fans’ lives. People married their World of Warcraft guildmates and met their lifelong internet friends at BlizzCon.

Blizzard actually sold two things: games, and fandom. The two supported each other. Great games like StarCraft and WoW used best-in-genre gameplay and compelling lore to create fans. Blizzard fans, in turn, bought most games the company put out. The fandom supported the games business, and the games business fed the fandom. This is partially true of any business, but the depth of Blizzard’s fandom and the way the company intentionally cultivates it makes them unique. People care about Blizzard in a way that was not true of other game developers or most any other company.

That passion is a humongous advantage in the games industry! It means your goofy new product like “a Warcraft-themed clone of Magic: The Gathering” can turn into a billion-dollar business. That’s the virtuous cycle Blizzard used to sell millions of games.

Activision management did not seem to totally understand this.

[Blizzard CFO Armin Zerza] seemed perplexed by any team or department within Blizzard with low profit margins, such as BlizzCon, which cost tens of millions of dollars but didn’t make much money. Blizzard managers tried to explain that having their own convention was a unique opportunity to serve their community. Even if it wasn’t a profit center, it was a massive gain for their brand, a marketing opportunity for their products, and a morale boost for both employees and players. Zerza suggested that they kill it.

This passage is crazy. You cannot be the chief financial officer of Blizzard Entertainment and not understand why BlizzCon exists. It is a crucial part of building the fandom that buys the games. Somebody who goes to BlizzCon, meets their guildmates and has a great time cosplaying as their favorite character is a customer who will buy your products for a long time.

This was not the only sign Activision management misunderstood their own business.

By 2017, Hearthstone had drawn significantly more attention from Zerza and his finance team, who were looking to push harder on live games to make up for the lack of big new products. “There were a series of meetings, pressures, and discussions about monetization,” said Steve Fowler, the vice president of global publishing. “Why are we not running bundles? Why are we not running more frequent sales? Can we get a fourth expansion pack every year into the game?” People who didn’t play a lot of games didn’t seem to understand why some of these suggestions might be detrimental.

Suggesting a fourth expansion every year for Hearthstone is extremely telling. Anyone who’s played the game ¹ would know that is not feasible. Players need time to adjust to the new cards and develop new decks. Four expansions a year would just be chaos. Tons of turnover and less time for Blizzard to make every expansion as good as possible.

As a result of Activision execs not understanding their own business, Blizzard management spent a disproportionate amount of time fighting bad ideas from the C-suite. Eventually, though, they lost. Mike Morhaime resigned, Activision managers spread throughout Blizzard and that was that.

The funny thing about Blizzard, though, is Activision wasn’t entirely wrong. They did need more fiscal discipline. In a way, the success of World of Warcraft damaged the company. That’s for next week.