It was a shock to many on Wednesday when Blizzard announced that it would be cutting 600 positions from the company, including many support and customer service jobs and even some developer spots. Very sad news for a great group of people, absolutely. Maybe we can do a little digging and figure out why Blizzard cut these positions and make some sense of it.
You don't just cut workers "because." Activision Blizzard is a publicly traded company in the United States, where corporations are beholden to their shareholders, profits, and the bottom line. We still live in a world where the price of stock is paramount, so raising the price of stock combined with investor satisfaction is key. Every decision by Activision Blizzard must, at the end of the day, be made with the knowledge that the investors matter.
Let's start with what employee staff reductions do not mean. Blizzard is not going broke or bankrupt because of these 600 jobs. World of Warcraft, StarCraft, Diablo, and unannounced titles are still being developed and pored over. Mike Morhaime himself said that the active positions cut were mostly non-developmental, which leaves support, customer service, and potential redundancies in the company's structure. All in all, 600 jobs is a large enough number that there is a reason for all of this.
Why do companies fire people?
I know it sounds like a stupid question, but in its simplicity is the probable answer to everything. Employees are company expenses that cost money to maintain. A large workforce requires a large amount of infrastructure and support around it. You don't just pay your workers -- employees cost a lot of money to maintain, especially in the gaming industry. People need to be fed, kept happy, and given the incentive to stay in the position they are in since the company has invested so much into training and skills. Look at the pictures of Blizzard's campus and headquarters. That place is not an inexpensive place to run.
Companies don't always fire people lightly and I truly wish I had the insider information on what all went down, but sadly I don't, so we have to make some educated guesses.
There are a ton of reasons why Activision Blizzard could have made these personnel cuts, but I am under the firm belief that 2012 is a year of scaling back for Blizzard. 2011 brought World of Warcraft's subscriber numbers down to 10.2 million players, a marked difference from the booming Wrath of the Lich King player base that declined over the course of the Cataclysm expansion.
Support and customer service automation programs that work
One of the biggest roles of customer support and service people for Blizzard is fixing player accounts after they have been hacked or stolen, restoring characters to the best of their ability. Over the years, Blizzard has been developing ways to speed up the time between restorations as well as launching a campaign to inform players what to do if they've been hacked or their accounts have been stolen. The account recovery page has changed dramatically over time, potentially putting support personnel out of a job.
The other side of the same coin is that there might just be fewer hacking attempts and account compromises these days for the number of dedicated support personnel. If that was the case, it ties in very well with the second point I'll make about populations in a couple of sentences. Authenticators have done much to alleviate a lot of hacking fears as well as make safe many players who otherwise would have been hacker fodder in the open internet seas.
We are still on the assumption that a majority of the jobs cut at Blizzard are support and customer service, as Mike Morhaime himself said that developers were not the focus of the downsizing. Morhaime also said that World of Warcraft experienced a period of growth that, over time, became an overstaffing issue. This is plain to see: Over the course of Wrath of the Lich King and Cataclysm, the player population fluctuated by over 2 million players subscribed, not to mention the number of new players coming in and out.
Blizzard has had unprecedented success in MMO customer support, especially since its evolution of the support process and its staffing to accomodate the incredible number of players who need assistance. Well, reduce that projected support load by about 2 million potential tickets, and new estimates have to be made. Morhaime discussed the company's current organizational needs, which strikes me as a comment on the game's current population.
Is WoW development easier?
Some developers were laid off in the firings, but I have no idea which teams they were part of. If World of Warcraft has recently completed some sort of software tests of a new development platform of some kind or new tools developed concurrently with Mists of Pandaria, maybe they just don't need as many developers working on the WoW back end. It's kind of a long shot, but it crossed my mind. Better programs that do more of the work for you could be a big boon, especially in reducing development costs for WoW expansions and potentially reducing the time between releases.
After the setbacks to the subscriber base during the end of Wrath of the Lich King and the lack of accessible endgame content that Morhaime said plagued Cataclysm, Blizzard fought for over a year to stop the subscriber bleed. First, it staggered the release of Cataclysm patches to push out content that was ready immediately and continue development of almost-ready content for a couple of more months. Noble in spirit, the remade Zandalari heroics were fun at first but quickly grew tiresome for players. With Firelands months away and the relative difficulty of the new tier of raiding and even heroic dungeons, many players were turned off.
Second, Blizzard successfully wrapped a bandage on the wound with the WoW Annual Pass, announced at BlizzCon. Players could sign up for a yearly commitment to WoW to get a cool mount and Diablo III on release. A million accounts signed up for the annual pass, contributing to the much less dangerous drop of only 100,000 to 200,000 subscribers in the last quarter. With that drop comes a reduction in work force.
This round of deep layoffs puts some big numbers in terms of cutting costs relative to profits for the next earnings call. A gangbusters quarter for Blizzard lets the investors stay happy while Blizzard postures itself for its future releases this year. In March, the press tour begins for Mists, and Morhaime has an announcement in the near future about a Diablo III release date. Combine all of these big news events with consumer hype, as well as the sales from the Heart of the Aspects and whichever games make release by the time investors have to pick up their phones again, and you have a lot of money to report.
A year to scale back and refocus
The infrastructure that surrounds the WoW machine took some hits on Wednesday to bring it in line with the other demands of the company. With Project Titan on the horizon and WoW sitting comfortably at its 10 million mark, Blizzard is in a position to trim costs, cut overstaffing, and show tangible results at the next investor call.
With both BlizzCon being cancelled and 600 layoffs, Blizzard is looking to have a huge year for profits to shore up against further WoW losses. Cancellation reasons aside, BlizzCon was a huge cost to the company, and not having to put that red mark in the spending column can go a long way in keeping the books tighter. StarCraft and Diablo are franchises that do perfectly well on their own, sure, but even Blizzard jokes about how much WoW contributes to the success of the company and its continued growth. I think you will also see the rise of some excellent Blizzard producers from this time, watching them reshape tasks for smaller, more dedicated teams.
Maybe we're at the time where Blizzard slows its growth and settles into WoW for the remainder of its life, while harvesting the new MMO until the time is just right. No more "four products at once after this cycle," I would think. Let WoW bring in a steady income and keep new products under a tighter development schedule with a less unwieldy support structure. Blizzard is curling into a little ball, and soon, that little ball will unfurl with Diablo III and Mists of Pandaria information. Until then, we're still open during remodeling.
At least that's what it looks like to me.
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