Videogame: Minecraft deal could be key to Microsoft survival
Videogame: Minecraft deal could be key to Microsoft survival
"Minecraft" is the videogame world's equivalent of lightning in a bottle-an indie gaming sensation that grew organically, eventually becoming one of the industry's biggest franchises. It was a game that opened the doors for several other independent developers, who, in turn, brought a new burst of creativity to the industry.
So Monday's news that corporate behemoth Microsoft (MSFT) was buying Mojang, the developer of "Minecraft," for $2.5 billion might seem an odd fit to some, but it could be a key strategic move for Microsoft.
"Minecraft" is the top paid app on iOS and Android devices and as of Monday, Microsoft announced it will buy the app's developer Mojang for $2.5 billion.
Microsoft will continue to make "Minecraft" available across platforms, including iOS, Android, PlayStation, Xbox and PC.
"Over time, you're going to see them try to leverage this asset to get people to come over to Windows phone, which only has less than 3 percent market share," said Mark Spoonauer, editor-in-chief at Tom's Guide.
Why Microsoft is buying 'Minecraft':
Microsoft's potential purchase of Mojang, the Swedish company behind the popular block-building video game "Minecraft," may not be a big deal financially, but it could be the winning ticket to expanding its mobile business, analysts said.
The U.S. tech giant is in discussions to buy Mojang for an estimated $2 billion, The Wall Street Journal reported earlier this week, a deal analysts don't expect to impact Microsoft's profits given that it's roughly 2 percent of Microsoft's $86 billion cash hoard as of the end of June.
"This is pocket change for Microsoft; they spend more than that in their quarterly dividend. It's a move that gets headlines but in terms of its impact on Microsoft's top-line or bottom-line, it's going to be minor," said Charles Sizemore, CIO at Sizemore Capital Management.
In 2013, Mojang had total revenue of around $330 million and profits of $128 million; "Minecraft" makes up 90 percent of Mojang's revenues.
Mojang has a loyal and largely young following, and has more than 100 million players, which will now belong to Microsoft.
"Long term, I think it could pay off if they execute," Spoonauer said.
Microsoft is primarily known for business software but this acquisition will help the company expand its gaming division, which also includes game franchises such as the "Halo" shooter game and "Forza" racing game.
Business opportunities:
With a 100 million registered users worldwide as of February 2014 and strong profitability, "Minecraft" could be an opportunity for Microsoft to leverage its mobile and software businesses, Norman Young, senior equity analyst at Morningstar, told CNBC on Thursday.
"It's a strong signal that Microsoft is pretty invested in mobile strategy and the Windows Phone. They want to be able to offer different games and strategies across different platforms even if they are not the platform. The IP (intellectual property) side of this equation is very important, the fact that this is a gaming platform that can be played on Android, IOS, PCs and different consoles," Young said.
"They may be overpaying but if they're smart about it, it's not just the videogame, it's leveraging the IP behind the game," he added.
The deal would be Microsoft's first multibillion-dollar acquisition since new chief executive Satya Nadella took over earlier this year.
Microsoft made it clear to investors that mobile remains a priority after completing the acquisition of Nokia's mobile phone business in April.
"We believe the potential acquisition of the ubiquitous "Minecraft" game (almost 54 million copies sold), would strategically make sense as the company looks for ways to drive users toward its nascent mobile hardware business, where it can leverage and cross-sell a wide range of its higher-margin software," said Daniel Ives, analyst at FBR Capital Markets, in a report on Thursday.
To understand the deal, it helps to understand the loyalty of the "Minecraft" audience.
Its players are among the most fervent in the gaming world. They not only play the game, they feast on other media related to it, which has given rise to some of YouTube's biggest celebrities .
Microsoft bought "Minecraft" as much for that community as it did for the game itself. "Minecraft" players skew young. While adults might play it from time to time, tweens (and younger) are its most ardent fans, wearing "Minecraft" clothes and carrying the stuffed animals.
By capturing that audience at an age when it hasn't yet formed its larger online habits, Microsoft can help assure its future-specifically, the one that CEO Satya Nadella has been leading the charge on for some time.
Nadella, since taking the top job, has been herding the company's Windows, mobile and Xbox gaming divisions toward a unified platform, and "Minecraft" could be key to that, letting those young players transport their games (and the worlds they have created within them) from platform to platform using a Microsoft account.
Older "Minecraft" players, meanwhile, aren't likely to rush out to buy a Windows Phone or an Xbox One just to play the game, but they're tastemakers, and their approval and use of the unified platform could encourage others to use it more.
That's not to discount the expansion possibilities of the game. Microsoft, which had greatly trimmed its in-house game development studios a few years ago, has slowly been re-entering that world.
Earlier this year, it acquired the rights to the "Gears of War" franchise, and in April, Phil Spencer, head of the Xbox unit, announced there were a "couple" of internal game studios that had not yet been revealed.
"Minecraft" has been a phenomenon since its introduction. The game has been downloaded more than 100 million times on PC alone since its launch in 2009, and console sales have since topped those on PC.
On the Xbox 360, "Minecraft" has sold more than 12 million copies, just 2.5 million short of the total that "Halo 3" managed to sell (despite that game's five-year head start). Despite its age, "Minecraft" is regularly among the 10 top console sellers each month, according to The NPD Group.
Mobile is a potential growth area for the game, as well. "Minecraft" is one of the top grossing games in Apple (AAPL)'s App store, but Mojang has refused, so far, to create a Windows Phone version, because of that product's low sales, a decision that will likely be reversed in the coming months.
Still, while Mojang and Microsoft have been partners for a long time, the relationship hasn't always been a smooth one.
Marcus "Notch" Persson, co-founder of Mojang, has repeatedly criticized the company. He has publicly pointed out the weaknesses of the Windows Phone division several times.
And, in 2012, he tweeted that he had "rather have 'Minecraft' not run on Win 8 at all than play along. Maybe we can convince a few people not to switch to Win 8 that way...."
For Persson, though, the Microsoft deal lets him escape the high-profile industry role he never actively sought, he says.
"I've become a symbol," he said on his website when the deal was announced. "I don't want to be a symbol, responsible for something huge that I don't understand, that I don't want to work on, that keeps coming back to me. I'm not an entrepreneur. I'm not a CEO. I'm a nerdy computer programmer who likes to have opinions on Twitter," he said.
"As soon as this deal is finalized, I will leave Mojang and go back to doing...small web experiments. If I ever accidentally make something that seems to gain traction, I'll probably abandon it immediately.... It's not about the money. It's about my sanity."
"It's a strong signal that Microsoft is pretty invested in mobile strategy and the Windows Phone. They want to be able to offer different games and strategies across different platforms even if they are not the platform. The IP (intellectual property) side of this equation is very important, the fact that this is a gaming platform that can be played on Android, IOS, PCs and different consoles," Young said.
"They may be overpaying but if they're smart about it, it's not just the videogame, it's leveraging the IP behind the game," he added.
The deal would be Microsoft's first multibillion-dollar acquisition since new chief executive Satya Nadella took over earlier this year.
Microsoft made it clear to investors that mobile remains a priority after completing the acquisition of Nokia's mobile phone business in April.
"We believe the potential acquisition of the ubiquitous "Minecraft" game (almost 54 million copies sold), would strategically make sense as the company looks for ways to drive users toward its nascent mobile hardware business, where it can leverage and cross-sell a wide range of its higher-margin software," said Daniel Ives, analyst at FBR Capital Markets, in a report on Thursday.
To understand the deal, it helps to understand the loyalty of the "Minecraft" audience.
Its players are among the most fervent in the gaming world. They not only play the game, they feast on other media related to it, which has given rise to some of YouTube's biggest celebrities .
Microsoft bought "Minecraft" as much for that community as it did for the game itself. "Minecraft" players skew young. While adults might play it from time to time, tweens (and younger) are its most ardent fans, wearing "Minecraft" clothes and carrying the stuffed animals.
By capturing that audience at an age when it hasn't yet formed its larger online habits, Microsoft can help assure its future-specifically, the one that CEO Satya Nadella has been leading the charge on for some time.
Nadella, since taking the top job, has been herding the company's Windows, mobile and Xbox gaming divisions toward a unified platform, and "Minecraft" could be key to that, letting those young players transport their games (and the worlds they have created within them) from platform to platform using a Microsoft account.
Older "Minecraft" players, meanwhile, aren't likely to rush out to buy a Windows Phone or an Xbox One just to play the game, but they're tastemakers, and their approval and use of the unified platform could encourage others to use it more.
That's not to discount the expansion possibilities of the game. Microsoft, which had greatly trimmed its in-house game development studios a few years ago, has slowly been re-entering that world.
Earlier this year, it acquired the rights to the "Gears of War" franchise, and in April, Phil Spencer, head of the Xbox unit, announced there were a "couple" of internal game studios that had not yet been revealed.
"Minecraft" has been a phenomenon since its introduction. The game has been downloaded more than 100 million times on PC alone since its launch in 2009, and console sales have since topped those on PC.
On the Xbox 360, "Minecraft" has sold more than 12 million copies, just 2.5 million short of the total that "Halo 3" managed to sell (despite that game's five-year head start). Despite its age, "Minecraft" is regularly among the 10 top console sellers each month, according to The NPD Group.
Mobile is a potential growth area for the game, as well. "Minecraft" is one of the top grossing games in Apple (AAPL)'s App store, but Mojang has refused, so far, to create a Windows Phone version, because of that product's low sales, a decision that will likely be reversed in the coming months.
Still, while Mojang and Microsoft have been partners for a long time, the relationship hasn't always been a smooth one.
Marcus "Notch" Persson, co-founder of Mojang, has repeatedly criticized the company. He has publicly pointed out the weaknesses of the Windows Phone division several times.
And, in 2012, he tweeted that he had "rather have 'Minecraft' not run on Win 8 at all than play along. Maybe we can convince a few people not to switch to Win 8 that way...."
For Persson, though, the Microsoft deal lets him escape the high-profile industry role he never actively sought, he says.
"I've become a symbol," he said on his website when the deal was announced. "I don't want to be a symbol, responsible for something huge that I don't understand, that I don't want to work on, that keeps coming back to me. I'm not an entrepreneur. I'm not a CEO. I'm a nerdy computer programmer who likes to have opinions on Twitter," he said.
"As soon as this deal is finalized, I will leave Mojang and go back to doing...small web experiments. If I ever accidentally make something that seems to gain traction, I'll probably abandon it immediately.... It's not about the money. It's about my sanity."
