minecraft 360-S2SEPT. 15, 2014 • Following two weeks of leaked accounts that Minecraft studio Mojang AB was in negotiations to be acquired by Microsoft Corp., both parties announced that the developer will be purchased for $2.5 billion. The deal is set to close by the end of 2014. Mojang and its game properties will pass to Microsoft but the studio’s founders Markus Persson, Carl Manneh and Jakob Porser are leaving the company. Mojang employs around 40 people and saw a profit of 816 million Swedish kronor ($128 million) on revenue of 2.07 billion kroner ($325 million) for 2013. Minecraft was first released for PCs in 2009. In recent months while working with Microsoft on versions of Minecraft for the Xbox 360 and Xbox One, it has been reported that Persson approached the console maker regarding the possibility of an acquisition. Microsoft says it plans to maintain Minecraft across all existing platforms the game has been released on.

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Impact: Back in December 2010 Minecraft had 800,000 paid users, today that number is more than 50 million. Not bad for a title with primitive graphics created by a one-person studio. This Lego-like sandbox game has attracted people worldwide who enjoy creating their own fanciful structures and monuments, yet Minecraft’s huge popularity came as something of a shock to Persson. So many customers across a wide range of PC, mobile and console devices require a great deal of time and energy to service. The self-ascribed nerdy programmer appreciates the success Minecraft has attained yet obviously prefers puttering around on his own to create small personal projects. In recent years, Persson has hired staff to manage and grow Minecraft, but to paraphrase Michael Corleone in Godfather III: “Just when I thought I was out… they pull me back in.” According to the announcement on the Mojang website, Persson doesn’t want the responsibility of owning a company of such global significance. As Persson believes there are only a handful of potential buyers with the resources to grow Minecraft on a scale that it deserves, and he has had a positive experience working with Microsoft in developing the game, that is what guided his choice of acquisition partners.

As the majority shareholder in Mojang, Persson has done quite well for himself. Minecraft is a global brand with growing cross-merchandising opportunities, which explains why Microsoft placed such a high value on acquiring the franchise. There is even a live-action Minecraft movie in development at Warner Bros. Microsoft still has hopes of resuscitating its Windows phone business and a unique version of Minecraft could go far in helping to draw more consumer attention to its mobile hardware and operating system. Yet it should not be underestimated how well the game has sold on the Xbox platform. Last June Mojang announced that more console versions of the game had been sold than the 15 million purchased for computers. Copies sold for the Xbox 360 made up 12 million, while PlayStation 3 sales were around 3 million. But the top platform turned out to be mobile with 24 million copies sold between iOS and Android smartphones. We doubt Microsoft intends to mess with such success yet we would not be surprised to see the company give its own platforms some Minecraft exclusives in the months ahead. While $2.5 billion may seem like a steep price to pay for one game franchise, Microsoft expects the acquisition to be break-even in fiscal year 2015 on a GAAP basis.

Markus Persson, billionaire.
Markus Persson, billionaire.

Perhaps the most important point is that it helps reassure the industry that Microsoft is not backing away from the consumer business under new CEO Staya Nadella. Many investors and analysts have been urging Microsoft to dump its games division but such a large investment in a single game shows a definite commitment. In the grand scheme of things the investment is not that large or risky for Microsoft. The Minecraft franchise has all kinds of potential to last for a long time. Of course, this assumes Microsoft does not screw it up.

A major risk we see is that there will be a great deal of internal pressure to use Minecraft to promote Microsoft devices, from the Xbox One to tablets and Windows 9.  Microsoft has its own upcoming Minecraft type product scheduled for release, Project Spark, that was also supposed to do that. However, it is looking like Project Spark is shaping up to be more of a niche tool for would-be game designers. Meanwhile, Minecraft is a game that has already shown appeal to a much broader audience. The challenge now for Microsoft is making sure they keep what made Minecraft so appealing to such a large customer base while at the same time they attempt to achieve the goals that drove the investment.