Microsoft's Rumored $2 Billion Bid for Minecraft: Smart Move or Epic Fail?

Microsoft is very close to acquiring Mojang AB, the maker of the incredibly popular Minecraft video game franchise according to a report in The Wall Street Journal, which places the deal at more than $2 billion.

Minecraft is a strange bird in the gaming industry – its blocky graphics lie in sharp contrast to the big-budget hyper-realistic visuals in game franchises such as Halo and Grand Theft Auto. But despite its pixilated aesthetic, the game -- in which the core objective is not destruction but the creation of new materials and objects -- is beloved by children and serious gamers alike. Released in 2011, as of this June it had sold nearly 54 million copies across all its available platforms, which include iOS, Android, PlayStation 3, Windows PC and Xbox 360.

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The Swedish privately-held company behind Minecraft is also unusual in that it employs a small number of people but generates a healthy profit. According the Journal, the company employs a staff of 40 and took in a profit of $115 million on revenue of $291 million last year. (During that same period Zynga, a public company that employs upwards of 3,000 people, lost $37 million on $873 million in revenue).

If the deal goes through, it would mark Microsoft CEO Satya Nadella's largest purchase since he took the reins from Steve Ballmer in February.

Is it worth it? On the surface, Microsoft's decision to shell out $2 billion for a handful of developers and a game franchise that, while popular and profitable, is already four years old, is "a real head scratcher," says Tuong Huy Nguyen, a principle consumer tech analyst at Gartner.

"I have to suspect they are getting some type of functionality beyond simply a game that is really popular and makes money," he says. When Facebook bought WhatsApp for $19 billion in February, it wasn't just interested in the application, but also the corresponding user data. Similarly, because Minecraft is popular across a number of platforms Microsoft may be interested in Mojang's user analytics, information that could be used to inform the development of future titles, Nguyen speculates.

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According to John Taylor, a longtime video game analyst for the Arcadia Investment Corporation, the rumored acquisition fits into Microsoft's ongoing effort to reposition itself as a consumer friendly company (hence the $8.5 billion acquisition of Skype in 2011). In his view, it makes sense for the company to shell out for Minecraft, a game that is popular with a diverse range of age groups and enjoys widespread "parental approval."

Similar to social gaming companies Rovio, Zynga and King Digital, the vast majority of Mojang's revenue comes from a single title. But unlike Angry Birds, FarmVille, or Candy Crush -- which all enjoyed a brief moment in the sun before users moved on to the next title – Minecraft has staying power, argues Taylor. "It's a different style of game play," he says, one that revolves around creating new materials and objects and thus rarely feels repetitive. Four-years after its launch, Minecraft remains one of the best-selling PC, Xbox 360, PlayStation 3 and smartphone titles in the world.

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Through Minecraft, Microsoft could appeal to a new generation of customers, especially on smartphones, Taylor says. "Any pre-smartphone kid who is familiar with Minecraft could potentially be attracted by the future exclusive availability of the game on a Windows phone."

Regardless of Microsoft's motivations, the rumored deal is surprising given that Mojang's founder, Markus "Notch" Persson, has routinely criticized big corporations (including Microsoft) for failing to support indie developers. As the Journal notes, when asked in a Reddit AMA a few years back about his long term plans for Mojang, Persson responded: "Stay indie, make fun games that we like playing." More recently, Persson took the founders of Oculus to task for selling out to Facebook. "We were in talks about maybe bringing a version of Minecraft to Oculus. I just cancelled that deal. Facebook creeps me out," he tweeted at the time.

For his part, Nguyen isn't that surprised by this apparent about-face. "Throw that kind of money at anybody, and their ideals will probably change too."

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