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Why I think Microsoft won’t buy Minecraft

By on September 15, 2014
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The press is full of news that Microsoft is about to drop between $2 billion and $2.5 billion on Mojang, the company behind Minecraft that is majority-owned by Marcus Persson, also known as Notch.

I think it is 50:50 whether this deal will happen and, on balance, I think that it will not.

Why buying Minecraft makes sense for Xbox

If I were Phil Spencer (head of Xbox) or Phil Harrison (head of European studios), I would jump at the chance to own Minecraft (leaving aside the question of price for a moment). It’s a global phenomenon that has captured the attention of millions of gamers and non-gamers across the world. It is incredibly popular amongst a younger demographic that will move on to be the core 15-30 demographic of a platform holder. It has transitioned well to tablets. It is consistently in the top 10 most downloaded apps on iOS and in the top 50 grossing. It has sold 54 million copies across all platforms, including 12 million copies on Xbox 360 and 15 million copies on the PC.

It is also creative, inspiring and enormous fun.

I could see a Minecraft purchase as a mechanism of going after the audience that Nintendo targets; families, explorers, those for whom the perception of Xbox as the home of shoot-him-in-the-head gamerz are alienating. I could see it as a means of bringing a high quality gaming experience to Windows Phone. I could see it making sense for exactly the same reasons that Microsoft bought Rare for almost $400 million in 2002. But I can’t see it happening.

Why buying Minecraft makes no sense for Microsoft

Microsoft is in a tricky place. It was founded by Bill Gates, a startup guy who understood risk and also understood that his organisation had dual purposes: it was a temporary organisation designed to search for a repeatable and scalable business model; and  it was a permanent corporation which had found product-market fit and whose guiding purpose was to make lots of money from delivering those products to that market. Gates then handed the reins to Steve Ballmer, a man who was expert at the corporation part but unskilled at searching for repeatable, scalable business models. And during that time, the company has continued to deliver strongly in its core business while struggling elsewhere (search, search advertising, portable music players, etc).

Now Ballmer has been replaced by Satya Nadella and the markets are watching him like a hawk. They want to understand his vision for the future. In a public memo, Nadella said “At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world.” Neither Minecraft nor, for that matter, Xbox fit that vision clearly. Nadella admitted that Xbox was non-core, while still stating that he is committed to Xbox: “As a large company, I think it’s critical to define the core, but it’s important to make smart choices on other businesses in which we can have fundamental impact and success.”

So Nadella is being watched for his first big steps.  He’s killed the Nokia and Windows Phone branding, to focus on Windows everywhere. He’s focusing on the core of productivity in a mobile and cloud environment.

So the first acquisition is incredibly important. It is Nadella setting out his stall on what is important to him, to Microsoft and to the shareholders. It is about him making good on his memo and his promise to shareholders to focus on the core.

I can’t see him making his first acquisition a single Intellectual Property aimed at a young audience in a non-core sector at a high price. And if he does, I can’t see the market being anything other than disappointed.

So what will happen?

If Microsoft does buy Minecraft, it means that Xbox is in the ascendant. It means that Phil Spencer and Phil Harrison and the other senior executives have convinced Microsoft’s leadership that the entertainment piece is a key part of productivity everywhere, of Microsoft’s drive to grow phones and tablets and of building a new generation of Microsoft users.

If it doesn’t, it means that Enterprise has won. Microsoft is a productivity and platform business. The Xbox was conceived by Bill Gates as a way of owning the living room, when it seemed as if the living room was going to be the home entertainment hub. It now looks as if the hub is personal (a phone or a tablet) not locational (a console, a desktop, a settop box), and the Xbox strategy is looking less clear in the context of Microsoft’s overall goals.

My money is on Enterprise.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com