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Why Microsoft bought Minecraft
Earlier today, Nicholas published an article explaining why he didn’t expect Microsoft to buy Minecraft developer Mojang. As you probably know by now, he was wrong; Microsoft is actually buying the Swedish company for $2.5 billion.
Nicholas reasoned that new CEO Satya Nadella, having announced that he will focus the company on “productivity and platform” in a “mobile-first and cloud-first world”, would not want the first acquisition under his tenure to be a videogame developer. It would suggest that he’s not serious about the company’s focus and undermine shareholder confidence in his ability to hone the firm’s attention on its profitable core activities.
That’s still true; we’ve yet to see how the stock market responds to the Mojang acquisition but it will certainly raise some very thorny questions for Nadella next time he’s up in front of Microsoft’s investors. The deal, however, got the go-ahead. A deal of this scale would have required the stamp of top management; what led them to think that $2.5 billion for a small Swedish developer would make a good first acquisition for the tenure of a tough, business-focused new CEO?
To clear up the obvious answer up front; Microsoft thought this because Minecraft was for sale and they didn’t want anyone else to have it. The company’s founder wanted an exit and sought a buyer; Microsoft didn’t want anyone else to own a property that could be used as a major competitive advantage against it. This reasoning, “we must buy this in order to make sure nobody else buys this”, has been the basis of many recent acquisitions. Facebook is particularly guilty of this thinking – it’s hard to explain the amount they’ve spent on companies like Instagram, WhatsApp and (most unusually of all) Oculus without recourse to the “nobody else can be allowed to own this” line of reasoning.
The fear of a rival getting their hands on something valuable can produce some very weird acquisitions (like Facebook and Oculus). Microsoft buying Mojang, however, has some features that actually make sense – to me, at least. In Nicholas’ analysis, he wrote about the reasons why Minecraft would be a great acquisition for Xbox. I think that’s a little too narrow, and underestimates Minecraft’s extraordinary and unique cultural and commercial position. If we want to understand why Microsoft bought Minecraft, we have to understand that that is precisely what we’re talking about; Microsoft bought Minecraft. It’s not “Xbox bought Mojang”. It’s “Microsoft bought Minecraft”.
Firstly, while the deal is to acquire Mojang (the studio) with Minecraft (the game) merely being included, this is definitely not an “acquihire” (awful Silicon Valley slang for an acquisition which is designed to pick up the talent at a company, rather than the product). Lots of talented people work at Mojang, but the three founders – including Markus “Notch” Persson, the original creator of Minecraft – will depart as part of the deal. That’s unusual in itself, with large acquisitions normally including a clause forcing key personnel to stay on board for a while, but it indicates the truth of the matter; it’s Minecraft, not Mojang, that Microsoft wants.
Secondly, while the deal will place Mojang within the Devices & Studios Group at Microsoft alongside the Xbox, Surface and Lumia smartphone divisions, Minecraft is truly being bought by Microsoft and not by Xbox. This is not an attempt to force consumers into buying an Xbox One (currently trailing PS4 by a large margin) by snatching up a very popular game and making it into a platform exclusive – or at least, if it is, it’s the worst use of $2.5 billion imaginable, as it will likely result in the rapid slaughter of the goose that lays the golden eggs. Microsoft is smarter than that. This is, recall, not the same Microsoft we’ve been used to for so many years; this is the Microsoft that recently put the Office suite, the crown jewels of its productivity software line, on the Apple iPad, recognising that a software platform’s value is vastly enhanced by being as universal as possible.
The same rules apply to Minecraft, because Minecraft is in many senses a software platform just as Office is. It’s been described as a digital version of LEGO – not just by reporters, but by LEGO’s own spokespeople. In fact, LEGO marketing director David Gram ruefully admitted that the company wishes it had invented Minecraft. It’s an expansive, flexible creative tool and a compelling game experience all in one. It works wonderfully as a solo experience, building something for your own satisfaction, but is even better as a social experience, building something with friends. It’s almost essential that it be a universal experience – something shared across as many platforms as possible. Only in that way will Minecraft continue to fulfil the role into which it has been growing; as the shared “toy” experience of an entire generation of children and teens, a singular reference point in digital culture which is loved by almost every child and their family. That is an extraordinary market – a point of crossover from the games business into the “mainstream” of entertainment which has the potential to dwarf Wii Sports, Pokemon or anything else you care to mention. Curated and managed with care, Minecraft could be the single biggest cultural phenomenon ever to emerge from videogames.
Microsoft, then, is about to become the publisher of one of the most popular games on iOS, on Android and on PlayStation platforms. That is only odd if you also think it’s odd that Office exists on iPad. Microsoft isn’t just about to become a successful cross-platform publisher; it stands to become the owner of the most popular “toy” in the world, a huge financial success (both in terms of software sales and in terms of merchandising) and the basis for a large and increasingly commercial YouTube broadcasting scene. There’s a whole group of YouTube “celebrities” whose work is focused on Minecraft and whose regular audience number in the millions. For Microsoft, the challenge will be to figure out how to turn this huge, untamed melange of success into something profitable and long-term – not to try to use it all to market a console and a distinctly unloved smartphone range.
How might they achieve this? They have a good starting point, in that Minecraft makes a lot of money already. Direct sales are high on all platforms and merchandising has already proven itself, although I have no doubt that there’s plenty more money to be made in that quarter. One likely ongoing revenue stream for Microsoft is the provision of Minecraft servers – specifically, moving the game’s server architecture onto Microsoft’s Azure cloud service, which would allow players to launch their own servers with a few clicks or taps in the game and share the resulting persistent worlds with their friends. The small third-party industry which has built up around providing Minecraft servers will be destroyed by this move, but they’ll find Microsoft far less easily moved by their bitter complaints than Notch was by past upset over changes to server policies.
Nobody should underestimate the challenge of what Microsoft is trying to achieve here. The company is only a good fit for Mojang in a few very superficial ways right now – it’s got the Xbox division, so it “gets” games, and it’s got Azure, which would be a great technological fit for Minecraft. However, Microsoft has little or no experience at successfully managing a major IP for kids and families, which is the core challenge of Minecraft. It will face huge internal political pressures to wield Minecraft as a weapon against rivals in the console and smartphone spaces – which would be disastrous. It will need to walk a tightrope between figuring out how to monetise the game more effectively and utterly ruining the slightly shambolic, anything-goes atmosphere which is such a deep part of the game’s charm. It will have to try to preserve the studio culture that nurtured Minecraft and its community – and Microsoft’s track record with the studios it acquires is patchy, albeit with good patches as well as bad.
Minecraft is, in the end, a tricky product for the very reason that people love it. They don’t need it; they love it. Missteps that smack of corporate interference, Orwellian newspeak trying to masquerade as affectionate enthusiasm, well-intentioned changes interpreted as attacks on freedom – these spell the end of love and with it, the withering of a product that just cost $2.5 billion. Microsoft should, by now, be experts on how quickly an audience can fall out of love with a product they don’t need; it took less than an hour for its ill-conceived Xbox One unveiling to reverse half a decade of goodwill built up by the Xbox 360. Minecraft’s greatest asset is the love of its fans; Microsoft’s greatest challenge will be figuring out how to keep that love alive.