It’s fashionable these days for enormous American technology firms to spend exorbitant sums buying smaller, edgier companies. Amazon bought the video-game streaming service Twitch for $970m in August, Facebook acquired the Oculus Rift virtual reality headset for $2bn in July, Apple got down with the kids with its $3bn purchase of Beats headphones in May, while Google has been on an M&A spree since February 2010, buying one company on average every fortnight.
While it’s tempting to see these as nostalgic attempts to reconnect with their own days as young, energetic companies out to change the world, the explanation is almost certainly harder-headed. So what does Microsoft want with Swedish developer Mojang and its product Minecraft, a lego-inspired online game?
The simplest explanation is often the correct one. With 54m copies sold and another 100m downloaded, Minecraft is a multi-platform gaming phenomenon, and this translates to the bottom line. The game, which allows enormous freedom to create buildings and objects within its virtual world, brought Mojang over $100m in profits last year.
But on its own, this can’t be the reason for the purchase. Even if the profits from Minecraft continue to rise, as they have since it was created in 2009, the game is unlikely, possibly unable, to become much bigger than it already is. And at $100m a year it would take 25 years for Microsoft to recoup the cost of purchase.
It’ll bring in fresh blood
When Apple bought Beats, the firm made a point of saying how in many respects it was paying for the genius and connections of Beats’ bosses Jimmy Iovine and Dr Dre, as much as for the headphones business itself. It makes sense – if they created one super-successful business for themselves, they can do it again for you.
This is clearly not the case here, however. Although most of the Mojang team will join Microsoft’s games division, founder and creator Markus 'Notch' Persson is leaving big business altogether. ‘I'm not an entrepreneur,’ he said. ‘I'm not a CEO. I'm a nerdy computer programmer who likes to have opinions on Twitter.’
One of those opinions that may have rubbed Microsoft up the wrong way related to his price tag. Back in 2012, he joked it was $2bn. 'Give me two billion dollars,' he tweeted, 'and I'll endorse your crap'.
It’ll boost Xbox
Minecraft is the most popular online game on Microsoft’s Xbox console, with more than 2bn hours of play logged in the past two years. While Microsoft has promised to continue supporting Minecraft on rival platforms such as Sony’s Playstation 4, it’s possible the firm will provide subsequent console versions of the game exclusively to Xbox.
But again, this wouldn’t justify the purchase. It would help Xbox gain market share, but it would also cost Microsoft profits from Minecraft’s sales elsewhere. Besides, boss Satya Nadella has said that Xbox is a valuable asset, but not core to the business.
It’ll help Windows Phone
This is the most plausible explanation. Microsoft is desperate to establish itself in the mobile market, of which its Windows Phone has only a 2.5% share. Minecraft is extremely popular on mobiles, being the top paid-for app on both Google Play and iOS Store in the US. At present, however, it is not on Windows Phone, as Mojang’s Persson claimed it wouldn’t be worth the effort.
Clearly, this will change, and Windows Phone will gain access – and later, possibly priority access - to Minecraft’s loyal gamers.
Whichever is the real reason, Microsoft’s purchase is still a gamble. The gaming market is notoriously fickle, and for any of the above benefits to be worth Microsoft’s investment, Minecraft will need to retain its popularity for at least the next five years.