Microsoft has officially acquired Minecraft for $2.5 billion after days of chatter about a deal. While there are risks associated with the purchase, strategically Microsoft could do much worse. In many respects, the purchase of Mojang is strategically sound.
Microsoft on Monday confirmed the $2.5 billion acquisition. The company said that the company will be break even on earnings in fiscal 2015. Mojang will join Microsoft Studios.
CEO Satya Nadella said in a statement:
"Gaming is a top activity spanning devices, from PCs and consoles to tablets and mobile, with billions of hours spent each year. Minecraft is more than a great game franchise – it is an open world platform, driven by a vibrant community we care deeply about."
For context, it's worth noting that Microsoft spent $8.5 billion for Skype and $6.3 billion for aQuantive only to write $6.2 billion off a few years later.
There are a few wrinkles. The reaction of the Minecraft community may be a wild card and Mojang. Rest assured Azure will be in the picture later.
Meanwhile, Mojang's founders, Notch, Carl, and Jakob, are leaving the company. In a statement on the company blog, the Minecraft developer said: "We don’t know what they’re planning. It won’t be Minecraft-related but it will probably be cool."
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FBR analyst Daniel Ives said in a research note:
"We believe the potential acquisition of the ubiquitous Minecraft game (almost 54 million copies sold), would strategically make sense as the company looks for ways to drive users toward its nascent mobile hardware business, where it can leverage and cross-sell a wide range of its higher-margin software (e.g., Office 365, Windows)."
Here's why the deal, which will be panned by some, makes strategic sense.
- Mojang gives Microsoft an asset and community that could cultivate a younger demographic. If you've ever seen an elementary school kid go into a Minecraft coma you know the power that Mojang has. To younger customers, Microsoft's core brand is really Xbox. If Microsoft is going to have an installed base to up sell as these customers move to smartphones to tablets to PCs to enterprise applications and cloud Minecraft is a good place to start.
- The future of Microsoft revolves around mobile and cross-platform applications. Office is about iOS and Android as much as it is Windows Phone and Windows. Microsoft's enterprise applications may have some perks for Windows, but also need to play across all mobile platforms. Skype is cross platform too. Minecraft gives Microsoft a property that plays well on the desktop, iOS and Android. And since Minecraft will be owned by Microsoft at least there will be a Windows Phone version too.
- Minecraft could be the next Lego-like franchise. It won't be hard to find a group of people that'll say that Minecraft has peaked and Microsoft is paying too much for a declining asset. However, Minecraft could be the digital equivalent of Legos, which spark the imagination and have become an introductory course to robotics and engineering.
- Mojang would make an Xbox spin-off more feasible should Microsoft go that route. Yes, we know that Microsoft has noted that it is keeping Xbox, but Minecraft would give the gaming unit another key title to go along with games like Halo. The addition of Mojang makes Xbox stronger whether Microsoft decides to keep the unit or spin it off to focus on the enterprise and cloud.
- Microsoft gets to use its overseas cash pile. Based on current tax laws, Microsoft's overseas cash can't be brought back into the U.S. without a hefty hit. As a result, U.S. companies are increasingly buying international assets. Microsoft's purchase of Mojang is its fourth international company acquisition in 2014. Most of the acquisitions were of the plug-in variety to add features and or services to existing product lines.