The software giant, Microsoft (MSFT, Financial), is about to put its step forward into the gaming industry by acquiring the creator of Minecraft, Mojang AB, by the end of 2014. Just a few months back, Microsoft had acquired Nokia to step into the smartphone domain. Microsoft has long been admired as a company leading in personal computers, but it seems as if the management is taking quick strides to diversify its business lines, in order to maintain the top and bottom line and safeguard the company from cyclical headwinds. Let’s check out how this recent acquisition could be a game changer for Microsoft and what is so special about the Minecraft video game.
Mojang reckoner
This company which employs only around 40 employees created the mindboggling "Minecraft" video game that has captured the hearts of all middle-school children ever since its formal launch. The video game was introduced in 2009, but within a span of five years, the company has sold more than 50 million copies of this game for PCs, smartphones and video game consoles. The game has also drawn the veteran video game fans eager for a chance to build sprawling worlds from Lego-like digital blocks.
Mojang has earned more than $100 million in profit from selling "Minecraft" and related merchandise. In a statement given on September 15, Mojang's management said, "Minecraft has grown from a simple and small game to a project of 'monumental' importance. “If the deal goes through, the Mojang team will join Microsoft Studios, but the founders –Â namely Mr. Persson, Carl Manneh and Jakob Porser –Â would leave the company to pursue new projects."
Last year, though Mojang's market capitalization stood at $2.5 billion which was smaller when compared to its competitors –Â Zynga (ZNGA, Financial), Supercell and King Digital (KING) –Â the revenue earned per employee was a whopping $8.13 million, nearly four times of that earned by the gaming honcho King Digital which earned around $2.83 million.
This quick rise of "Minecraft" from a cult game to the target of one of the largest global companies shows how new forms of entertainment are shaking up the media and technology industries. Who knew Mojang earlier before it created the Minecraft...possibly very few....but today it's being acquired by spending billions of dollars....so great will be the impact of the video game Minecraft for Microsoft.
Annual revenue from Minecraft stood at 2.07 Swedish Kronor ($290 million) in 2013, which is less than 1% of Microsoft's fiscal 2014 sales of $86.8 billion.
The acquisition strategy of Microsoft
As per Nomura analyst, this acquisition does not signal Microsoft's intent to double down on Xbox, but it is clearly an attempt to better address mobile on a cross-platform basis. This could be true given that 40% of Minecraft's units are on mobile platforms.
Mojang is particularly important for Microsoft which is still struggling after spending nearly $9.5 billion on Nokia Corp.'s acquisition this spring. Minecraft is a popular mobile app, but Microsoft has failed to make a version for Microsoft Windows phone system which powers fewer than three out of every 100 new smartphones sold worldwide.
While Microsoft's Xbox has been the secondary focus for the company, CEO Satya Nadella emphasized how games are among the most popular activities on mobiles and smartphones in today's era. So, the company views the ownership of Minecraft an added advantage as it would aid the company to give an extra incentive to customers to latch on to Xbox videogame consoles, PCs and phones.
Hence, Microsoft has agreed to buy the company that owns Minecraft for $2.5 billion to acquire the gaming tool and more importantly Mojang's customer base of more than 50 million that would give Microsoft access to the young, hip demographic it has struggled to attract till date. Microsoft is hopeful that the deal would break even by fiscal year 2015.
The final culture mix
In the coming few months, Mojang and Microsoft will get several chances to refine their messaging with regard to Minecraft's destiny. As the acquisition enters into the final phases towards the end of the year, new leaders would emerge and would offer new insight as to the upcoming future of the Minecraft videogame. Though both the companies share concrete differences in culture, they might still find a good rhythm to work together after the acquisition process gets over. Meanwhile, it's best to stay tuned and keep watching their posts which might give birth to new article ideas on this acquisition which are yet not in the pipeline. So, let’s keep a close eye on the acquisition as it enters into the next stages.
