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Understanding what Minecraft really means to Microsoft Exclusive

Understanding what  Minecraft  really means to Microsoft
September 15, 2014 | By Kris Graft

When Facebook announced it would buy Oculus VR earlier this year for $2 billion, it was hard to imagine any game industry acquisition could eclipse that deal.

Lo and behold, the unexpected (well, unexpected till recently) happened this morning, when Microsoft announced it would be buying Minecraft studio Mojang for $2.5 billion. That makes this the biggest game industry acquisition of 2014 so far.

Ever since the reports of the impending acquisition emerged last week, we've all been trying to figure out how this makes sense for Microsoft. Of course, the success of Minecraft is undeniable, and wanting to own that success is reasonable for a corporation like Microsoft. In June this year, Mojang said across all platforms (PC/Mac, consoles, mobile) it has sold 54 million copies of the game, which you only have to pay for once (how quaint!). That means by today, it's probably sold around 65 million units.

But having acquired the game five years after it has made all that money, Microsoft, which brought Minecraft to its Xbox 360 in May 2012, sure is late to the acquisition party. As much success as the game has already seen, the best of times are over, and the game is past its peak...right?

Maybe not. Thanks to Mojang's transparency with Minecraft's sales figures (something we hope, but don't necessarily expect, to continue), our UK editor Mike Rose was able to run some numbers that suggest otherwise.

PC/Mac sales vs. mobile sales (console not included)

Minecraft's rise in sales have remained impressively consistent since at least October 2010 on PC and Mac. Minecraft: Pocket Edition has taken advantage of mobile's expansion, solidifying an unshakeable position on app store sales charts, where it is surrounded by free-to-play games. Console versions of the game have together outsold the PC and Mac version, exhibiting its relevance no matter what platform it's on. Microsoft says it plans to support Minecraft on all current platforms, and by owning Mojang, Microsoft, as a company with business stakes in hardware, software and services, can leverage cross-platform business opportunities, with Minecraft and its engaged players as the foundation.

"Minecraft is a logical move as big business follows the traffic numbers in the digital world."

The game, thanks to ongoing support from its developer, and in turn from its players, is so phenomenal, so unstoppable, so transcendental of "video games" that the $2.5 billion price tag quickly starts to make sense.

But at the same time, the explanation of "Microsoft bought Minecraft for a lot of money because the game has been super successful" isn't satisfactory. The fact that Microsoft basically bought digital LEGO doesn't paint the full picture, or completely explain its place in Microsoft's overall business. It's true that Minecraft is "bigger" than video games, that it has seen applications anywhere from merchandising to education, but acknowledging the far reach of Minecraft's influence and explaining how the Mojang buy will diversify the Xbox portfolio doesn't adequately explain the potential of this acquisition in the context of Microsoft's overall business.

One sentiment we've touched on is that Minecraft is past its prime, and is bound to start to see sales start trailing or leveling off soon. As our graphs show, there's no indication of this happening yet, but let's say Minecraft unit sales started seeing steady decline. Even if the market is saturated with copies of the game, Minecraft, as a paid game, has already achieved the kind of reach that most free-to-play games only dream of. That is, Microsoft can't make people buy the game twice, but as long as it keeps current players happy -- and playing -- there is still opportunity to sell existing players a lot more stuff. So let's stop thinking strictly in terms of unit sales trends.

There are complications to that possibility, not the least of which how extra paid content might affect PC mods. But at least the Xbox Live Arcade version, which does sell extra content for a buck or two apiece, shows that Microsoft already has been thinking in terms of monetizing the vast amount of existing players. It'll be interesting to see how the player base reacts to new kinds of monetization (the Minecraft audience seems more mainstream and open to that sort of thing). No one should expect Microsoft to keep the Minecraft business model exactly as it exists today.

All this said, Microsoft has no intention or expectation for Minecraft unit sales to be slowing down any time soon, because if it did expect that, it would fall out of line with Microsoft CEO Satya Nadella's recently-announced platforming strategy, which relies on huge amounts of users -- something that conveniently Minecraft already has. Microsoft didn't just buy Minecraft; it bought a whole boatload of traffic that has fresh monetization potential.

Nadella's intentions are important to note. Mark Skilton, Professor of Practice at UK's Warwick Business School commented on how the buy fits not just into the Xbox business, but into Microsoft's overall mobile and cloud-based strategy going forward.

"Within the context of the Great Ecosystem War, video games are one battlefield and this deal shows how seriously [Microsoft] takes the gaming battle."

"This move is a reflection of the 'platforming' strategy that Nadella and others recognize as critical to building a strong customer base," said Skilton.

"In the digital world the number of concurrent users directly drives many revenue charging models common in the cloud monetization strategy," he adds. "It fits Nadella's strong leaning towards the mobile+cloud+services model, which is all about the connected volume of this. ...Minecraft is a logical move as big business follows the traffic numbers in the digital world."

Another interesting perspective that zooms out is from analyst Ben Schachter at Macquarie Capital. He argues that the Minecraft buy is the latest salvo in what he calls the "Great Ecosystem War" involving Apple, Google, Amazon, Microsoft, and other major corporations. The companies are fighting for vast amounts of users who engage with large, existing ecosystems like Twitch or Minecraft. Game-related products and services, with their high user-counts and unusually-engaged customer bases, have been much sought-after in this war, Schachter notes.

"The bottom line is that this deal shows that content is still king," he says, noting that he was still surprised by the amount of money paid. "Within the context of the Great Ecosystem War, video games are one battlefield and this deal shows how seriously [Microsoft] takes the gaming battle."

What separates Minecraft from the rest of video games isn't just its size, or its success up until now. Minecraft goes beyond video games because it rethought the way games and communities interacted, on scale that is bigger than game creator Markus Persson -- who is leaving Mojang -- ever anticipated. It's Microsoft that now sees the potential of Minecraft as not just a game, but a platform that fits into the software giant's sprawling ecosystem. The challenge now is to grow Minecraft as a platform, while preserving the magic that made it a phenomenon in the first place.

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