Roundtable: Is Minecraft a gold mine?

Microsoft announced its intention to acquire Minecraft maker Mojang for $2.5 billion yesterday, prompting the GamesIndustry.biz roundtable to convene and discuss, as is the custom whenever industry-shaping news hits. However, this roundtable has an unusual number of angles to consider when approaching the issue.

First, there's the standard assortment of questions that come up with acquisitions: Is the price right? Does the deal make strategic sense for both parties? Should we be concerned that the Mojang co-founders are leaving the studio straight away? Can the game's success continue apart from them?

Then there are some questions specific to this acquisition. How is Microsoft going to break even on a $2.5 billion purchase by the end of June 2015? Where can it take the Minecraft franchise here? Is there room for expansion when an open-ended with incredible longevity has a buy-once business model and has already been downloaded more than 100 million times?

And then there's a more personal slant centered around Minecraft creator Markus "Notch" Persson and his reasons for stepping down. Did the ceaseless flood of negativity cost the game industry yet another creator? Does it matter that he sold Mojang to the same company he accused of trying to ruin PC gaming? Did he have any obligation to handle this differently?

Dan Pearson

Let's start with this. You'd have done it. I'd have done it. Everyone in their right mind would have made that deal, given the chance. Notch has betrayed no-one, abandoned nothing, compromised no principles. He owes nothing to anyone, something which is now also 100 per cent literally true. Yes, he's said some angry things about Microsoft in the past, but if the business world was dictated by the relative wisdom of passing comments, not very much would get done at all.

So he gets out young and rich, having created a game which has bought joy to millions, something which parents can enjoy with their children, a product which encourages creativity, collaboration and learning. He's got plenty to be proud of and nothing to prove.

As for his reasons, there seems little point in speculating beyond what he's already said, even if you do think it's probably a little bit about the money. Some of his reasons prompt a little sadness, especially in the light of the recent focus on the interaction between devs and their customers, but they're his reasons and not for us to fret over.

"It can become the new Minesweeper, the new Solitaire. In 10 years it could be a new generation's Tetris, and Microsoft will be associated with it"

But down to brass tacks: does it make fiscal sense? Microsoft has said that it will be making good on the deal by the end of FY 2014 - not meaning that it will fill that $2.5 billion gap in its current account, but that its investment will be working harder for it as Mojang than it would be as figures on a stockbroker's VDU. I don't doubt that, and I'm certainly in no position to second guess Microsoft's bean counters, but I do wonder what the depreciation on that investment may be. Minecraft 2 seems like a wrong turn, given that the game's reputation and customer base was built on gradual iteration and player feedback, so there's unlikely to be another round of frenzied buying. Microtransactions might be a possibility, letting blood from the golden goose rather than killing it outright, but is still a hugely risky strategy and one that's unlikely to please any fan. The game is on nearly every platform already, with no new ways to play, short of VR, perhaps, on the horizon, so where is the shop window?

What this deal might be about could be as simple as cachet, kudos, bragging rights. Every installation of Windows, every iteration of every MS platform, from mobile to tablet, PC to Xbox, can now come with a free copy of the latest version of Minecraft. It can become the new Minesweeper, the new Solitaire. In 10 years it could be a new generation's Tetris, and Microsoft will be associated with it. It's what their brand strategy has always been focused on: be a household name. Don't just be familiar, be default.

The best thing that Microsoft can do with Minecraft is nothing at all, except to put it into the hands of as many people as possible, and I think Notch can rest easy with that legacy.

Steve Peterson

At first the deal seemed to me like Microsoft was seizing another Rare opportunity to make a game company purchase that ultimately wouldn't pay off. Spending $2.5 billion for a company that had only produced one game worth noting - admittedly, a game that has performed astoundingly well - and then having the key developers leave is crazy, isn't it?

Not really, when you look at it closely. Microsoft's taking $2.5 billion out of an $86 billion cash stockpile to buy Mojang, which had a profit of over $250 million last year (if you add what the company paid to Notch in royalties to its profit, since Notch will no longer be getting royalties). If Microsoft had left that money in the bank to earn interest, it probably would be earning less than that... so the $2.5 billion is actually working harder for Microsoft purely as a return on capital, disregarding other benefits. Plus, that money comes from the cash Microsoft has stashed overseas, which it can't bring back to the US without paying taxes on it - so it's like getting a 35 percent discount on the price.

"Minecraft brings Microsoft a large installed base of players, and a strong connection to kids - something the company lacked, not being known as a kid's software place"

Minecraft brings Microsoft a large installed base of players, and a strong connection to kids - something the company lacked, not being known as a kid's software place. Minecraft is already being used for educational purposes, and that's something Microsoft can build on for the future. Yes, Minecraft is on multiple platforms, even rival ones like PlayStation. But so is Microsoft's Skype, and that seems to work out pretty well for them.

As for the future, Microsoft can certainly do well by running its own Minecraft servers and taming the Wild West of third-party Minecraft servers (which has been a headache for Mojang). Certainly the company could create a Minecraft II, or substantial new features, which might only be available on Microsoft platforms (or released first), thus providing a boost to Xbox sales, for instance. Yes, Microsoft will need a great manager for the Mojang business, and it will be interesting to see how they work that. But the purchase seems like a good one for a company with plenty of money that wants more dedicated gamers in its audience.

Matthew Handrahan

I'm with Dan in practically every respect, and against pretty much every one of this deal's naysayers. Notch did not sell out, and this is not just another example of Microsoft attempting to ruin the lives of gamers everywhere. Like most journalists, I'm all for a good story, but there are times when the struggle to place every last event into the prevailing narrative starts to make us look more than a little silly. Mojang is a business, and a rather successful one at that. I'd find it a little strange if Microsoft didn't at least consider bringing it into the fold.

Where it goes from here is harder to say than the fallout would suggest. I didn't earn the armchair from which I document and critique this industry through a deep and nuanced understanding of mega-finance, or from my uncanny ability to assess what a $2.5 billion investment might look like in 10 years time. But I am sure that it's relative: to the sort of money that now changes hands for pop cultural phenomena, to the huge reserves of cash at Microsoft's disposal, and to what Microsoft's goals actually are when it considers sinking several billion dollars into a 40-person company from Sweden. (Hint: I'm guessing that Microsoft's interest in Mojang runs a little deeper than just a number on a spreadsheet.)

"there are times when the struggle to place every last event into the prevailing narrative starts to make us look more than a little silly"

I forget who said it now, but in the last few days I read someone dismiss Minecraft as "virtual Lego," as if that descriptor would somehow wake the world up to Microsoft's grand folly. Yet I had the opposite reaction. In just two words, that person highlighted what it is about Minecraft that might just be worth a couple of billion dollars. Mojang created the sort of forever product that Lego so wonderfully exemplifies, one that needn't adhere to the endless commercial love-in of sequels and reboots to sustain its appeal, one that I might well be playing with my kids a decade down the road.

Does Minecraft justify a $2.5 billion investment? To be brutally honest I'm not sure that any game really does, but to talk about this particular game in those terms seems to miss the point entirely.

Brendan Sinclair

I'll go ahead and play the wet blanket here, as I don't see this deal having a tremendous amount of upside for Microsoft. What this basically comes down to for me is a skepticism in Minecraft as a truly evergreen property. If Minecraft is as culturally relevant 10 or 20 years from now, then this deal is a no-brainer, no matter the money involved. But that's a sizeable "if."

I hear the Lego comparison a lot, but I don't think Minecraft has shown itself to be as well suited to perpetual success as its real-world block-building counterpart. For one, Lego's business model was always a bit more scalable. If you wanted to build bigger things with Lego, you needed more pieces. Minecraft sells for $27 on PC right now (and less on other platforms), but that one-time purchase gets players all the game they'll ever need. These days, $27 won't even get you a single Lego Minecraft construction kit.

"Mojang is already a very successful business, but it's one that is built on a single unrepeatable blockbuster phenomenon whose creator already has a foot out the door."

And as much as we consider Lego a cultural institution, that brand has changed immeasurably in the last 30 years. Lego has kept up with the times by constantly refreshing its lines; now it's not so much a building block system as a parade of cute versions of other licensed properties. How big would Lego be these days if it never cross-bred the bricks with Harry Potter or The Hobbit, Star Wars, Spider-Man, Superman, or The Simpsons? Minecraft, on the other hand, is less amenable to this approach. Microsoft already sells plenty of licensed tie-in skins for Minecraft on the Xbox 360 (attached to properties like Halo, Guardians of the Galaxy, the Avengers, and Skyrim). They may do well at $5 or less, but it doesn't work like Lego, where every new license means a slew of new $30 building kits and perhaps an associated $60 video game or four.

Mojang is already a very successful business, but it's one that is built on a single unrepeatable blockbuster phenomenon whose creator already has a foot out the door. And while there's no reason the game should be any less interesting to the kids of tomorrow than it is to the kids of today, kids are an unpredictable market, with unpredictable tastes. Today's phenomenon is tomorrow's fad, and Minecraft strikes me less as the sort of permanent cultural fixture worth $2.5 billion, and more like lightning in a bottle, the perfect game in the perfect place at the perfect time. On top of that, Minecraft is a property whose success I don't think anyone truly understands other than to gesture vaguely in the direction of community and creativity. And when you start tinkering with something you don't fully understand, there's a good chance you'll upset whatever special balance of qualities Minecraft has that made it so successful in the first place.