The Minecraft team should indeed have crafted a new set of splash texts on the heels of their company's $2.5 billion acquisition. “WOOT! WOOT!” and “Show me the MONEY!” come to mind, but a simple “Microsoft needs MOJANG!” may be the most befitting splash emblazoned across Minecraft screens.
Industry reaction to Microsoft’s Minecraft bid was mixed, ranging from the belief that the game’s dizzying growth would help Microsoft tap into an “enormous cultural phenomenon” all the way to back-of-the-envelope calculations that concluded “Microsoft simply paid too much.”
Microsoft executives offered a range of rationale for the acquisition. According to chief executive Satya Nadella, Microsoft’s investment in the game was designed to be a boost for STEM education, with Minecraft serving as a lure for youngsters to embrace science and math. Xbox chief Phil Spencer had a slightly different take on Microsoft’s new asset: “Minecraft adds diversity to our game portfolio and helps us reach new gamers across multiple platforms.”
Amid the speculation and justification, one reality remained clear. Minecraft is hugely popular. From its humble origins, Minecraft has propelled itself into the lucrative world of video games, garnering 100 million players since its 2009 debut with reported 2013 revenue of nearly $330 million. It remains one of the top five most-downloaded paid apps on both the Apple and Google app stores and engages billions of viewers on Twitch, the live streaming video platform. This is the market success Microsoft banked on to the tune of billions in investment.
In McKinsey'sValuation: Measuring and Managing the Value of Companies, authors Tim Koller, Marc Goedhart, and David Wessels provide a framework for evaluating "the strategic rationale for an acquisition." In their experience, successful acquisitions typically follow at least one of five archetypes:
- Improving the performance of the target company
- Removing excess capacity from an industry
- Creating market access for products
- Acquiring skills or technologies more quickly or at lower cost than building in-house
- Picking winners early and helping them develop their businesses
Aligning a deal's “strategic logic” along one or more of these patterns drives the plan for value creation. In Microsoft's case, the company seems to have counted on Minecraft's ability to deliver its fanatical young user base to the industry veteran. The purchase also helps Microsoft instantly place its brand on Sony PlayStation and on iOS and Android devices via its newly purchased high-profile game. There may be other reasons for Microsoft's acquisition play in the indie game market, and only time will tell how the company capitalizes on its investment. But like the Minecraft game, perhaps this acquisition is the first block in a new world Microsoft intends to build.