Mojang Acquired By Microsoft
Microsoft has, in the end, decided to acquire Mojang and add the game studio to its repertoire of game companies. This would normally not be very big news, but in this case, the astounding price at which Microsoft buys this company – $2.5 billion – seems unbelievable. Historically, Microsoft has not disclosed the price at which it buys other game companies (ex. Press Play, Twisted Pixel), so there has to be some reason as to why it did this time. By reading the article and applying some critical thinking, one can take a glimpse at what would perhaps have been Microsoft’s train of reasoning behind this gesture.
One of the important rules of economics is to always try and profit from a deal. If you don’t stand to profit from something, then it is a loss to you, so you should not do it. So, from a buying price of $2.5 billion, Microsoft expects to be able to make at least that amount of revenue from the Mojang studio and its intellectual property. An important quote in the article that allows us to understand how Microsoft can possibly believe they can make that much money from Mojang is the following sentence, spoken by Microsoft CEO Nadella: “‘[Minecraft] is an open world platform, driven by a vibrant community we care deeply about, and rich with new opportunities for that community and for Microsoft.'” Although it might seem to you that Microsoft believes that they can return their money by simply by tapping into the wealth of the “vibrant community” that is held by Minecraft, it is actually much more than that. With sales totalling at $54 million solely for the game Minecraft and a few hundred million dollars for related merchandise, Microsoft is expected to lose money in this deal if they continue using Minecraft (it is currently on a decline) or even if they attempt to publish a sequel (which will result in similar profits as the original version). However, what makes this deal interesting is that it was not Microsoft that approached Mojang, but Mojang approached Microsoft. Therefore, Microsoft was also given a choice in the grand scheme of things. We can examine this in a table of choices:
Option A1
Decision: Mojang does not approach Microsoft, Microsoft is oblivious
Mojang Outcome: Mojang continues on a decline having only created one successful, profiting game – Minecraft (Loss -1)
Microsoft Outcome: Continues on its merry way. (Neutral +0)Option A2
Decision: Mojang does not approach Microsoft, Microsoft wants to buy Mojang
Mojang Outcome: Mojang vastly profits from deal, fueling other potential projects (Win +1)
Microsoft Outcome: Microsoft is perceived as a greedy company, but it acquires an important investment (Win +0.8)Option B1
Decision: Mojang approaches Microsoft, Microsoft does not want to buy Mojang
Mojang Outcome: Mojang continues on a decline with perhaps more desperation, seeing as they needed to approach Microsoft (Loss -1.2)
Microsoft Outcome: Microsoft seen as a conservative, slightly mean company. No major change in image. (Neutral +0)Option B2
Decision: Mojang approaches Microsoft, Microsoft wants to buy Mojang
Mojang Outcome: Mojang vastly profits from deal, fueling other potential projects (Win +1)
Microsoft Outcome: Microsoft acquires an important investment (Win +1)
From this diagram, a Nash Equilibrium is seen in Option B2, which is classified as a win-win scenario. Since none of the other options are more beneficial than that of B2, both parties will logically choose that option through the predictive processes of game theory. Of course, this does assume that Microsoft will acquire a good investment and profit from Mojang. Before we said that Microsoft would stand to lose in this deal, so why would Microsoft believe that they would win from it? The answer lies in the social gaming network. As it so happens, there is a massive divide between people that purchase games from Microsoft Studios and those that play Indie games. There are numerous strong ties within each of those groups, but virtually no bridges between them. Right now, Microsoft is selling very poorly in the that market, so what they actually hope to accomplish by buying Mojang is the creation of weak bridges between the corporate and indie game markets. Microsoft has repeatedly attempted (XBLIG) and failed at these attempts, but they feel that the community behind Minecraft is what will finally make the difference this time, which they describe as an “‘open world platform, driven by a vibrant community.'” Microsoft feels that the ties within the Mojang market share are balanced enough to allow for positive support and an eventual profit from future Mojang games. Microsoft has definitely taken the time to critically analyze their purchase, and only time will tell if the social network predictions will hold true.