NEW YORK (TheStreet) — Microsoft just sank $2.5 billion into the Swedish company Mojang to get its hands on the video game Minecraft, its servers and the merchandising that goes along with it, but it’s not just playing games.
When the deal was announced on Monday, the acquisition was viewed as the latest move in Microsoft’s console battle against Sony’s PlayStation 4. While that’s partially true, even the console battle has grown to entail a lot more than video games — even ones as sprawling an social as Minecraft.
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It’s about shoring up a company’s ecosystem of devices, finding intellectual property to draw people to all of those devices and reeling in those customers. Michael Pachter, an analyst with Wedbush Securities, says this is less about Microsoft taking on Sonyaand Nintendo as it is about countering Apple , Amazon , Google and other more connected rivals.
“The ‘big’ guys are in an acquisition mode. Microsoft is a software company heading to enterprise solutions in the cloud, and has a device strategy to help it implement its vision,” Pachter says. “Xbox is one of those devices, Surface and Windows phone are the others, and Mojang fits all three.”
Video games, original streaming video content, streaming music, video conferencing (like Skype, which Microsoft paid $8.5 billion to buy in 2011) and even an online marketplace are all just pieces of a greater plan. Amazon knows this, and just spent $970 million to buy video game streaming service Twitch in August.
“This is similar to Amazon’s acquisition of Twitch, which doesn’t sell any more consumer products for them but fits into their device strategy (Kindle, Fire TV and Fire phone),” Pachter says. “Amazon and Microsoft are each looking for a more integrated offering to support their core businesses.”
In Microsoft’s case, Pachter says that means supporting the company’s position as the premier enterprise software provider by strengthening its hold on the consumer and expanding Windows to deliver telecommunications, games and business solutions. That differs slightly from Amazon’s goal to sell more Prime memberships by getting consumers hooked on itsamedia content (books, Prime Instant Video, Prime Music, some form of game initiative, and Twitch) via the Kindle, Kindle Fire and Fire TV devices, but not by much.
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In the end, it’s about keeping customers in-house. There’s a reason Google Wallet is countered with Apple Pay. There’s a reason Apple scoops up Beats Music for more than $3 billion to counter Pandora , Spotify and (potentially) Bose. Intellectual property matters, and any IP that can keep customers away from a competitor is worth the investment — whether it’s developed or acquired.
Video game IP is no different. Oculus VR was viewed as a video game company when it showed its Oculus Rift virtual reality headset at the Consumer Electronics Show in Las Vegas earlier this year. However, Facebook saw enough potential in the device beyond video games to buy it for $2 billion. Such acquisitions have far loftier goals than Activision and World Of Warcraft developer Blizzard did when they entered an $18.9 billion merger to become Activision Blizzard in 2008. It has to be about more than just the games to be worth the plunge. “[It's] unlikely that a game deal like this will happen again, [but] highly likely that Amazon, Google, Facebook, Twitter, Yahoo! or Microsoft make a multi-billion dollar acquisition in the future,” Pachter says.
That’s just the scale that Microsoft and its competitors are working with. It’s not a software company, video game company or even just a tech company anymore: It has to be the company for all aspects of its customers’ lives. It has to be as big and multipronged as any of its competitors and it has to have the properties that people are buzzing about.
Minecraft has that sort of cachet, and bringing it and other properties like it in house is not only a strategy similar to what Apple, Google and Amazon have been implementing, but akin to the approach of even large media companies like Time Warner , Comcast and Disney .
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“Game IP is no different from movie or comic book IP,” Pachter says. “Marvel sold for $5 billion, Pixar for $7 billion, LucasArts for $4 billion. There is plenty of precedent for valuable IP sales, and Mojang is more analogous to those than to Sega.”
– Written by Jason Notte in Portland, Ore.
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