How Microsoft Stock (MSFT) Benefits from Buying "Minecraft" By David Zeiler

Reports in The Wall Street Journal and The New York Times said that Microsoft is close to making a deal in which it would pay $2 billion for Mojang, the Swedish company that created Minecraft.

It would be the first major deal initiated by Nadella since he took the CEO post, and it's one few would have predicted. In his first six months, Nadella has said cloud computing would be Microsoft's primary focus.

And despite the success of the Xbox, Nadella said in a memo earlier this year that it was not a "core business" for the Redmond, Wash.-based company.

Even if Microsoft had expressed interest in expanding its gaming footprint, Mojang is not the first name that would spring to mind.

According to The Journal, Mojang made a profit of $115 million last year on $291 million in revenue, so it's a relatively small operation. The founder and majority owner, Markus Persson (known online simply as "Notch") is known for his disdain of large tech companies.

The company was formed primarily to manage the unlikely success of "Minecraft," which is an online world in which players create characters that have the freedom to build pretty much anything they can imagine using blocky, 1980s-style graphics while evading monsters such as "creepers" that can sneak up and kill you.

That flies in the face of a long-standing trend in gaming toward increasingly sophisticated and realistic graphics, particularly on consoles like Microsoft's Xbox.

And yet there are reasons the Mojang acquisition could be a smart move, and ultimately could help Microsoft stock.

The appeal of "Minecraft" to Microsoft is not obvious because it requires a little knowledge about the game itself.

The reason it has become so hugely popular - Mojang has sold more than 50 million copies essentially through word of mouth - is that it's essentially a blank canvas.

You can design and build your own house, plant a garden, and tend farm animals or you can just build monuments to yourself.

Or you can fight other players for treasure. There's no object of the game with "Minecraft"; it's completely open-ended.

That means it's more like its own platform than a game, which is one of the main reasons MSFT wants it.

Once brought in-house, Microsoft could use the "Minecraft" technology not only to build other games, but as a foundation for educational software.

"Minecraft" has legions of school-age fans, so any software built on the "Minecraft" platform would have a built-in customer base.

Mojang could also help Microsoft make up for lost ground in the mobile app space, where Apple Inc.'s (Nasdaq: AAPL) App Store and Google Inc.'s (Nasdaq: GOOG, GOOGL) Google Play store dominate.

"Minecraft" is available across many platforms, from PCs and Macs to smartphones and tablets. But like many popular apps, it's not available for Windows Phone. Microsoft knows that it can't compete with Apple and Google's platforms unless it can build a robust ecosystem.

Games make up about 40% of mobile app purchases from both Google and Apple, but contribute 74% of the Apple App Store's revenue and an astounding 90% of Google Play revenue.

Buying Mojang is also a way for Microsoft to shed its image as a frumpy old tech company in the eyes of younger customers, who often make sales decisions based on the "cool factor" of a brand.

While the Xbox division contributes just 8% of Microsoft's revenue, it does play a major role in keeping the image of the company from becoming, well, boring.

Buying Mojang might not light a fire under Microsoft stock, but it would support a bigger strategy of rebuilding its reputation as a tech leader as well as making up for lost ground with Apple and Google - both of which will help drive MSFT stock.

Follow me on Twitter @DavidGZeiler.

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• The Wall Street Journal: Microsoft Near Deal to Buy Minecraft Maker Mojang