It's Official: Microsoft's Nadella Inks $2.5B Deal To Buy Minecraft Maker

Microsoft CEO Satya Nadella Monday made his first blockbuster bet since taking the helm of the software giant seven months ago, finalizing an expected deal to acquire Sweden-based Minecraft maker Mojang for $2.5 billion.

Microsoft, Redmond, Wash., said it does not expect the deal to deliver a profit anytime soon. In fact, the company said it expects the acquisition to be "break even" on a GAAP basis in Microsoft’s fiscal 2015, which began July 1.

[Related: Microsoft CEO Nadella's First Blockbuster Deal May Be $2B Minecraft Maker Acquisition ]

Microsoft paid a high price tag for Mojang, which made $100 million in profit last year and has 100 million connected users, said Warwick Business School Professor of Practice Mark Skilton.

"They may have paid too much for it," said Skilton , who is writing a book on the power of connected communities titled "Building The Digital Enterprise," which is expected to be released next year. "It's a successful gaming company, but is it worth $2.5 billion? Microsoft is protecting its Xbox user base with this deal. They are scared of losing their gaming community to Minecraft."

The high price tag, said Skilton, is a sign of the fear that companies like Microsoft are grappling with as they look at protecting their installed base against hyperscale behemoths Google, Amazon and Facebook. "When you are competing against hyperscale-level competitors like that, you are fighting with billions and billions of dollars in investments," said Skilton.

Microsoft said its investments in cloud and mobile technologies will enable Minecraft players to benefit from richer and faster worlds, more powerful development tools, and more opportunities to connect across the Minecraft community.

As evidence of the value of connected communities, Skilton pointed to the high price tags that connected communities are fetching in blockbuster deals. Amazon, for example, recently purchased Twitch, a community that has attracted more than a million users displaying their video game playing prowess, for $970 million. Twitch, whose peak Internet traffic surpasses Facebook and Amazon, did not exist four years ago.

Michael Goldstein, president and CEO of LANInfotech, a Microsoft partner based in Fort Lauderdale, Fla., said he also sees $2.5 billion as a high price tag for the Minecraft maker. "There is something more to this than we can see from the reseller community," he said. "I am sure there is a bigger picture around connected communities."

Goldstein said he does not view the gaming acquisition as as any kind of indication of how Nadella views the channel. "Microsoft's lifeblood has always been the channel," he said.

Minecraft creator Markus Persson and his Minecraft co-founders, Carl Manneh and Jakob Porser, are all leaving to start new projects and will not be joining Microsoft. "As the founders move on to start new projects, we believe the high level of creativity from the community will continue the game's success far into the future," said Manneh in a prepared statement.

Microsoft said the rest of the 40-employee Mojang team will join Microsoft Studios, which includes the studios behind what Microsoft called "global blockbuster franchises" Halo, Forza and Fable.

PUBLISHED SEPT. 15, 2014