By Raven Jiang on September 21, 2014

Microsoft is buying a small game studio called Mojang for 2.5 billion dollars. Mojang is a small company with fewer than 50 employees, but they are the people behind the popular exploration and building game “Minecraft.” This is a good chunk of money — more than what Google paid for YouTube back in 2006, even adjusted for inflation. It is also more than a third of the price that Microsoft itself paid for Nokia’s devices business. “Minecraft” is an extremely popular and successful game, but is it worth that much?

As investors try to come to terms with the announcement, analysts are quick to point out that the game’s popularity on consoles and mobile devices will give Microsoft a useful asset for its faltering mobile strategy and its Xbox division, which began the new console generation behind its Sony rival.

Here is a subtler explanation.

Like many recent tech startups whose dizzying valuations give investors pause, the key to understanding “Minecraft” is to see the world through the eyes of a teenager. The game started off as a simple building sandbox where players could use blocks to build structures and terrains. In some ways, it was the digital spiritual successor to the Lego sets of our childhood. Over time, new features such as first-person adventure mode and multiplayer servers transformed “Minecraft” from a construction kit into a virtual world in which people congregate to share creative building ideas or just to hang out.

Because the building tools provided by “Minecraft” allow players to create Turing-complete machines, people have created amazing works like a working scientific graphing calculator in the game. All these were happening three years ago when the game was still largely limited to enthusiastic geeks. Today, things are much more fascinating.

Over the past few years, “Minecraft” has parlayed its initial success as a geek plaything to a cultural phenomenon. This shift has gone largely unnoticed because it is happening in the schoolyard. The average “Minecraft” player today is in his or her early teens. Go to any middle school in America and you will hear kids discussing their latest “Minecraft” exploits and then going home to play “Minecraft” online with their friends in shared virtual environments in which they could build and adventure together. “Minecraft” is this generation’s Pokémon. “Minecraft” paraphernalia can be found sold in Target and Walmart, and speaking of YouTube, many kids today are introduced to the video sharing site because they want to see videos of what other people are doing in “Minecraft.” Try to wrap your mind around that.

What Microsoft purchased this week is not a just a game with branding and product synergies; it is an entire generation’s childhood. It is a cornerstone of tomorrow’s culture. Imagine if you had the option to pay $2.5 billion to own the Pokémon franchise in 2000. This is an investment for the future.

It is entirely likely that the analysts are right and Microsoft bought “Minecraft” just for the short-term goal of shoring up its mobile and gaming platforms. But in either case, the ball is now in Microsoft’s court and it should take full advantage of its new acquisition.

Microsoft needs to make a serious effort in building a better “Minecraft.” The current game client has not had anything beyond minor cosmetic upgrades for the past two years and most of the game’s recent success happened in spite of Mojang and not because of it. The original creator of the game, Markus “Notch” Persson, stepped down as lead developer almost three years ago and little has changed for the game since then. A backward-compatible remake of “Minecraft” with better graphics, faster performance, cloud-enabled profiles, full user customization support and massively multiplayer server infrastructure will make the game even more accessible. It will also lay the foundation for a true next-generation virtual reality platform.

Let us take a step back and look at the big picture. We all know that virtual reality (VR) is coming. In his science fiction novel “Ready Player One,” author Ernest Cline describes a future in which people all across the globe participate in a VR world called “OASIS” that began life as an online multiplayer game and evolved into the futuristic successor to the Internet. When Facebook bought Oculus, the VR headset maker, for $2 billion, that is the very vision of the future it is chasing after. As VR interfaces bring us closer to the virtual world, we are on the verge of a revolution. Through either strategic insight or dumb luck, one of the most resourceful software companies in the world has bought itself a winning horse in this new race.

Now, the task of realizing the true potential of “Minecraft” is in Microsoft’s hands.

Contact Raven Jiang at jcx ‘at’ stanford.edu.