Mojang expands its Minecraft virtual empire brick by brick

November 12, 2013, 10:00 AM UTC

FORTUNE — Despite investing millions of dollars into LEGO Universe and attracting over 2 million players, the Danish LEGO Group couldn’t find a way to generate revenue from a virtual online brick videogame. But a small Swedish game studio, Mojang, has seen nothing but profits from its open world independent game, Minecraft. The game allows players to build their own game worlds brick by brick and offers different ways to play through modes like Survival, Creative, and Hardcore.

Since it was released in beta form on PC in December 2010, more than 75 million players have registered for a Minecraft account. The game has since expanded to Mac, Xbox 360, and mobile devices and has generated approximately $1 billion. This winter Minecraft will launch on PlayStation 3, PlayStation 4, and Xbox One, ushering in the first next-generation iterations of the game.

Minecraft is one of the few truly cross-screen franchises that has had success on PC/Mac, consoles, tablets, and smartphones,” said Peter Warman, founder of videogame research firm Newzoo. “To date, Mojang has sold approximately 45 million copies of Minecraft, including 12.5 million PC/Mac versions, 8 million Xbox 360 copies and 16.5 million mobile Pocket Editions. This year alone Mojang sold 7.5 million units on iOS devices and another 3 million copies through Google Play.”

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The creation of Markus “Notch” Persson has continually evolved since launch. Mojang has worked closely with fans of the game with each free weekly “snapshot” update, as well as the four or five major updates that are released each year. This relationship has fostered an active community. Minecraft has over 7 million Facebook fans, and more than 3 million unique visitors check in to the official Minecraft Forum each month. This fan base has grown in demographics from the 25- to 35-year-old males at launch to a diverse audience as young as four and as old as 98, according to Carl Manneh, CEO of Mojang. The current sweet spot for the game seems to be males 10 to 15 years of age.

There are over 50 million Minecraft YouTube videos online today. Mojang has partnered with Twitch to incorporate livestreaming functionality into the game for the first time, which Warman believes will simplify and further grow this video catalog.

“What is unique about Minecraft is how active gamers are in creating worlds, hosting servers, sharing videos, and creating Minecraft-themed music clips,” said Warman. “The freedom that this game gives its players is second to none in the industry. Consumers reward Mojang for that freedom by marketing the game through YouTube and social networks, creating a brand appeal and loyalty that is unmatched by any game franchise in the world.”

Approximately 8,000 of these fans visited Orlando for the third annual MineCon convention November 2-3. Tickets sold out in 9 seconds. What literally began as a loose gathering of about 100 fans in San Francisco back in 2010 has become more structured over the years. MineCon officially launched in Las Vegas in 2011 with 5,000 fans and was held at Disneyland Paris last year to appeal to the European audience with 6,500 attendees.

“It’s a two-day Minecraft celebration for the community with tons of sessions ranging from building your own YouTube community to Minecraft in education to families playing Minecraft together,” said Manneh. “It’s all run by the community with our own developers and staff on hand to help. This year we had partners like Microsoft (MSFT), Google (GOOG), and LEGO exhibiting on the convention floor.”

The convention also hosted an indie games pavilion. Mojang is using its reach to introduce new game makers to its community. The first co-publishing partnership is with Oxeye Game Studios for Cobalt, an action shooter game. The studio also has an open beta for its next original title, Scrolls, which blends the collectible card game concept with the strategy of chess.

Tommy Carpenter, the Curse editor of the official Minecraft Forum, said that comparing Scrolls and Minecraft is a bit tricky.

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Scrolls has a very clearly defined set of goals, rules, and a system that is designed to work in a very specific way; Minecraft’s biggest draw is that it has no goals, rules, or systems (beyond basic things like gravity, and the like),” said Carpenter. “Scrolls is an amazing game for collectible card game players, and I’m sure it will do very well for itself. However, I’m not sure any game — Scrolls or otherwise — will ever match the breakout success that Minecraft has enjoyed. It’s very much an exception to the rule, and I’ve never known another game like it.”

That success even caught the creators by surprise.

“We didn’t have expectations for Minecraft to be this successful,” said Manneh. “Usually you have a game that’s popular for a while, and then it dies off. That hasn’t really happened. The idea was to have Minecraft fund the studio for a while until we released Scrolls and have each game follow up the next. Scrolls was actually already in the planning stages when we started the studio a few years ago. It hasn’t changed in terms of its relevance, we’ve just continued to put more development resources into Minecraft as well.”

Mojang, which has grown from a staff of 12 to 40, will remain focused on game development. The company has had great success with merchandising partnerships. The LEGO Group has released LEGO CUUSOO Minecraft building sets, which have been sold out since launch. Manneh said the company had never seen this much demand for a product, but the assembly lines have been expanded, and much bigger volumes of product will be available throughout this winter.

“The merchandising opportunities for Minecraft are basically endless,” said Manneh, who noted there won’t be thousands of tie-ins a la Finnish game maker Rovio Entertainment and its Angry Birds. “Rovio Entertainment looks at themselves as a media company, whereas we are first and foremost a gaming company. What we want to do with merchandising is building the brand rather than have that as a focus for our business.”

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While Angry Birds has enticed gamers of all ages with its simple and addictive gameplay, Minecraft, especially on PC/Mac, is a challenging endeavor. Manneh said the console and portable versions have been streamlined for a larger audience.

“While it might seem strange, I think the decision to not have the game be immediately intuitive was a brilliant one,” said Carpenter. “In the early days especially, that decision forced players to interact with each other, to find out how a lot of things in the game worked. What started as small discussions eventually turned into a massive, tightly-knit community, one that is very invested in their favorite game.”

Because that favorite game is constantly expanding, there will never be a Minecraft 2 or 3 for Mojang to promote. Instead, Minecraft will continue to evolve through the development team, as well as through fans themselves. There’s an open market for gamers to create and sell virtual items, which the creators encourage.

“We’ve been very liberal with what we allow people to do with our brand and our IP from the start, and that has created a fantastic community of players doing numerous things around the game,” said Manneh. “There’s this huge ecosystem where people are charging for server space to play Minecraft with their friends, monetizing their YouTube videos and developing and selling mods. Anything you can imagine with the game is being done by the community.”

That community continues to grow with each new platform, especially with the more intuitive gameplay that the console editions introduce. Warman said Minecraft is the online game LEGO should have made. Leave it to the Danes to be outdone by the Swedes.