#Microsoft's eye watering acquisition of #GitHub for $7.5bn in stock (25x annual earnings) is about its strategic value not financial value
But what is GitHub ?
Founded in 2008, GitHub is a collaborative open source code sharing service, reportedly earning revenue of $300m per annum and loss making...
Open source software is code created by groups of developers collaborating online. This software is released under licence and is usually allowed to be used free of charge
Around 28 million software programmers use GitHub to power technology products around the world. Its a critical component of their daily work and they rely on the platform to store, share and collaborate on that software code
GitHub is also an active social network catering to developers' professional needs and career advancement
Microsoft's Metamorphosis
Given the share price reaction, Wall St seems happy with Microsoft's metamorphosis, in following #Apple's business strategy of 'proprietary openness'
Acquiring GitHub's version control platform could improve talent visibility for Microsoft, give it insight on competitor software code, while extending the reach of its current and next generation platforms
Why buy GitHub now ?
Both #Google and #Amazon were mooted as potential suitors, so the acquisition may have been a defensive move by Microsoft
Whilst Microsoft can easily afford to finance this through stock buy backs, with a $132bn cash pile, make no mistake this acquisition is about network effects and data on developer working practices (including competitor platforms)
Microsoft wants to grow GitHub's developer community (today it has 28m developers and 80m repositories of code) and will also look to monetise GitHub's offerings through its existing sales channels
But it will want GitHub’s developers to run their applications on Azure, its cloud platform, and integrate with its Visual Studio Code which is a Github competitor
Expensive ?
In 2016, Microsoft paid $220 for each of LinkedIn’s (MAU's) monthly active users.
By comparison, when Facebook acquired WhatsApp for $19 billion 4 years ago, it spent $40 for every user
Assuming that all GitHub's 28m developers are active, then that's a whopping $268 for each monthly active user (more than LinkedIn...)
But if its works, the rewards could be priceless
Networks and Social graphs
After Microsoft's $26bn acquisition of LinkedIn, GitHub is yet another illustration of the scale and value of graphs (underlying networks of communities) in today's platform wars
LinkedIn has the social graph and GitHub the developer graph
Track record on acquisitions
Whilst Microsoft has a sketchy record on acquisitions, aQuantive ($6.3bn) and Nokia's handset division ($7.2bn), this its third largest in history, is meant to be different
Combining one of the world’s largest software companies with the biggest open source software community, is of course inherently risky
But as with LinkedIn, it about balancing mutual self interest without destroying the value in these online communities and networks
Minecraft ($2.5bn) and LinkedIn ($26.2bn) are pointed out as more recent successful acquisitions, but then again this is open source software...
Expanding Microsoft's Developer Ecosystem
As Microsoft expands its ecosystem, it knows developers have become the most important decision maker and influencer of technology adoption, in the last decade
GitHub's global network of software developers is close to Microsoft's core business. Software developers contributing to Microsoft technology are estimated to number 30m
Crucially, Satya Nadella (Microsoft CEO) can now reach the rapidly growing number of developers employed in companies outside of the Tech industry
Given software's importance for all Digital businesses, that recruiting trend is likely to continue
Open source revolt on privacy concerns ?
Critics of the acquisition believe this move is a competitive threat, as Microsoft can peer into software under development by rivals
#GitLab and #BitBucket may yet be the beneficiaries, as Tech giants #Amazon, #Google and #Facebook balk at the acquisition
These Tech giants may become more active in supporting such GitHub competitor platforms to keep "open source, open...."
Satya Nadella though vows to keep GitHub operationally independent and retain its open source ethos
Privacy addressed
The new CEO of GitHub, Nat Friedman, has responded to privacy concerns:
“Microsoft hosts the confidential information of more than one billion customers today, and this is a responsibility we take extremely seriously. GitHub already has policies and controls in place to limit employee access to private repos, and this will remain as tight as ever under Microsoft.”
Indeed Microsoft has used open source models on some significant cloud and developer products
And as an organisation it is a far cry from the days of Ballmer's anti open source rhetoric
Cynics still question Microsoft's ultimate motivations, given that GitHub isn’t a big revenue generator
Future of Open Source
Making Github owners billionaires is just the start...
Expect more open source businesses to be snapped up by proprietary software Enterprises in future
After all, aren't such acquisitions what Silicon Valley dreams are made of ?!
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