Why Microsoft Bought GitHub for $7.5 Billion

In the age of SMAC, if you are not leading on Social Media, Mobile, Analytics or Cloud, the best option is to acquire a company, especially when the incumbent leaders are tenuously supreme and category-kings. Microsoft has few other options if it wants to break into #1 position in any of those four areas. On Monday, it picked a developer ecosystem, GitHub, for $7.5 billion in an all-stock deal.

Microsoft Corp. on Monday announced it has reached an agreement to acquire GitHub, the world’s leading software development platform where more than 28 million developers learn, share and collaborate to create the future. Together, the two companies will empower developers to achieve more at every stage of the development lifecycle, accelerate enterprise use of GitHub, and bring Microsoft’s developer tools and services to new audiences.

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Today, every company is becoming a software company and developers are at the center of digital transformation; they drive business processes and functions across organizations from customer service and HR to marketing and IT. And the choices these developers make will increasingly determine value creation and growth across every industry. GitHub is home for modern developers and the world’s most popular destination for open source projects and software innovation. The platform hosts a growing network of developers in nearly every country representing more than 1.5 million companies across healthcare, manufacturing, technology, financial services, retail and more.

This deal is significant and the basis is evident when you look at the players involved. Within the consumer framework, the top two leaders of each of the SMAC components are as follows:

Social Media: Facebook and Twitter

Mobile Ecosystems: iOS and Android

Analytics: Alexa (Amazon) and Assistant (Google)

Cloud: AWS (Amazon) and Microsoft (Azure).

I have biased this within the consumer framework even though the distinctions between consumer and enterprise systems are now blurred. Doing so removes the challenge of comparing Amazon Alexa and IBM Watson; the latter, in my opinion, remains largely enterprise-focused. Also, while IBM may have cloud offerings, for most consumer facing entrepreneurs, working with Amazon and Microsoft (followed by Google) remains the options before IBM. So, it is irrelevant what the positions of enterprise-focused firms like Oracle and IBM are in these four areas.

Simply, Microsoft does not have any solution as #1 in these new areas [certainly Microsoft Windows remains a platform king on desktop, but the global mobile shift is weakening the business]. For Microsoft, the closest is #2 on Cloud with Google coming behind ferociously. Cortana, its equivalent of Alexa, continues to lag: Alexa and Assistant are extending their leads across many metrics. So, generally, if Microsoft has to remain relevant in these areas, it has to do something radical. It cannot just rely on in-house capabilities to overcome these other companies. So, it has to acquire.

This acquisition of GitHub mirrors the purchase of Nokia, a Hail Mary to see if Microsoft could boost Windows Mobile, a mobile version of Windows, designed for smartphones and tablets.

Depending on how it integrates this business into its solutions, Microsoft could use GitHub to deepen its cloud offering, making it more appealing to developers since they are the people that make decisions on cloud solutions to build upon. Amazon’s primitives remain one of the key selling points for AWS; having these code sharing capabilities that GitHub brings could help Microsoft Azure battle ahead. Besides, Microsoft has Windows and could get developers to take harder look to build for Cortana in order to deepen the scale of Cortana as it takes on Alexa and Assistant.

Cloud computing was nascent. Companies weren’t yet thinking about digital transformation. But software was eating the world, and it was being built on GitHub.

Today Microsoft announced they are acquiring GitHub for $7.5 billion. By combining the GitHub platform with Microsoft’s cloud offering, Satya Nadella and team aim to build the future of software development. GitHub brings the largest software code base in the world (over the past five years, user growth exploded to 28 million and GitHub has become the platform for all developers) to Microsoft’s Azure cloud platform while also staying open to all other clouds. The focus on the developer doesn’t change and there is a commitment to remaining an open platform.

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