June 5, 2018

Breakingviews: GitHub deal displays softer side of Microsoft

by Amar Chibber.

Microsoft’s purchase of GitHub shows the $775 billion IT giant’s gentler side. It’s paying $7.5 billion for what’s effectively the central bazaar of software coding. Where the old Microsoft tended to display its power with a closed fist, boss Satya Nadella seems more interested in persuading developers to use his services.

GitHub is the most popular site for developing, sharing and talking about software, and a repository for open-source projects. It provides various tools that allow groups of people to collaboratively tweak code, while making sure everything is tracked and ensuring version control. Along the way it has become a social network of sorts for developers. It also offers additional paid-for services for enterprises, including private versions of GitHub.

In plain speak, buying GitHub is a way for Microsoft to extend its influence, for an outlay that’s small enough to be barely noticeable to shareholders. The company points out the all-stock deal will dilute holders by less than 1 percent.

Microsoft, under founder Bill Gates and successor Steve Ballmer, was less interested in embracing communities of developers, and more minded to push them around via its control of the world’s most popular operating system. Independent software firms often saw their PC programs replicated, diverting to Microsoft any profit that was eventually to be had. The company had little use for free, open-source programs. Steve Ballmer once famously compared Linux to cancer.

Nadella’s softer strategy, on the other hand, recognizes Microsoft no longer has complete control over users’ operating systems. Selling services to all is a way to cash in on iPhones and Android-powered devices. If Microsoft can earn the trust of developers who use GitHub, and convince them to use its web-services business Azure rather than Amazon’s, then the money will have been well spent.

Keeping GitHub independent and thriving – while reaping benefits for the buyer – may be a difficult balancing act. Microsoft’s record in nurturing businesses is mixed, and the scope of benefits, if any, that have accrued to the company from its ownership of Skype, Minecraft and LinkedIn are hard to discern. The fact Microsoft’s market capitalization has more than doubled under Nadella’s rein, however, suggests investors believe soft power pays.


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