Microsoft Corp.'s $7.5 billion acquisition of development platform GitHub Inc. is expected to be a boon to both companies, providing GitHub with more resources and enabling Microsoft to further explore open-source software opportunities.
Microsoft has a mixed history with open-source, or publicly available, software. Microsoft CEO Satya Nadella's predecessor, Steve Ballmer, reportedly once called open-source operating system Linux "a cancer" because of its threat to intellectual property rights. Microsoft's current management has taken a different approach, however, with CEO Nadella saying on a June 4 conference call that the GitHub deal indicated the company is "all in with open source."
Cowen analyst Gregg Moskowitz said in a recent note that Microsoft's GitHub acquisition will allow the tech giant to monetize open source development by charging subscription fees and incorporating its proprietary software into open source libraries.
"Traditional software development has trended towards open source methods in recent years," he wrote.
On the conference call following the GitHub deal announcement, Nadella said his company plans to "accelerate enterprise developers' use of GitHub" by selling the service through Microsoft's sales channels. The executive said he also expects GitHub to bring Microsoft's developer tools and services to new customers.
Synergy Research Group analyst John Dinsdale said in emailed comments that the agreement demonstrates Microsoft's "open approach to competing technologies rather than forcing its own solutions on clients."
For the deal to achieve its full potential, Microsoft must "protect and nurture" GitHub's key offerings while also allowing it to be successfully embedded within Microsoft's larger organization, Dinsdale said.
He noted Microsoft's successful record with other large software acquisitions, including its purchase of social networking site LinkedIn Corp. in 2016 and its buy of online video and voice chat app Skype Sarl in 2011.
Microsoft said GitHub will continue to operate independently after the deal closes, which is expected to occur by the end of calendar-year 2018.
Forrester Research analyst Diego Lo Giudice said some developers may be leery of open source-friendly GitHub folding into Microsoft's corporate structure, but only time will tell whether GitHub loses any users over it.
While the deal initially saw some criticism on social media, some developers have indicated their support of the acquisition. Filippo Valsorda, one of GitHub's developers, said in a recent tweet: "Sad to see all these cheap negative quips about Github & Microsoft. MS has been doing some awesome work in Open Source recently ... I see no reason to be worried."
Bruce Gustafson, president and CEO of Developers Alliance, an advocacy group for software developers, praised the move by Microsoft. "Investing in [developer communities] is a smart move [as they] are the biggest factor in ecosystem success," he said in a statement.
Upon finalization of the deal, GitHub will become part of Microsoft's Intelligent Cloud segment. Microsoft Corporate Vice President Nat Friedman will head GitHub as CEO, and GitHub's current CEO, Chris Wanstrath, will become a Microsoft technical fellow working on strategic software initiatives.
Microsoft will use a portion of the remaining $30 billion of its current share repurchase authorization for the purchase.
Simpson Thacher & Bartlett LLP is acting as legal adviser to Microsoft. Morgan Stanley is acting as exclusive financial adviser to GitHub, while Fenwick & West LLP is acting as its legal adviser.
