Why Did Microsoft Buy GitHub?

by Jim Lundy

On Monday, June 4th, Microsoft announced that it is buying GitHub—one of the top destinations for developers to manage their software projects—for $7.5 billion, an all-stock deal.

When the news first broke about GitHub and Microsoft, it wasn’t intuitively obvious why Microsoft chose the deal. By stepping back to look at digital transformation and software reuse, it is apparent that every company is becoming a software company, which means code reuse.

But there is more to the Microsoft-GitHub story. This blog reviews Aragon’s three reasons why Microsoft is buying GitHub.

1. Developer SaaS

Microsoft has always been a tools company and this move looks back at its heritage and jumps into the market for enabling developers to manage their software projects with both free and premium accounts.

This has been referred to as Developer Software as a Service (DSaaS) and it is pretty close to describing what GitHub has become. Many enterprises have been using GitHub and it has become a destination for developers. Microsoft wants to monetize GitHub and given its success in overall SaaS, we see this as a great opportunity.

We expect that many users, including those in the Bitcoin, cryptocurrency, and blockchain movements, may opt for other choices, such as GitLab. Microsoft’s endorsement of GitHub will surely attract other enterprises to the platform. Even with all of that, there is another reason for Microsoft’s purchase of GitHub: the war with Amazon.

2. Beating Amazon

One of the reasons that Amazon AWS has become so popular as a PaaS platform for software companies to run their SaaS apps is because of all of the tools it offers to make it easy to develop and run those applications. I was at an analyst day yesterday for Cornerstone OnDemand and its CTO talked about why CSOD is making the transition to AWS.

Microsoft needs to slow down Amazon and we expect GitHub to be one of the ways in which this is accomplished. Microsoft will be expected to offer more of its tools as part of GitHub premium services and when it comes to merchandising offers to enterprise buyers and to developers, there are none better than Microsoft.

It is also interesting that the new head of GitHub is Nat Friedman, who was the former head of mobile app development platform Xamarin. Given all of the services that we expect Microsoft to offer as part of a new GitHub, one of those will clearly be ways to run software on Microsoft Azure.

3. Growing Microsoft Azure

First, if there is any doubt that this deal is about the cloud wars and Azure versus Amazon AWS, put those fears to rest. The GitHub business unit will report to Microsoft Cloud and AI GM Scott Guthrie. Microsoft is all about winning with its Azure Cloud and that means doing anything to grow share. Microsoft is already enticing enterprises to run their software on Microsoft Azure by paying software providers to migrate their applications to the Microsoft Azure Cloud.

We expect that Microsoft will make it very easy for GitHub users to execute their software projects on Azure. This is a given and we expect that those offers will materialize fast.

The Cloud Wars

When you step back and observe all the trends in software, Microsoft buying GitHub is a no-brainer. It is all about cloud and winning the cloud wars. GitHub will be part of the toolset Microsoft uses to win.