News of Microsoft acquisition triggers exodus from GitHub

Microsoft to acquire GitHub for $7.5 billion

Microsoft Corp. (NASDAQ: MSFT) on Monday announced it had reached an agreement to acquire GitHub for $7.5 billion in Microsoft stock. Microsoft Corporate Vice President Nat Friedman, founder of Xamarin and an open source veteran, will assume the role of GitHub CEO.

“GitHub will retain its developer-first ethos and will operate independently to provide an open platform for all developers in all industries. Developers will continue to be able to use the programming languages, tools and operating systems of their choice for their projects — and will still be able to deploy their code to any operating system, any cloud and any device,” Microsoft indicated in a statement.

From left: Chris Wanstrath, Github CEO and co-founder; Satya Nadella, Microsoft CEO; and Nat Friedman, Microsoft corporate vice president, Developer Services

However, it is quite clear that a lot of developers and users of the GitHub platform are not celebrating its acquisition. Several developers have already started migrating to alternate platforms or their own public git servers, even before the dust settles.

Alternatives

Alternative distributed version control software (DVCS) include Bitbucket (by Atlassian), Gitlab, Kiln (FogBugz DevHub), Beanstalk, SourceForge, Apache Allura, Google’s Cloud Source, AWS CodeCommit and GitKraken.

The version control system used by GitHub — Git(first introduced in 2005) is the most popularly used version control language by developers over alternatives like Mercurial (Hg) and Subversion (SVN).

Even before the official announcement, Gitlab reported a 10x increase in the number of repositories #movingtogitlab . The company wasted no time in stepping up its marketing effort by offering new users 75 percent off on its Gold and Ultimate plans for one year.

In 2017, the GitHub community reached 24 million developers working across 67 million repositories. The platform is used by 1.5 million organisations. [Octoverse] On 10th April 2018, a decade after GitHub’s official launch, the company announced that it had grown to 27 million developers working on over 85 million projects. [Tenth anniversary]

Until now several open source projects have flocked to GitHub as a destination of choice to host code and grow a community. The neutrality of the platform boosted its adoption in among open source communities.

Reason for Developer-Discontent

Though Microsoft has extravagantly embraced open source during Satya Nadella’s tenure, sceptical developers seem to be weary of the company’s ostentatious adoption of the open source philosophy.

The turn of the millennium (late 90s and early 2000) witnessed the peak of Microsoft’s antithetical stance towards open source, with Steve Ballmer (Microsoft’s CEO from January 2000 to February 2014) calling Linux “a cancer.” In 2007, Microsoft alleged that Linux violated 235 of its patents and pressed charges against TomTom because it used Linux.

Bullying by Microsoft and its firm stand against open source were the evocative leitmotifs of almost every open source event/gathering at the time, often serving as the motivational fuel for developers to evangelise open source.

Since GitHub stores valuable code across public and private repositories, several organisations are concerned that Microsoft will have access to their data through this acquisition. In an epoch where data is heralded as the new oil, it is understandable why independent companies do not want to be the “oil.”

“Microsoft buying GitHub feels like Exxon Mobil buying Greenpeace,” tweeted Martin Varsavsky, an Argentine serial entrepreneur based in Spain.

Skype ($8.5 bn), Nokia ($7.2 bn) and Wunderlist seem to have lost their popularity following acquisition by Microsoft. Hence there is a reasonable concern that GitHub will go the way of SourceForge. Microsoft risks alienating developers if it ties GitHub too closely with Azure.

Microsoft’s strategic acquisitions during Satya Nadella’s tenure include Minecraft ($2.5 bn), LinkedIn ($ 26 bn) and now GitHub ($7.5 bn).

A developer’s activity parameters on GitHub are often used by recruiters to discover skilled developers and for due diligence while scouting for new talent. There could be a complementary offering in the future that integrates these parameters into LinkedIn.

The news of the acquisition comes on the same day that Apple kicks of its WWDC 2018.

Microsoft recently surpassed Alphabet in the race to be the first trillion dollar company, where Apple and Amazon are strong contenders.

Cloud Wars

GitHub hosts open source software from Apple, Amazon, Facebook, Google, JetBrains, Twitter, Walmart and the US Government.

Ten most-forked projects on GitHub in 2017 [Octoverse]

It is not yet clear whether large projects on GitHub which are managed by Microsoft’s competitors will be ported off the platform, since they have their own alternate platforms (Google’s Cloud Source, AWS CodeCommit).

Developer tools have a high capacity for driving cloud usage and Microsoft is expected to use GitHub as a means to drive Azure adoption. “Today, Microsoft fosters cloud adoption by tightly coupling Azure, it’s cloud service, together with Microsoft Visual Studio Team Services (VSTS), it’s set of development tools. Microsoft will likely integrate GitHub into VSTS in order to take advantage of the strong tie with Azure,” stated a post by Gitlab.

Amazon Web Services currently commands the highest market share for cloud infrastructure services, followed by Microsoft, IBM, Google and Alibaba. While Amazon’s market share was flat in the first quarter of 2018, Microsoft’s share increased to 13 percent and Google’s increased to 6 percent.

Projects with the most contributors on GitHub in 2017 [Source : Octoverse]

A significant portion of Microsoft’s revenue growth comes from its cloud services business. Microsoft’s Azure public cloud revenue increased 93 percent year on year last quarter, recording about $ 2 billion in revenue.

Microsoft is the organisation with the most open source contributors for a project on GitHub. [Octoverse]

“Microsoft likely acquired GitHub so it could more closely integrate it with Microsoft Visual Studio Team Services (VSTS) and ultimately help drive compute usage for Azure,” said Sid Sijbrandij, GitLab CEO in a statement.

“Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation,” said Satya Nadella, CEO, Microsoft. “We recognize the community responsibility we take on with this agreement and will do our best work to empower every developer to build, innovate and solve the world’s most pressing challenges.”

Despite assurances by Microsoft several developers have deleted their GitHub accounts, signed petitions(*) and many have cloned their repositories to other platforms. Majority of the developers are expected to maintain their repositories on GitHub to continue using the collaborative networks they have created so far and the preserve the metrics they have achieved.

2017 — 24 million people use GitHub across 200 countries. This map approximates which continents use GitHub most. [Source : Octoverse]

Finance

In July 2012 Andreessen Horowitz invested $100M in GitHub. In July 2015 GitHub raised another $250M of venture capital in a series B round from Sequoia Capital, Andreessen Horowitz, Thrive Capital and other venture capital funds. The deal is a huge win for Andreessen Horowitz, which is expected to gain over $ 1 billion in this mega exit.

GitHub’s ARR (Annual Recurring Revenue) in 2017 was around $ 200 million (*). It follows from $ 70 million in September 2014, $ 90 million in September 2015 and $ 140 million in August 2016 (*).

“I’m extremely proud of what GitHub and our community have accomplished over the past decade, and I can’t wait to see what lies ahead. The future of software development is bright, and I’m thrilled to be joining forces with Microsoft to help make it a reality,” said GitHub’s current CEO, Chris Wanstrath. “Their focus on developers lines up perfectly with our own, and their scale, tools and global cloud will play a huge role in making GitHub even more valuable for developers everywhere.”

Chris Wanstrath, will become a Microsoft technical fellow, reporting to Executive Vice President Scott Guthrie, to work on strategic software initiatives.

Simpson Thacher & Bartlett LLP is acting as legal advisor to Microsoft. Morgan Stanley is acting as exclusive financial advisor to GitHub, while Fenwick & West LLP is acting as its legal advisor. Subject to customary closing conditions and completion of regulatory review, the acquisition is expected to close by the end of the calendar year.

Upon closing, Microsoft expects GitHub’s financials to be reported as part of the Intelligent Cloud segment. Microsoft expects the acquisition will be accretive to operating income in fiscal year 2020 on a non-GAAP basis, and to have minimal dilution of less than 1 percent to earnings per share in fiscal years 2019 and 2020 on a non-GAAP basis, based on the expected close time frame. Non-GAAP excludes expected impact of purchase accounting adjustments, as well as integration and transaction-related expenses. An incremental share buyback, beyond Microsoft’s recent historical quarterly pace, is expected to offset stock consideration paid within six months after closing. Microsoft will use a portion of the remaining ~$30 billion of its current share repurchase authorization for the purchase.