For much of the 2000s, at ZDNet, I covered the war between Microsoft Corporation (NASDAQ:MSFT) and the open source movement. Microsoft claimed that software whose development was shared was inherently insecure, bug-ridden, and of low quality. Open source advocates said the same about Microsoft, adding that a shared platform was essential for creating competition at the leading edge.
In the end, both sides won.
Microsoft said June 4 it is buying GitHub, the largest repository for open source software, for $7.5 billion in stock , three years after it was independently valued at about $2 billion. It’s the second-largest acquisition of the Nadella era, following the $26.2 billion purchase of LinkedIn in 2016.
Microsoft closed June 1 at over $100 per share for the first time, a market cap of about $775 billion.
Why GitHub Sold
While the media focus is on how this might make Microsoft’s Azure a keener competitor against Amazon.Com Inc.’s (NASDAQ:AMZN) Amazon Web Services cloud, it’s more important to see this as the end to a war that open source won, where Nadella spent 4 years negotiating his own company’s surrender.
A better question is why GitHub is selling in the first place. There are two reasons.
First, co-founder Chris Wanstrath has been looking for an exit strategy since August, and the company has struggled to find a replacement or a sound strategy to follow him.
Second, GitHub needs help in the fight against hackers. It recently had to patch its own file-uploading tool, called Git, which allowed malicious submodules of code to attack open source software.
Open source lets people see the code they’re running, even change the code, but requires that in return they share the changes so the basic code moves forward for everyone.
GitHub’s sale to a deep-pocketed partner like Microsoft will help protect open source developers, because Microsoft will dedicate larger teams to protecting the site and its code. Before moving toward Microsoft, GitHub had reportedly been considering hiring a former Alphabet Inc. (NASDAQ:GOOGL) Google executive as its CEO, and going public.
Why Microsoft Is Buying
Nadella has been transforming Microsoft’s attitude toward open source ever since becoming CEO in 2014.
While predecessor Steve Ballmer saw open source as a threat, allowing competitors to compete with its high-end tools off a shared base, Nadella saw that shared base as essential toward driving software forward, and to securing it. The GitHub bug, for instance, was found through the site’s “bug bounty” program, which gave developers access to the code and paid them for discovering errors in it.
The argument for open source has always been that the more eyes you can put on the code, the better the code can be. Nadella has followed big talk with big action, making Microsoft GitHub’s biggest contributor and joining open source groups like the Linux Foundation, making its File Manager open source and making it easy for its own developers to work with the site.
The Bottom Line
With this deal, Microsoft has transformed itself, in less than five years, from the open source villain into the open source leader.
It’s not only an attack on Amazon but also on Facebook Inc. (NASDAQ:FB), which is suffering developer backlash over the Cambridge Analytica scandal as well as user and political pushback. Users now trust Microsoft with their personal information and distrust Facebook.
This has helped LinkedIn grow to over 500 million active members, and if it can make those users more active, that acquisition will look like a better deal.
It’s also proof that if Microsoft can transform itself, so can other companies. Including Facebook.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.
