GitHub: Microsoft's $7.5B Cloud Super-Weapon

Microsoft may find GitHub is the key to cloud dominance – if it can overcome developer hostility.

Mitch Wagner, Executive Editor, Light Reading

June 7, 2018

10 Min Read
GitHub: Microsoft's $7.5B Cloud Super-Weapon

Microsoft's $7.5 billion GitHub acquisition, announced this week, will give the software giant the power to conquer the cloud, the way it conquered the desktop a generation ago.

For enterprises, Microsoft Corp. (Nasdaq: MSFT) will provide an easy path for transitioning from open source software, distributed on GitHub, to enterprise-scale applications running on the Microsoft Azure cloud. For developers, Microsoft will provide tools, and increased profits via access to enterprise and other customers.

That's the same formula Microsoft used to build a desktop monopoly in the 80s and 90s: Make it easy for partners to develop software that runs on Microsoft platforms, and capture the customers who need to deploy that software. Back then, the platform was Microsoft Windows and DOS, today the platform is Azure.

Microsoft said Monday it plans to acquire GitHub, the open source code repository, in a $7.5 billion stock swap, expected to close by the end of the calendar year. Microsoft swears it will maintain GitHub's independence and respect developer preferences. "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," the company said in a statement Monday. But many open source developers are skeptical, and already fleeing GitHub for services they perceive as friendlier. (See Microsoft Swears GitHub Independence After $7.5B Acquisition.)

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"The stakes are high and if they can pull it off, it'll be a key piece of redefining Microsoft in the eyes of modern developers," says Erik Carlin, Rackspace VP of product engineering. Rackspace provides professional services for cloud migration and operations, supporting all the major cloud providers, including Microsoft, as well as its own hosted, private clouds. (See Rackspace Snaps Up Salesforce Specialist RelationEdge .)

Carlin continues, "Microsoft can't afford to jeopardize GitHub as a trusted, technology-agnostic platform, so I expect them to keep GitHub separate, further expand the number of cross-platform integrations, and do everything they can to ensure GitHub remains the de facto place for code on the web."

He adds, "Microsoft will of course make sure GitHub works well with Azure, Visual Studio, etc., but I don't see GitHub becoming an exclusive Microsoft walled garden as would be the case in days past. GitHub is the key to capturing developers and winning their trust, so Microsoft will want that net to be as wide as possible."

Next page: Long history of hatred

Microsoft has a long history of open source hatred to overcome; former CEO Steve Ballmer called open source a "cancer" and compared it to Communism nearly 20 years ago. But in recent years, Microsoft has been enthusiastically romancing open source developers. Azure has a huge installed base of Linux instances, Microsoft is a platinum member of the Linux Foundation. And Microsoft was a leading contributor to GitHub even before it announced the acquisition. (See How Microsoft Became an Unlikely Open Source Champion.)

John H. Stone, SVP of the intelligent solutions group at agricultural equipment manufacturer Deere & Company, says he's "both excited and nervous" about the deal. "Nervous because while Microsoft has always had some of the best developer tools, they haven't had the best track record of supporting open source development, which is where everything is happening today," Stone says. "So if Microsoft can truly keep GitHub's open source driven culture and focus on the developer having a great experience, technology groups like us have every reason to be optimistic."

Figure 2: Deere 7 R Series Tractor Deere 7 R Series Tractor

Stone adds, "We use GitHub to manage a lot of dev workflow then we integrate into our DevOps pipeline. Plus, we're hiring new developers every week, these folks are all familiar with GitHub, so it is a great way for us to get them on board and productive quickly." (See John Deere Bets the Farm on AI, IoT.)

Ed Fox, VP of network services for service provider MetTel , is skeptical. He said he expects to see developers of many open source efforts, in technologies such as Bitcoin and blockchain, move off GitHub. They "will most likely not want their efforts to be on a platform owned and operated by Microsoft," Fox said. However, the GitHub acquisition will boost Microsoft's reputation as an open source supporter. "I believe there are miles of PR to get out of this, and it helps them retain talent by showing how they 'support' open source efforts and collaboration," Fox said. (See MetTel's Fox: The Struggle to Scale When Going Cloud Native.)

MetTel uses GitHub to download and test integrations in the company's Innovation Labs, which Fox heads as part of his MetTel responsibilities.

Fox is skeptical that GitHub can be a "sustainable product," unless Microsoft licenses GitHub in an enterprise version, along with other Microsoft products.

But GitHub doesn't have to be a sustainable product for Microsoft to generate business value. The GitHub acquisition is part of a bigger strategy, to win developers, and users, to run workloads on Microsoft Azure.

Microsoft doesn't drive revenue with developer tools. "They drive it by developers choosing Microsoft's platform to deploy their applications," says Lauren Cooney, CEO of SparkLabs, a business strategy consultancy for startups and enterprises. Cooney was formerly a senior director for open source strategy at Cisco, and director of global solutions marketing at Equinix. (See Cisco Looks to Open Source for 'Badder Ass' Internet.)

She adds, "In the long run, it's about Azure workloads,"

Next page: Trust will be an issue

But trust will be an issue. "Microsoft has clearly put forward that they hope -- and 'hope' is the key word -- that they will win the community's trust, understanding that they won't have it today," Cooney said.

Figure 3: Lauren Cooney Lauren Cooney

Microsoft will operate GitHub independently, in a cloud-neutral fashion, with support for Amazon Web Services Inc. , Google Cloud and other platforms. But over time developers will find it's just plain easier to test and deploy workloads on Azure, Cooney says.

Microsoft will probably start building added GitHub support into Azure -- but not vice versa -- to make it easier to run and deploy GitHub applications on Azure. "That way they keep GitHub independent," Cooney says.

Microsoft's choices for GitHub leadership reflect its developer and open source focus, Cooney says. As part of the acquisition, Microsoft ended GitHub's long search for a CEO, naming Nat Friedman, Microsoft corporate vice president, developer services, to the position. "He has a very strong open source background and is a developer himself," Cooney says. Friedman reports to Scott Guthrie, Microsoft executive vice president of the cloud and enterprise group, who also has a strong developer background.

Indeed, Cooney expects Microsoft to become the top cloud provider -- unseating AWS, despite Amazon's enormous lead in the market. AWS has $20.5 billion annualized cloud revenue and 34% market share, compared with $6.3 billion and 11% for second-ranked Azure, according to an April report from Jefferies & Company Inc. But Azure is growing at 98%, compared with 44% for Azure. (See Google & Alibaba Cloud Gaining Fast in Public Cloud – but AWS Still Rules.)

Microsoft unseating AWS is "kind of optimistic," says Randy Bias, vice president of technology and strategy for cloud software at Juniper Networks Inc. (NYSE: JNPR) Bias leads turning Juniper from hardware sales -- selling equipment -- to networking software and services, and open source is key to that transition.

Bias sees the GitHub acquisition as a means for Microsoft to cement its second-place position. "The battle for first has already been won," Bias said.

Amazon provides developers with a broad array of tools that developers assemble for themselves. Microsoft, on the other hand, excels at providing integration. "Get to the developer earlier, when they're on their laptop, and provide the tooling. Make it really easy, as they grow up, to say everything is great with Microsoft so far, let's just target their cloud," Bias says.

Microsoft can help developers -- and help itself -- by building more tools both earlier and later in the development process, where GitHub is now weak, such as continuous integration and continuous development (CICD), open source code review and bug reporting.

Should developers be concerned about lock-in? "If it was the old Microsoft, I would say yes," Bias says. "Today's Microsoft, I think it's OK. They get that open source has become preeminent."

Next page: The battle is about the toolchain

He adds, "I think they know the battle isn't about the operating system anymore -- it's about the toolchain. The way Amazon works is you bring your own toolchain and plug their tools into it. Microsoft works for the average developer -- or, dare I say, below average developer -- and gives them training wheels."

Still, for Microsoft to succeed, it's going to have to overcome a lot of developer hostility.

GitHub competitor GitLab said incoming traffic increased geometrically following the Microsoft announcement.

"Within just a few hours of the GitHub-Microsoft announcement, we saw tens of thousands of developers migrating their repositories and projects over to alternatives like GitLab. Why? Microsoft used to be the enemy of open source. While that's not the case anymore -- the company is a huge contributor of code and resources to open source – Microsoft can't seem to shake its longstanding identity as the evil empire," says Steve Newman, CEO and founder of Scalyr, which provides log analysis tools for network operators. Newman is the former founder of Writely, which was acquired by Google and became Google Docs.

Newman adds, "It's also possible that many companies that compete with Microsoft, such as Google and AWS, now feel pressure to withdraw the massive amounts of code they currently keep in GitHub."

Yaron Haviv, co-founder and COO of continuous data platform Iguazio, a data platform for real-time AI applications, compared Microsoft acquiring GitHub to Amazon acquiring Whole Foods, which drove off competing retailers. (See Amazon Steals Big Microsoft Customer With Whole Foods Purchase.)

For Microsoft to succeed with its GitHub acquisition, it's going to have to turn developer hostility to friendliness. But if it can do that, Microsoft may find GitHub is the key to cloud dominance.

— Mitch Wagner Follow me on Twitter Visit my LinkedIn profile Visit my blog Follow me on FacebookExecutive Editor, Light Reading

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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