The purchase of github doesn't make immediate financial sense to me. This article posted a reason - to stave off Windows decline. While it is plausible, I still don't see it.
The reason? Simple. Developer mindshare. Microsoft lost it with Ballmer, and is getting it back under Satya. Ultimately Microsoft's success has always stemmed from providing platforms that support developers, and in turn they build great products people will pay for. And that drives Microsoft revenues, be it the OS, or nowadays, SaaS PaaS and IaaS (and OS).
Just have to point out how fucking expensive develope mindshare is then :)
But seriously, from a business perspective buy GitHub (a company which gobbled up lots of VS money without a good business model) the acquisition doesn't makes any sense.
Oh, they understood it, top tier mobile devs, they just thought it was trash. Drastically preferred to do native. I went to bat for them, and we shipped a beautiful app on time.
In my view it's a longer term proposition to gain more customers for Azure/Microsoft Cloud. Google, Microsoft, and Amazon all see the future of computing as being in the cloud.
If Microsoft can integrate Azure and GitHub to make it easier for developers to deploy and run their code in the cloud, then that means more Azure customers.
This likely means that GCP and AWS integrations will take second place.
Maybe you know next year it will by coincidence get harder to integrate with Heroku. If they would buy it, somehow it could get harder to integrate with Azure.
To be fair though, that sort of thing has already been very possible for anyone with the desire and engineering resources. The only thing those types of demonstrations and announcements tend to actually do is announce/release a tool that does most of the legwork for you.
Cultural reasons maybe. The Ruby/Rails community Github is also part of fits into the overall strategy of cultural change towards a more design and UX centric brand, that is recognized and respected by other designers beyond being just a tool for CAD modeling.
Here is what I don't get. It is far easier for github's dev community to move to an alternate than Facebook users. Unless there is revenue to back it up, I don't understand the 7.5 Billion price tag. Heck .. Docker for 10 Billion might have been plausible. What are the barriers to another entrant?
This acquisition reminds me of the Minecraft acquisition. It did not make financial sense to me either. If Nadella keeps this up, he will eventually have issues with shareholders.
This time, really, the profits don’t matter: Microsoft is paying by issuing about 73 million new shares of stock, which cost it nothing. (It’s a tiny dilution, given the company’s 7.7 billion shares outstanding; what’s more, the share price rose on the news, which means that existing shareholders are happy to be diluted.)
Using overvalued stock could make the acquisition “cheaper” than the sticker price (not really free). However, they’ve said they’ll do extraordinary buybacks to cancel the dilution in six months following the transaction. So unless the price of MSFT shares has a large correction during that period they are really going to spend over $7bn in cash.
Just to add to your response and making assumptions about how you came up with the $7 billion....
The new stock is about 1% of the total number of shares outstanding. Thier total market cap is around. $785 billion. If they did a stock buyback to cancel the dilution it would be 7.85 billion.
My numbers are rounded - the new stock is actually less than 1% and the market cap as of right now is a little less than 785 billion so around 7 billion is more accurate.
That seems like spurious logic, especially given that Microsoft has spent many, many billions of their cash hoard on a stock buyback program (as does Apple, etc). By the broken logic of that Slate article, they're throwing money down a well foolishly because shares outstanding are "free".
Further, noting the current day price change is always the basis for countless nonsense articles. The shares haven't been diluted yet -- not until the deal closes later in the year -- and a temporary blip one way or another is close to meaningless.
Brutus said eventually, and that's an entirely reasonable statement. Microsoft has burned many, many billions on foolish ventures to try to regain namespace, while at the same time the entirety of their revenue is still based on the coasting remains of the empire they built a decade ago. Microsoft's revenue has stagnated, despite endlessly acquiring and adding new verticals to the stack.
To put it another way, simply doing the SAP and squeezing Windows + Office would have netted a much more profitable business than everything Microsoft has been doing.