Why Microsoft paid $10.7 billion for tech company Github

Microsoft's acquisition of coding platform GitHub provides a strong indication of the company's more collaborative strategy. Photo/Getty Images.

Microsoft announced Monday that it will buy GitHub, the popular coding platform where developers share and collaborate on projects, for US$7.5 billion (NZ$10.7 billion) worth of Microsoft stock.

The deal will strengthen the company's relationship with developers and allow its tools to reach a broader audience within the world of open-source software, experts say. More than 28 million developers around the world use GitHub, Microsoft said, acknowledging the crucial role that developers have played in revolutionising the modern economy.

"Today, every company is becoming a software company and developers are at the centre of digital transformation," Microsoft said in a news release.

The Redmond, Washington company, which said it is the most active organisation on GitHub, also plans to accelerate the use of the platform by businesses, relying on its sales team, existing corporate partnerships and cloud computing infrastructure.

GitHub will continue to remain an open platform that is independently operated, Microsoft said. The tech giant's vice president of developer services, Nat Friedman, will become the new head of GitHub. The deal is expected to close later this year if it passes regulatory review.

Chris Wanstrath, co-founder and chief executive officer at GitHub. Photo/ David Paul Morris (Bloomberg).

The pending acquisition arrives at a time of explosive growth for the cloud industry. Cloud services will account for a staggering US$186 billion this year, up more than 21 per cent from last year, according to estimates by Gartner, an IT research firm. The industry is expected to continue to grow, crossing the US$300 billion mark by 2021. GitHub, analysts say, could help Microsoft seize on that growth by drawing new developers to its cloud platform, Azure.

The deal could give Microsoft a more prominent role within the ecosystem of independent cloud developers, who build software that runs on cloud platforms like Azure and Amazon.com's AWS, said Kirk Materne, an analyst at research firm Evercore ISI, in an investors' note. That ecosystem has been dominated by Amazon, he said.

The proposed acquisition also reflects a shifting, more open work culture fostered by chief executive Satya Nadella. Long known for its insular, Windows-dependent ecosystem, experts say that Nadella has pursued a pragmatic business strategy, partnering with outside platforms and businesses. In 2016, Microsoft acquired the software company Xamarin, allowing developers to create Microsoft mobile apps for devices that run on Windows as well as Android and iOS. The GitHub deal echoes that approach by tapping into a wider pool of software developers that use the platform but may not currently develop Windows or Microsoft products.

The deal also reinforces a core aspect of Microsoft's identity. "Developers or software development has been essential to Microsoft's business strategy for decades," Jay Vleeschhouwer, the managing director of software research at Griffin Securities, said. "This is logically connected to Microsoft's DNA around software development."

Talks of the deal were first reported by Business Insider late last week in a report that noted GitHub's recent reluctance to sell itself to another company; Github was previously valued at $2 billion in 2015.

Microsoft's stock closed up 0.87 percent to $101.67 Monday.