Acquired - Season 2, Episode 9: GitHub

Episode Date: June 6, 2018

We’re live on the scene the day following the biggest announcement in the open source software world since well, open source software: Microsoft acquiring GitHub for $7.5B in stock. How did we get here? What does it mean for software developers going forward? And most importantly, why is there a creepy half-cat / half-octopus plastered all over everything? As always, Acquired has the answers.Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Carve Outs:Ben: The Idea Maze by Chris DixonDavid: Invisible Asymptotes by Eugene Wei

This is definitely my brain is not working right. It has been a long day. Welcome to season two, episode nine of, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today we are coming at you on Tuesday, June 5th, the day following the big announcement that Microsoft is buying GitHub. Ooh, I thought you were going to say the day after Monday, June 4th. It is also after Monday, June 4th. It is also after Monday, June 4th.

And, you know, this show is clearly patterning after Acquired. It is a San Francisco company and a Seattle company that are joining forces. And I don't know where I'm going with that. But we sit here in Wave Capital in San Francisco near the headquarters of GitHub to celebrate this momentum occasion. Indeed, indeed. And this is our second in-person episode in a row.

We actually recorded what we thought was episode nine last week together in Seattle. We did. And turns out now that that's episode 10. So listeners, you'll have to wait and find out what that could be what seattle company might we have covered tune in next time to find out all right uh getting into this show if you're new to the show you can check out our slack at acquired.fm you can also check us out on apple podcasts and we appreciate any love or reviews that you could show there. Love coming in the form of reviews. Okay, listeners, now is a great time to tell you

about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation, and they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full

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agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. All right, David, are we ready? Let's get into it. So we didn't have a lot of time to research this one, given that it's hot off the press. But fortunately, I actually had a little bit of a shortcut, which was back when I was a first year, a young whippersnapper, first year in business school, uh, in one of my, uh, one of my classes, I believe it was like high-tech business strategy or something like that. Uh, it sounds very official. Uh, me and myself and two of my classmates did one of our, did a final project for a class on GitHub. So I just so happened to have a 17 page document that we had all put together all about the history and strategy of GitHub. If only every episode's prep was that easy. Unfortunately, it's from back in 2013. But as we will see, not that much has changed with GitHub

since 2013. Okay, so with that fun, oh, and other fun story. One of my professors at the time, not actually in this class, but one of my professors at GSB was Peter Levine, the general partner at Andreessen Horowitz, who led GitHub's Series A and was on the board. Unprecedented freaking $100 million first capital in Series A. That's a small Series A these days. At the time, it was unprecedented. Also, not really a Series A, as we will get into. But to start, before we get into the history of GitHub, the company, there are a couple things that we want to cover that are pretty important to understanding the context here. And Ben and I were laughing before the show. Probably half our audience, the more technically minded folks in our audience, engineers and the product managers are

probably going to know all this already. Probably will know it in greater detail than us and will write in and tell us what we got wrong. Yes, as usual with a technical acquisition, for those that are more technical than us, we apologize for all the things we will surely get wrong for those that are less technical, uh, bear with us. And, uh, I hope that we can make something that's, um, you know, a little in the weeds and a little in the details, uh, digestible, understandable, fun, uh, and something you listen to by choice. Yeah, indeed. But whether it's fun or not, this is really important to understand and why Microsoft paid seven and a half billion dollars for this company. Um, okay. So, so

basically they're, they're kind of two concepts, uh, two, not concepts, but, um, areas that we, that we want to talk about as background one is the whole idea of how managing software projects work. Um, and that's this, this, uh, area of software itself called software configuration management or SCM, um, for, uh, as, for as initials, um, or as an acronym. Um, the other area that we want to make sure we talk about is kind of the evolution and dynamics of the open source software ecosystem and we will get into both of those okay so first software configuration management when you're building and managing a software project a software project could be a small thing that you're building yourself or with a few friends could be an

open source project like linux or it could be your company's code base for a private um private company it's really hard once more than one person starts working on the project to kind of manage all the changes and contributions and different pieces of development that all the different engineers on the project are making and i would say say even just as one person, as a person that used to write PHP scripts and then name them V2 and switched and dot backup, it is excellent to be able to use version control

and all elements of software configuration management, even for your own private projects. Even for all our investment banker and former investment banker friends, you've certainly lived through, you know, merger model V25. Final, final. Underscore, final, underscore, do not delete,

underscore V, you know, DR. This is basically making all of that easy and seamless for way more people than ever work on an Excel model in cases. So there's basically kind of three main ways to do this. In the very, very old school ways, it was really easy. Everybody just worked on the same machine. So there was one file on one machine and that was the code base. And if you were an engineer working on the code base, you went on that machine or you, uh, telexed into that machine and worked on it. Seems simple. Why change? Why change? Well, the computing world evolved a little bit and what was developed was the

client server model. And this was known as the centralized model. Uh, and so in, in, in this case, there would be what was called a shared repository. And that's where all the code lived and all developers, anyone who's working on the code, could work on it. But there was one canonical central repository. And so, David, let's say I'm just doing a little weird thing on the side here. I don't really want anyone else to know about it or be exposed to it or have to pull down all the crazy code that I'm doing for my side thing. You're saying that's not possible in this client server centralized model. No, Ben, why would you want to do that?

Feels like I'm going to spend a lot of time syncing my code base with the centralized server. Or like something existed like an open source project and you wanted to clone it and use some of it and make your own version of it. Would that be easy to do, Ben? Well, it doesn't strike me that once I clone that, it would be easy for me to make a few changes and maybe over the course of several months and upload that back up. That feels... No, that would be tough.

So as you can see, this kind of all worked well in the pre-internet days but um once the internet comes around and distributed software development becomes more of a thing especially in the open source community this becomes a lot harder so fortunately in the late 90s just as the internet and distributed software development and in particular the open source movement uh is becoming a thing a new model emerges for managing the code base for a project, and that is the distributed model. And that was pioneered by a bunch of folks, but there was a company called BitKeeper, a company and a product called BitKeeper, developed in the late 90s. And it was actually used for the development of Linux for managing all the development,

uh, ongoing development and maintenance of the Linux software kernel. Um, even though it itself was paid software, it was used in this open source, massive open source project, um, for Linux. So, so bitkeeper was the first decentralized, um, uh, was it the precursor to get did they develop get no so uh big keeper i don't know if it was the first but it was one of the first or early you know sort of stable products that could be used to do this and it was a private for-profit company uh and their software was used by lots of other companies um but because open source was sort of this crazy nonprofit thing that was emerging and a new way to develop software, uh, pioneered of course, by Linux and Linus Torvalds, um,

and they big keeper actually ended up licensing a free version of their product, uh, to, uh, I don't know if it was to the Linux foundation or to the Apache foundation or just what, uh, but made it available for open source developers to use that. And that became a way to massively scale the number of developers all around the world that can work on these projects. So that continues for a couple of years and all sort of well and good. But then in 2005, BitKeeper, the company, actually pulls the free license that they had been providing to the open source community.

Yeah, exactly. You get what you pay for. And so this creates a huge kerfuffle in the open source community. Of course, as we will get into, people have lots of opinions, and lots of different opinions. And and this leads to two separate projects that are pioneered and undertaken really in an amazingly short period of time to replace bitkeeper. And those two projects are first was mercurial, which I believe has less market share now today, but it's still around, is actually used by Facebook. So all of Facebook's code base runs on the Mercurial source control system.

And the second, which leads directly to where source man himself, Linus Torvalds, creator of Linux. Well, if somebody was going to do it in a week, it would be him. It would be him. And then quickly, he, I don't know that he loses interest, but he hands off the project to other folks to keep them implementing and developing um so git uh naturally because it was developed by linus becomes first the source control management uh system that linux uses the linux kernel uses uh then it starts quickly gaining adoption in the rest of the open source community. Hadoop moves over to it, the Hadoop project, many others. I think Mercurial still lives on. And like we said, Facebook uses it, but Git becomes very popular in a very short period of time.

And so is there any sort of graphical user interface to access it at this time? Is there any sort of, you know, not centralized, but pseudo centralized place? Like are people using SourceForge with Git loaded onto it? Yes. Well, so Git and all this stuff, as we said in the beginning, is just software. In and of itself is software that manages the version. It doesn't actually host the software. The software, the code, which itself is just files, has to actually live somewhere still on a server or on a distributed set of servers. And so Ben, just like you said,

there's still no way to really do this in a nice graphical user interface way. There are what's called forges, which are essentially servers that host code out there. And they're used in the open source community. They really should have kept that name. They really should have. They really should. Git forge. And so these are companies like SourceForge. I think a lot of people will know.

Google actually launches its own version of this called Google Code. Yep. And they're the most popular places for for the code to actually live um but the problem is there's not much more to them beyond a place to live and like a like very standard wikipedia style web page about the projects uh there's no concept of being able to interact with other people who are working on the projects. Uh, it's just hosting the code and then you're using getter mercurial to manage all of the changes made to the code. Um, so right around the same time, we're now into like 2006, 2007, 2008, we're in the heyday of,

on the completely other side of the tech world from all this infrastructure, you know, developer, technical, friendly, technically heavy work. You have the consumer web popping up, you have Facebook, you have Twitter, you have LinkedIn, and this whole idea of social networks and the combination of what is possible when you take software and people in communities, and you all marry it and people start thinking about, well, what if there's more of a community type site instead of these forges where developers can interact? Yeah. And that really takes the concept of, you know, people arguing on mailing lists and completely decoupled forums that were, you know, totally different than where the code itself was, um, was maintained and, and move it into one place together.

And one of the big, you know, the trope of the time, and it's still a trope a little bit, but like if you were contributing to an open source project, there was likely a flame war. Like there was, it was political, people were, you know, grabbing on for dear life to have control over their little corner of the fiefdom.

And then the mailing lists would have flamers that went out. And of course, it's not purely because the software made it all better. The industry's matured quite a bit. But we've moved on from that time, at least with a lot of the major open source projects in a lot of ways. Yep. So people are thinking maybe there's some sort of community where all this can come together off of mailing lists, maybe some sort of hub, you might think.

And that gets into the founding of GitHub. So I'm going to switch over here now to the canonical founding history in the words of co-founder Tom Prest warner himself from his own blog uh quote and tom tom was a developer working for a company called power set acquired by microsoft also uh in san francisco at the time two-time microsoft acquiree two-time microsoft acquiree uh in his own words i was sitting alone in a booth at zeke's sports sports and Grill on 3rd Street in San Francisco. This is in Soma. I wouldn't normally hang out at a sports bar, let alone...

Love it. This is just like... This episode is going to be filled with... Just instantly throwing shade on anybody who's not a proper nerd. So many tropes. Let alone a sports bar in Soma. But back then, Thursday was I Can Has Ruby Night.

Wait, like I Can Has Cheeseburger? Like I Can Has Cheeseburger. No way. Yes. Ruby, of course, referring to Ruby on Rails, the web development language that was starting to take off and was the development language behind a lot of these social you know 2.0 websites i think twitter was built in ruby right yeah twitter was originally a rails app um that like massively

massively didn't scale and that was why it says veil whale the the front end would always fall over and i think alex pain was brought in as total side tangent al3x on twitter alex pain was brought in um to kind of redo that whole thing in scala and decouple the the front end from the back end yeah totally oh what a mess facebook originally of course being built not even in ruby but php oh yeah um and actually i think github is still uh largely ruby github itself oh interesting yeah that would make sense that would make sense um so it's i can has ruby night of course has been alluded to a reference to the i can has cheeseburger memes all cats lol cats uh from the seattle company i can has cheeseburger uh at the time and uh and

this is a developer meetup for ruby on rails developers in in san francisco uh so Tom is at the bar and he's taking a little break from the meetup. He goes, he orders a beer and he sits down in a booth. And apparently right at that time, his not even friend, acquaintance, Chris Wanstrath walks in. And Chris is also a Bay Area Ruby developer at the time. He has his own startup that he's working on. And Tom, for some reason, even as he's writing this, he doesn't know why he does it. He just kind of gestures Chris over to the booth and he's like, hey, man, check this out. I've got an idea I'm working on. And the moral here is always be looking for people gesturing to you that could have startup ideas in sports bars. And so Tom says, and so Tom says, uh, you know, about a week earlier, uh, he had started on this project that he was calling grit at the time, uh, to, uh, basically

access these distributed get repositories, uh, uh, and, and do so via, um, via a bunch of code that he'd written in Ruby. And he has this idea that he can take this code that he's written for accessing these repositories and turn it into a website that can act as this kind of idea of social coding that people have been talking about. And apparently, Chris, they barely even know each other. He's like, I'm in, let's do this.

And this is like the- Literally, hold my beer. This is like literally the dream of of engineers with like this thing happens 10 000 times more often than it works yes like software developers can make anything and what ideas people come up with are generally problems they're experiencing themselves and so it is like the total dream of I have an idea that is a tool or a platform for other software developers or to fix this problem in software development. And like these businesses can be very hard. There's very few that have made it to be 500 million billion billion dollar plus companies. And this is like, you know, this is the realization of the, the, the total home run right here. And, and of course there's no better, you know, customer feedback for

your, as a developer, for your idea, for a developer tool, then other developers who you respect. There you go. Um, there you go. So it was all, it was all magically ordained. Um, so they start working on it on nights and weekends. They both have full-time jobs. Again, Tom is working for PowerSet, which was a search technology company. And Chris has his own startup with his co-founder, PJ Hyatt, that they're working on. They get an MVP kind of hacked together. And Chris and PJ start to decide that they're going to start using this interface on top of get within their own startup. And pretty quickly, it works great. And like everybody's working there is like, yeah, this is awesome. You know, the whole be your own first customer thing. Exactly. Exactly. So they work on it for a few

more months, uh, January, 2008, uh, a couple more months go by, they launch it and they open up, they tell all their friends about, hey, now there's this way, if you're using Git, that we have this cool web interface on top of it and you can basically interact with the project and understand, see a wiki of everything that's going on, talk to other people who are working on the project, manage it all from there. It starts spreading like wildfire. It's one of these things, it's a lot like sort of Uber when it launched or Twitter when it launched, where as soon as you turn the lights on, there's perfect product market fit. Perfect. It was so, uh, the product market fit was so perfect that, and so many people

started using it that they actually started becoming really concerned about their own hosting costs because their GitHub is now the forge the hosting uh service for all this code and all these people are now using it for their companies for open source projects for everything and they're like oh crap i understand why it's great it always seemed ironic to me that we had this big breakthrough in decentralized version control and then github centralized it again yeah totally i mean like it's not fully centralized and there's again so there's lots of like you know reasons why it's good but it's still it's like this is the the like engineering counterpart to the business axiom that there are two ways to you know make money of bundling and unbundling it's like centralizing and decentralizing yeah you know it is funny i thought about that a

lot with um um so cloud computing is this uh client server model where if you look back in the 80s if you look back at like dummy terminals and mainframes like nothing lived locally everything lived in the mainframe then cpus got really powerful and like we got good at storing stuff and hard drives and they got really big and then you could buy cheap computers so we didn't do anything in their own you know remotely anymore so everybody's got their everybody's processing locally everybody's storing locally and now like we're in this place where if your computer crashes you can likely just go get another you know macbook pro bring it home and within an hour be back up to speed because everything's in some cloud service somewhere and it's funny how there's this wax and wane of centralized decentralized you know client server back to to you know powerful pc back to

client server client server it's uh it's the never-ending tiktok of the technology cycles it is uh so um they're worried about hosting uh all of these centralized decentralized uh forges or this forge that they have now and they're like oh crap we got to build a business model into this uh asap because they had launched in anybody who was uh who had a git based project um could use it could be open source could be a private company they're like what could we do well what if we just keep it free for open source because remember when bitkeeper uh which had been this private company was doing distributed version control for for open source and then they pulled the license and had to make uh tried to make open source projects pay for bitkeeper everybody defected uh and then that led to git and mercurial so obviously they can't do that

but what if we charge companies who are using this for their own private code bases? We'll just charge them and we'll make it free for open source. It's really brilliant. Like it is the thing that's keeping us growing the ability for public repos that have no permission set on them, that people are doing open source projects, being free to access and thus continue to fuel growth. However, monetizing people that want to do things that are counter to growth by locking it down, it's like the perfect place to draw the freemium line.

I think that from a lot of the companies that we've examined on this show, I think it's really helped me inform what makes sense in a freemium model versus what makes sense in a free trial model. And in the freemium model, it's really all about, I mean, a massive component to are you going to build a successful business is are you able to draw the line in the place such that you're both fueling growth and monetizing exactly in that place when people are finding it so valuable that they'd be willing to pay. And when people want to do private repos, that's exactly that place. It's exactly that place. And not only that, they've just completely nailed the timing back to our hopefully not too dense and not too poor description of the open source community earlier.

Yeah, more concerned about being poor than dense. Yeah, more concerned. Exactly. I agree. Please don't judge us harshly. It's been a long day. Back to the open source community. This is right at the time when open source projects and development is just exploding. People used to think open source. They used to think Linux and operating systems. And value destructive.

Yes, and value destructive. Interestingly, and particularly to foreshadow the Microsoft acquisition, like Microsoft was the one carrying the banner on open source is value destructive. It's a threat to our business model. It's a threat to selling licenses, selling software licenses. It's a threat to every, everybody who's trying to create a software development ecosystem and platform. And I mean, people had done okay, like Red Hat figured out a business model around open source, but it was unclear if open source could ever actually be a successful business. Yep. And, and you go from that again, where it was all centered around operating systems to now you've got programming languages are open source, Ruby's open source.

You've got Hadoop, which is open source. You've got data open source you've got hadoop which is open source you've got data tools you've got visualization tools you've got you know i don't think like react native was was around at that point but like now it is like all of these mobile development frameworks a hundred thousand javascript frameworks they're all open source so you can pick four of them and use them in some strange concert that proliferation of open source tools, needless to say, has its own. And that had a couple, there were a couple secondary effects from that. One is that simply there's so many more projects, so many more people working on it. That just leads to lots of people now using GitHub, period. But also, it becomes your sort of your resume, your badge of honor. As a software developer, people want to know not where have you worked? Or what have you worked on there?

They want to know what open source projects have you worked on? And can I see your code? Can I see which, which contributions you have made that have actually become part of the accepted by the community as core part of the project? What's your impact? And that's way more traceable and open in a way just like LinkedIn and Facebook in the business world in the social world than it ever used to be. Yeah. And of course, people don't always have time to be contributing to open source projects when they have day jobs. However, plenty of people start little side projects and weekend things where they're just the only one contributing to a repo. They put it up as a utility for other people to use. It's public, it's searchable. And that can be a resume piece where you show off the

quality of your code and what small problem you were passionate about solving. And that's a thing that I think is looked for much more by prospective hiring managers than open source contributions for a lot of employees. Yeah. Well, certainly both are. And it depends what you're hiring for. Yeah. But totally changed the way that software development recruiting was done. Completely. None of that visibility existed at all. I mean, it was like, literally, it was like LinkedIn, which, you know, we'll get to with Microsoft and the acquisitions in a little bit. But it was like LinkedIn and your resume before then, then you know it was people didn't want to share their resumes and it was weird like it was this super private thing it was like your bank account number

um but after linkedin of course you wanted to share your resume and it became the basis by which all recruiting happened uh very similar dynamic in the software world yep um so they realize uh they come up with this brilliant freemium model they realize they need to start making money to keep the lights on uh they quickly hack on the site april 2008 they launch paid private repositories so again if you want to make it open to the public which by nature is anything open source or ben like you're saying your own side projects that you're just putting out there for anyone to see your code. Uh, it's free, but the minute you want to make it private, you have to pay, uh, get hub. You have to pay GitHub a certain amount per month, um, to cover that. And once again, it works like wildfire.

Um, shortly thereafter that we had alluded to power set where Tom was working. So Chris and PJ quit their folded. Their earlier startup went full time on GitHub as co-founders, Tom, the third co-founder who originally had the idea. Um, he's still working at power set July, 2008 power set gets acquired by Microsoft for a hundred million dollars and uh microsoft offers tom a three hundred thousand dollar retention bonus if he signs on to stay for i believe three years and uh tempting tempting but this freemium thing is really kind of taken off so tom makes the correct decision does not go work for Microsoft, leaves PowerSet, Microsoft,

and goes full time on GitHub. And so the three of them are full time. Tom is CEO, but it's completely flat. They're all equal and working on the company. And so just like in the Atlassian episode, which we also covered and is also very reminiscent of developer tools and tools for teams and collaborations, they decide that they're going to bootstrap and they're making enough money. They don't need to raise venture capital. Um, and, and the system that they come up with is they devise, uh, I wasn't able to find exactly what it is, but an elaborate

formula, uh, based on how much money they made on the site that month, how much they pay themselves. And like they have to hit certain goals and they're basically cliffs and then they increase their salaries by a certain amount. They still haven't hired anybody. It's just the three of them. And that goes on. They also decide though that they, since they have started the company, they need a logo. Where should they look for a logo? Stock photos. This is, this might be, there are a bunch of good stories in here. I think this might be the best story of the episode. So they had heard, I'm actually, it's unclear to me if they're friends with the founders of Twitter. They must have been, it was actually still

a much smaller place, software development and the startup ecosystem in San Francisco at that time. And, and if they were both, um, sort of active contributors in the Ruby community, probably, probably, probably, which is how they knew each other. Um, and so it turns out that the Twitter logo, uh, the bird, um, not the bird you see today, but the original version of the bird was actually an iStock photo by the British graphic designer designer Simon Oxley who's just very prolific and produced tons of stuff tons of stock art on iStock photo uh the Twitter founders saw that on there and like that's the bird we want and they paid 15 for the original bird and that became the Twitter logo. Yeah. But David, that one

couldn't be appropriately described by circles. Did you ever see that? So the, the quick aside, the newest, um, and, and really nice, really simple, really beautiful mark for Twitter is, uh, uh, you know, aspirational sort of upward turn bird. And the, when the day they announced it and made a bunch of hay about it, um, they were illustrating how it was sort of perfect in all these ways. And it's because you could sort of use a bunch of circles, use the edges of circles to create the exact shape of the bird. So the bottom curve of it and all the feathers. And then it became this big thing that like people would just go and create any logo by using circles because given an infinite amount of infinite amount of circles and circles of any size, you can kind of like make any shape you want.

So it's kind of this like people at first were like, oh, my God, it's all made from circles. And then everyone sort of looked at each other like, wait, wait, wait, wait. It was also like really disorienting because, you know, the the current Twitter bird logo faces right. But the original one faces less disorienting and i don't think there's a word mark anymore so there's it's like difficult to write twitter properly like if you go look at twitter it doesn't say twitter in any logo text anywhere on the site um this is not the twitter episode total aside we will revisit that in a twitter episode someday but it's helpful background the github founders they're like great

work for twitter we're gonna go on i stock photo we're gonna look at at this dude simon's work he's got a ton of stuff on there we'll find something great for us animal like bird sure what should we find what does he have they're scrolling through oh how about an unholy marriage of a cat and an octopus perfect nailed it done and i think it it was not called octocat yet no it also only had five tentacles it's very confusing very very confusing um no it was not yet called octocat i i did look up but i forget what it was what it was originally i think it was octopus yes i think that was right yes i think it was octopus or something like that and um so they bought it uh i don't know if this is correct but i what i read was for three dollars i think that they bought it yeah um they really got a deal versus the 15 that twitter paid yeah it's like

just about half the cost of one month of, uh, registration on their site. Yeah, totally. Uh, you know, it was, uh, it was a bootstrap startup. Uh, so they buy the octopus, rename it the OctoCat. And that is how the OctoCat became the logo. And then very quickly, official mascot, uh, adopted worldwide by GitHubbers and GitHub fans around the world. And with that, really on the back of the Octocat, growth continues to come very quickly. So about a year, we're in early 2009 now. That's a causation correlation. Absolutely.

I think it was no doubt causation um early 2009 they announced that they now have over 50 000 public repositories so these are projects uh including open source and personal projects um that are open to the public that have been created on github never, they never talk about how many private repositories they have. Um, July, 2009, they announced they have over a hundred thousand registered users. Um, so a hundred thousand developers, which is a lot like the, there are not that many developers, uh, in America. So they already have well around the world or more, but they have pretty high penetration pretty quickly. Um. They have 90,000 unique public repositories. By the next year, they have a million public repositories. 2011, 2 million public repositories. And when you look at these numbers are a little hard to comprehend here on the radio. But when you look at charts, I mean mean either by repo or by um user growth it is just at at any scale that you

look at it just completely geometric or or actually i don't have a geometric exponential logarithmic whatever it is it's up as it goes to the right it is getting upper as it goes righter yes exactly uh by the middle of 2011 they have now github now surpassed, so we're three years into the company, it has now surpassed SourceForge and Google Code as the number one place where projects were open source and any personal public projects are hosted on the internet. So that was a major milestone for the company. Then the next year, so they've been bootstrapping the whole time, profitable the whole way and making money and very nice salaries by, we would assume by the formula that the three founders devised.

July 2012, Andreessen Horowitz comes in and invests $100 million in the company, the largest check that they've ever written. And by all calculations that anybody can even think to do going back as much history as possible, the largest quote-unquote Series A ever raised in history. It's got to be. It's got to be. Now, it wasn't really a Series A because the company existed.

They had 100 employees. It had just been bootstrapped for a long time. But it was their first round of funding. It was at a $750 million valuation. Um, incredibly, incredibly impressive. Yeah. And from what, from what David and I understand from some, some primary source research, a very, very competitive round where Andreessen Horowitz just decided, yeah, we're going to do this and, uh, is going to, nobody else is going to do this. It's just going to be us. And, and it was a great company, obviously very hot, a great round to do. And obviously Andreessen did great in the investment, but also not super clear that

it warranted that much. I mean, they had grown so much as we alluded to. Uh, I wish I had, um, in my old, uh, uh, in my old term paper from GSB, I had the number of, uh, software developers in America. They were like approaching a hundred percent penetration. Um, so it was unclear like how much more, uh, get club GitHub could grow. Well, David, if your entire fun thesis is that software is eating the world, you know, you could imagine there's probably gonna be a lot more software developers. One would imagine and one would be correct. Um, so January, 2013, six months after they raised the series a, they announced that they have 3 million users and 5 million repositories. Uh, and again, you're wondering about how much headroom is there in the market by the end of 2013, they have 10 million repositories. So doubling, um, the number

of users or doubling the number of, of projects hosted on the site, uh, publicly, not to mention the private ones and things are going great. Unfortunately, 2014 was not the best year for the company. Um, and let me, I actually, so I pulled up your term paper and looked at it. At the end of 2012, GitHub had almost 2.08 million members compared with the total professional software development, software developer population of the United States of only 1.3 million. Right. So they had over 100% of the United states software developer population right so presumably it was international what like you know half a million from the u.s and a ton internationally

or something but crazy crazy how much bigger can it get um so as we were alluding to 2014 was not the best year for the company um tom preston Warner, who we had talked about, who originally had the idea for GitHub and was the first CEO, um, in a sort of bizarre series of events that it's still unclear exactly what happened. Uh, he and his wife, um, were, who did not work at the company were accused of harassment at the company led to an internal investigation and, and ultimately in Tom leaving the company. Um, so since 2014, he is, he's still a founder, but has not been part of the company. Yeah. And, and, and, and, you know, David and I don't profess to know anything about what goes on at the company or, um, and, and, you know, by all accounts, it's, it's still kind of unclear,

um, what happened there, but, you know but you can kind of read between the lines on super young founding team, company growing incredibly fast, a lot of very unorthodox sort of management principles. They adopted the Valve management style of a completely flat organization. Nobody reported to anyone else yeah anyone could work on whatever they wanted yeah you could imagine it would be a culture that that wasn't sort of the tightest run ship and um you know that that uh i would say we the the public never really knows the true story of of what went down there but the internal investigation did reveal um um i believe it revealed, but the internal investigation did reveal, um, um, I believe it revealed according to the internal investigation, not specifically harassment, but lots of signs of

lapse in judgment judgment. Yeah. Um, anyway, as we've said multiple times on the show, we're not super equipped to prosecute one way or another, and this is a particularly, um, tough to parse case, but anyway, results in Tom leaving the company and Chris Wanstruth, the co-founder who walked into the bar becoming the CEO. Um, and he would remain the CEO until, uh, yesterday, but we will continue on that. Um, the company still keeps growing in, in 2015, Google just gives up and Google shuts down Google Code. It says, just go to GitHub. It reminds me of Google Video,

except they didn't acquire in this case. Yes, they did not. Microsoft did. Could you imagine if Microsoft had acquired YouTube? That would be a, what would have happened otherwise? Huh. Anyway. Bing Video wouldn't be flourishing.

It just doesn't have the same ring to it we love microsoft but uh we really do um july 2015 uh things are back on track going really well uh the company raises another 250 million dollars led by Sequoia at a $2 moment scenario, and they're raising extra cash just to double down on growth, or just to have cash reserves in the bank for competition, or to go to an IPO, or for whatever reason. This is not the case. We are not running a profitable business. We're generating nice revenues, and adoption is crazy and the stickiness is huge. But we are, you know, we need this capital in order to continue to operate the business.

Well, and, you know, I think it's also a fair question to ask. Certainly the, any market size estimate of the number of software developers in the US or in the world in 2011, 2012 would have massively underest in the u.s or in the world in 2011 2012 would have massively underestimated the growth yeah certainly that said i have a github account uh i have

contributed to a few projects i would in no way consider myself as is obvious by this episode a software developer um so there is very much a question of like how much of i'm sending you a pull request tonight you just wait oh no i'm scared no i'm real scared um so there is some question in there uh but yes uh as as ben as as you referred to you know over the next few years um again the company continues to grow very nicely uh but last end of last summer august 2017 they make a curious announcement um they announce that they have passed the 200 million dollar annual revenue run rate um which is you know impressive, but relative to being valued two years before at $2 billion, it is lower than you would expect. And the punch of that announcement comes from the fact that $110 million of that

was from the business line. Basically, hey, we sell to individuals and we sell to businesses, kind of like Dropbox in the episode that we covered there um and our our um um our you know business division or enterprise division has sort of outpaced the uh the consumer adoption so before when we were talking about hey i just want to make this private repo um versus okay my company has adopted github as the way we develop software and so i think it was in part to tout hey we actually have a real sort of uh enterprise b2b business here and that's all arr so you know it's it's it's not just one-off revenue yep recurring subscription revenue um which is great

the other part of the announcement though is that chris is going to be stepping down as ceo and they're going to be running a CEO search in the company to bring in a new, um, you know, experienced, uh, not that Chris has an experience at this point, but a new, more experienced CEO to run and lead the company. An action Jack, if you will. Indeed, indeed. Um, and then that leads to yesterday. Well, really to over the weekend when the rumors started swirling. But then the announcement yesterday, which was that they had found the CEO, Nat Friedman, who had been the founder of Xamarin, a developer platform, mobile developer platform, right? right cross-platform mobile development that microsoft had acquired a few years ago uh he's going to be leaving the xamarin division within microsoft to run github and concurrently microsoft is buying the company oh yeah and there's another piece of the announcement too yeah oh yeah um yeah we're getting this guy as ceo also he's currently employed therefore we're gonna get owned by them um so a curious uh a curious case of of a

ceo search uh but an incredible outcome seven and a half billion dollars uh is a lot of money and david and i joke but um it's certainly not how it went down. It absolutely went down from the GitHub investors and the GitHub board and the GitHub management, you know, entertaining the sale of the company, hiring investment bankers, I believe Morgan Stanley in this case, to help make it happen, to get the best price, to looking around for counterparties. And then when the transaction, you know, in thinking about how the transaction was going to get done, I'm sure Microsoft thought, gosh, you know, the only way that this is going to succeed is if we really have the right person here at the helm,

and then a sort of process with the former Xamarin CEO to make that happen. But really, interestingly, leading with the leadership announcement in the press release, because they sort of anticipated, uh, people are going to freak out about this and they have to have a beloved open source community technology leader at the helm of this thing in order to give us a shot. Yep. Well, and this gets to, we alluded to this earlier in the episode, but, uh, GitHub is really the outcome of the rise of the open source community and everything that that's done to transform software development and huge swaths of the enterprise over the last decade plus. But the historical enemy of that mortal enemy sworn sworn enemy has been Microsoft. And it's just such a funny testament to how much the world has changed now that that's not Microsoft. And now Microsoft is buying GitHub. Yeah. So, uh, story time from me being at Microsoft, um, in one of my first few

days as an intern, I was specifically warned not to look at anything. Actually, first, it was not to look at any patents. Then it was, do not look at any source code that has the GPLv3 license. It's sort of the most strict, crazy license where you can get in the most trouble if you are a company like microsoft and the threat and i you know dbl through dbl license being the uh good new public license this is the the the core of legally what it means to be open source software and there's other ones there's the gplv2 there's mit license but and i caveat i am not a lawyer i haven't quite looked into this but the the thing always going around whenever you talk to people about this at microsoft was the fear that if uh we used a bit of code that was gplv3 licensed in our software then we could be forced to open source the whole thing wow like

all of windows all of office and it was sort of unclear exactly what all of would be but um lca legal and compliance affairs or something like that um made that very clear and so uh and i think is this part of the the whole philosophy because there's so much also like in open source and and all of technology um of the 60s counterculture you know element, element embedded in it. Is this part of the whole copy left idea? So there's copyright. I'm not sure. And then there's the idea of copy left, which was part of the open source software movement, which is not only is what you're making copy, you know, the opposite of copyrighted, it's that you have the obligation to contribute back, to contribute back, to keep open and anything else you use in conjunction with it to open as well. Yeah. And so even one step further, uh, I remember at one point I had

GitHub open, uh, during my, my internship and, uh, uh, gotten a little trouble. Um, and it was, it's kind of crazy. I mean, it was, it was reprimanded by microsoft for you yeah having github open only eight years ago eight years ago something like that uh i got in trouble microsoft for having github open and like it seems absolutely insane to say but and and and you know it even seems insane like two years later to say because that was sort of the end of an era toward my end of my end at microsoft uh there was a group starting MS Open Tech, that was a partnership between Microsoft is like a sort of Microsoft half spin out. And then slowly, the dramatic adoption of open source software in the company. So being able to do Linux on Azure, and to the point where Microsoft, of course, we really, in the best interest of everybody, including ourselves, glossed over a lot of the history of version control software and software configuration management. But Microsoft

has a massive historical product that they've sold and made a lot of money in this space called Team Foundation Server. And that was based on an old centralized version of source control management. But to the point where in 2013, they actually added Git support to TFS. Yep. And even today, they have another thing that is currently operating that, you know, many people outside and inside the company are sort of wondering about called Visual Studio Team Services. They shut down CodePlex about a year ago, or maybe six months ago. And the company has this incredible developer division or group of people that produce software to enable developers throughout the world. And a big part of that is things that looked like GitHub in different ways

over the years. And so historically, they've competed with it they're currently sort of competing with it um there's definitely a uh um you know it's not like microsoft hasn't thought about this problem yeah well it'll be what will be interesting well flash forward here to grading i don't even know how we're going to put a grade on this but um given it happened yesterday but um will microsoft keep those or will they you know go all in on github like what's what happens to the quote-unquote google video version of everything you know that's as opposed to the youtube yeah so the stated plan is keep it and it serves a different purpose and it's for different customers blah blah uh you know we david and i reached out to sort of several different birdies in preparation of this episode. And one, uh, one source in the company said that they're, uh, uh, they felt

like, um, it's, it's kind of only a matter of time until some executive gets upset and looks and says, how come we have two of these things? And then you have a, another Skype link merger. Um, this is a different Microsoft. Uh, i don't think that will happen i think this will look a lot more like like linkedin but um you know linkedin was a business that was doing really great on its own and didn't compete with any internal microsoft products so uh there's that one's harder to screw up yep yep all right listeners our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to midsize businesses and provides enterprise grade security with the technology, services and expertise needed to protect you. They offer a revolutionary approach to manage cybersecurity that isn't only about tech, it's about real people providing real defense around the clock.

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by taking security techniques that were historically only available to large enterprises and bringing them to businesses with as few as 10, 100, or 1,000 employees at price points that make sense for them. In fact, it's pretty wild. There are over 125,000 businesses now using Huntress, and they rave about it from the hilltops. They were voted by customers in the G2 rankings as the industry leader in endpoint detection and response for the eighth consecutive season and the industry leader in managed detection and response again this summer. Yep. So if you want cutting-edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired

or click the link in the show notes. Our huge thanks to Huntress. Well, should we move into acquisition category? We should. We should. I invented a new one for this because... Oh, innovation. I can't play by the rules.

Are you going to open source your invention? It depends. Um, I invented a new one for this because innovation, I can't play by the rules. Are you going to open source your invention? Uh, it depends. Is the, uh, is, is, is our structure, uh, uh, following a copyleft license? Absolutely. I'm going to contribute back to our shared Google doc. Um, so I initially, uh, so for new listeners of the show, we have acquisition category, which is people, technology, product, business line, asset.

We recently and somehow only recently added consolidation or other, which is the part that gives David and I license to do whatever we want because we are the hosts. I initially said product and not business line because if you look back at that stat of $200 million in revenue, I don't believe we're profitable. If you take another stare at that from the previous year, the run rate in 2016 was that they did $140 million of revenue and generated an $88 million loss. I don't think they had reversed that in the next year, probably not in the next two years either. But they could be closer. As is, if it was a $200 million revenue business,

it would be a 38x revenue multiple purchase for a probably unprofitable business. So I shied away from saying business line. But as I thought about it more, I think product is right. Um, because they're gonna, they're going to sell this product through their sale sales channels to additional enterprise customers.

Because Satya Nadella said that one of the stated reasons is to accelerate the adoption of GitHub in the enterprise. Um, and they believe that they can do that. And I'm sure they can, they have the best or one of the best reasons is to accelerate the adoption of github in the enterprise and they believe that they can do that i'm sure they can they have the best or one of the best sales forces in the world but i think there's another thing here that's sort of ecosystem and that's that interesting microsoft was missing out on this ecosystem because and particularly the developer ecosystem because uh windows isn't important anymore And that's a ridiculous hyperbole statement. Windows is very important. But without the growing consumer base, with the sort of enterprise shift

to be more open to other things, they've sort of lost the ability to coerce developers by just saying, everybody's on Windows. I'm pretty sure you're going to develop for Windows. So it's a way to sort of get the ecosystem of developers um to sort of continue to be a friend of microsoft and yeah so this is didn't so ben thompson's take on this was similar to this right yeah he described as having the leverage to be able to yep yep uh ben thompson of course of strategery uh which we're great admirers of here on Acquired. Yeah. Okay.

Interesting. I can buy that. It's like the equivalent of strategic reasons. I'm doing the air quotes here. Yeah. Yeah. Yeah. Yeah. Okay.

So I had product. I went through the same line of thinking about like business line like linkedin business line i don't remember what we said linkedin was but i'm i don't know how we wouldn't have called it a business line um but then you read the press release and it's like you know nat freeman founder of xamarin will report to microsoft's cloud and ai division chief scott guthrie it's within a business line like yeah of course like this makes sense as a product but i see what you're saying like yes it's a product but they didn't buy this for the product um they bought it for the strategic place that github has in the developer

ecosystem and particularly as the ecosystem of software developers and what a software developer is continues to grow and expand um you know in the coming years yeah and another way to put it is they bought a customer base and and obviously they're going to sell this product to additional customer base but this customer base is super sticky to this product and there's tremendous network effects within this product and so you know i think they bought a customer base and they bought that customer base for years to come. It almost recalls another famous saying within Microsoft or from one particular man who's no longer at Microsoft,

who we also did an episode on. Developers, developers, developers, developers, developers, developers, developers. You've honed that as well i've never done it before oh wow you're a natural oh it only took us how many episodes to to do that live on the air i think when someday in the distant future when satya nadella is ready to retire i think we we've got a good candidate for next Microsoft CEO here on Acquire. A return to the honey-pouring developer's lifestyle. We can have Balmer on at some point. We'll redo the Clippers and have him on.

Yes, we definitely have to have Balmer on for the Clippers. Not for anything else. For what it's worth, I'm a huge fan of post-Microsoft Balmer. I think he's just killing it. USA Facts is an awesome project.'s teaching it stanford gsb i don't know if he still is but he was for a while you know i can't knock that okay what would have happened otherwise i think the specific question it's it's clear i mean we yeah we joked about it a little bit on you know

in the history and facts but like when an announcement comes out, like, uh, we just crossed 200 million in revenue and we're starting a CEO search. Like you're definitely looking, you know, you're going to be entertaining acquisition offers. Right. Um, so I think the question is who else could, was in the mix, uh, for buying this year. And every listener, um, or lots of listeners, I'm sure you're also thinking Google. Google has to have... Reports are that they didn't formally but informally sort of entertain. Does this make sense for us? And Google was one of the main competitors of GitHub, of course, with Google Code.

And they just waved the white flag three years ago and said, you won, we're done. Yeah, I think... So going back to the point from stratechery ben thompson had a really interesting point that is that if someone like google had bought github there would be enormous temptation to leverage it to funnel developers at your product and the great thing about gith GitHub is that it's Switzerland. Like it works for all these things. It gets to be a horizontal. And I think Ben is a, is a little bit, uh, insulting Microsoft and saying like, they don't have a platform to funnel these developers

to. And then by product, you mean a GCE, Google cloud engine, cloud engine, Android, probably not Chrome or Chromebook developers, but there's more sort of thriving developer ecosystems such that if they bought it, there's an open question of do they prioritize their own platforms on that and use this horizontal thing to feed the vertical? Certainly at least Google Cloud Engine. I mean, they're locked in a war withs trying everything they can to get market share like if you've got all the developers in the world you know pretty much more than 100 of the developers in the world if you include me um on a on github as like their primary user interface for their work uh you could probably think of some bundling strategy to yeah and i was wondering is microsoft going to do that too with azure like is there going to be some like ease ease of deployment to azure you can deploy to anywhere but like we made this extra easy button i don't know yeah it's interesting

this isn't quite what happened what would have happened otherwise but i asked a um another super sharp cto friend uh to to for his thoughts and um he mentioned that that uh it's great for consumers or for developers microsoft's amazing at security and scale um but they could try to change git upstream to add in enterprise features so that it's uh git and then therefore the open source project of git exactly maybe more suitable for the customers that microsoft has in their sort of uh sales channel but uh github isn't a perfect fit for right now and uh after digging into it with him a little bit uh git uses the gplv2 license which is copy left and so if microsoft decided to change anything in git specifically for github without going to um sort of get as a broad community and

getting it uh getting it approved by by git everywhere regardless of github um then they would have to open source whatever changes they made to their fork of Git used in GitHub to improve the enterprise functionality. So I think what Microsoft may do is try and get that support added to GitHub, and then it would come downstream to them. I'm sorry, to Git, come downstream to them for GitHub. And then I don't know how this works, but maybe have sort of more leverage and lobbying power in doing that to make it more of a product that they can push through their channel, but I don't know. What does Linus Torvalds think about all this is my question. Yeah, no kidding. No kidding.

Hopefully that guy goes on a podcast. Acquired follow-up. So another really interesting point, and this was on the Motley Fool podcast. Very interesting that this was an all stock acquisition. Very interesting. So Microsoft, it's not like Microsoft couldn't afford the cash. No, Microsoft has 43 billion in net cash right now. And so there's a really strange thing that's going on. That's Microsoft has authorization to do 30 billion in buybacks and they're in the middle of a buyback program,

the same way that Apple is, which is basically saying, Hey, we think our stock is really cheap right now. Like we're going to pick it up on the cheap. We got some cash. We like holding our stock. We,

it should, it's show of good faith for the company, the, for the future. If you think that all this, I said, they buy the stock and retire it. So they reduce the number of shares outstanding. So everybody value goes up right they uh anti-dilution yeah yeah

so but then they go and they buy a company in all stock which if you have the option to buy in cash and you think your stock is going to appreciate and you think it's undervalued and you're doing this buyback it's the opposite So is it like somehow hedging against their buyback strategy? Is the signal that they actually think their stock is overvalued and so they want to buy? It's a good question. The other thing that the host of that show postulated, which I thought was interesting, is maybe they're going to do something else with the cash and that maybe there's another acquisition coming that is going to require more cash. I don't know if we can read that much into it,

but I thought that was interesting. It just seems like Microsoft has so much cash. Yeah. Interesting to speculate why they did this in stock. Yeah. Which we should also say, the founders of GitHub are now the largest shareholders in Microsoftrosoft other than bill gates

yeah we were talking about this earlier so this must mean that bomber has liquidated a lot of most of his stock at this point i i guess so so here's here's the here's the quote from uh from bloomberg the um each of the three co-founders would have 0.16% of Microsoft from this because the acquisition was about 1% of their market cap. And so that's about 10 times more than Satya Nadella, 14 times more than President Brad Smith. And among insiders, only co-founder Bill Gates, 1.34% would exceed theirs. Wow.

So I guess the moral of the story is. More than Satya Nadella. Each of the GitHub co-founders now owns more of Microsoft than Satya Nadella. Yes. Each of them. Wow. Yep. And so the moral here, I mean, there's a bunch of morals but uh late capital raises after

bootstrapping so super low dilution they did that 100 on 750 raise um and then that 2.5 on 2 i mean you're just taking very little dilution there so late capital raises after bootstrapping plus few capital raises plus an all stock acquisition equals you're one of the biggest shareholders of one of the biggest publicly traded companies in the world it's funny i actually have the opposite takeaway from that which is that it's very nice to have a liquid public stock where if you are an employee or a founder of a company you can actually get liquidity unlike the world in which we live in san francisco in 2018 so you're saying these guys could probably buy some like a house yeah a house imagine that yeah they could probably buy a shack here in san

francisco yeah uh well cool okay so uh any any other points on that like what so let's say they don't get acquired can this company go public like do they end up doing like a dara situation and bringing in a great stable ceo and it's a little bit like i i in preparation for this episode i went back i re-listened to our episode on atlassian which we haven't talked about as much but it's been a long day um they compete we're gonna leave it at that um in the atlassian episode we were grading their ipo and uh and i was like this is an a it's great it was completely uncontroversial this is exactly what you want like the narrative was super clear uh and you were like yeah but i like the cowboy like the james bond style you know you you're you're driving off you know towards a cliff at

full speed you pull the e-brake and turn around. I think that's what would have had to have happened with GitHub here to ultimately go public. I mean, they announced that the CEO was leaving. They've had a history of management turnover. There clearly was a lot of company building work left to be done here at the company to get it to a point where it could go public um not that it couldn't have been done it certainly could have been um but this is feels like a great outcome yeah so interestingly maybe if if um if the assertion there is that there's a lot of company building still to be done maybe there is going to be a lot more integration with core Microsoft than

LinkedIn had like LinkedIn was a standalone public company, like all the executive team in place. Jeff Weiner is still there, you know, doing great. Like, yeah, very different situation.

Hmm. Well, I think let's do tech themes. And then I want to hear predictions on what they will do with it and i and i've got a couple also all right um tech themes uh do you want to go first on tech themes yeah i think we've mostly talked about them microsoft's monumental reversal of philosophy on open source was a big one um uh point of integration is a big one. And this is getting back to that, that's for tech re comment from earlier, um, sort of about ecosystem, linchpin bundling point of integration.

Like Microsoft used to have so much leverage in saying you are a developer, you want to reach customers. Windows is the way. And then they would monetize by selling windows licenses and they would monetize by other platform features of, of windows and selling office on windows and things like that. Without that enduring linchpin, you know, you have to take other measures to get people if developers are a core, a core element of your ecosystem, you have to take great measures to get those those developers since you don't have um the leverage of the platform that they need to develop for anymore now the question still remains how do you monetize that developer like why is it important to get that developer if they're not going to build software that will go to two billion people that you will make a ton of money off the license of each of those 2 billion people that are using it. Um, because

seven bucks a month, uh, or even the $2,500 a month for 10 seat enterprise license of GitHub is not nearly as good of a business as selling windows. So, um, if you're not making enough money off the developer directly, how do you end up monetizing the software they create? So that's my sort of big question on the episode, but, that's a a total key theme for me is um using leverage of having users in order to get developers on your platform to um to be sticky and come and develop and when you don't have that doing things like this yep i think we've hit everything. The only thing I just want to highlight again that I actually hadn't quite thought about until you brought it up earlier in the episode, so I'll bring it up again, is the power of freemium models, if and only if you'd get the line exactly right and the incentives align between growth uh and usage and um a customization

of your target market to your platform uh with a very um uh very easy to understand and um aligned incentive way to monetize around that um and github just nailed it out of the gate might be i mean i'm having a hard time thinking off the top of my head certainly you know top three if not best freemium model ever devised because if you think about it like ones that are time bounded are weird ones that are usage bounded are super weird because it's like oh it's free to use until like dropbox until you hit a certain amount of space well that incentivizes you to just like delete stuff when you get close to your cap um like this it's just really hard to nail this but like i've never seen anything that i that i can think of that nails it so well yeah my general

rule of thumb that we sort of use at psl when we're coming up with what's the right sort of pricing model for things in terms of thinking about pricing and packaging is if it requires network effects, it should be freemium. If it's a utility for you personally, it can be time bound trials. And GitHub sort of took the best of both worlds. So to your point of being one of the best of all time, it's like up there with Spotify and, and placing the line exactly in the right place to, to convert people. But even Spotify, I would say like, it's still like the network effect isn't really important in Spotify.

Like the, cause the little social sidebar thing got them off the ground, but it's not that important anymore. That was a distribution hack. Right, right. So this notion of like, by me using the free version of Spotify,

does it make Spotify better for everyone else? No, not really. By me using the free version of spotify does it make spotify better for everyone else no not really by me using github for free does it make it better for everyone else absolutely yeah absolutely um cool that's what i got um great how do you want to approach this oh man okay well let's first talk about what we think they're going to do with it i'm i'm i'm there's two things that i think they could do and i'm so hand wavy like i'll say there's three i've mentioned the one about um pushing github into the enterprise so maybe by opening up the um microsoft sales channel and recommending this to all the Microsoft customers that are developing on any part of the Microsoft stack,

which of course may compete with Visual VSTS or whatever that is. Whatever it's called. Yeah. You could start turning this into a profitable business line. It doesn't feel like that's going to make a ton of money. Um, probably not enough to earn back seven and a half B's anytime soon. Yeah. Um, I think they will use it to leverage people onto

Azure. I don't know how, and I don't know how they'll strike the right balance of not being too heavy handed with that. Their version of what google would have done with google cloud engine yeah okay um and my left field one is since github it serves many other purposes but is sort of linkedin for developers doing some kind of linkedin integration or some kind of hybrid product um could maybe see that uh it's pretty left field though and i have a feeling uh they're not going to risk the continued success of the linkedin uh acquisition without integration by starting to integrate them with this, this acquisition. So I don't know how they'll play together yet, but I, the, the clear takeaway for me is it's,

it's the clear takeaway is it's not clear yet, um, how they'll ever make back this, this purchase price and, uh, um, maybe Azure. Interesting. I, yeah, I i i don't have a ton of thoughts other than the thoughts i had were all in that last third bucket that you were talking about on the recruiting side because it really has i mean github is is the main you know resume for software developers now um and it's kind of like it's kind of like microsoft is like a vc that has an investment thesis around like modern you know what is the modern day resume in particular industries it does cause here's this kind of actually an interesting thing this might be what they nobody's said this but like it costs thirty thousand dollars to recruit an engineer well okay

so this is where i was gonna go it's the most expensive position to recruit yep and there's the least data on linkedin about the most valuable position to recruit absolutely that's where i was going with this uh so it's actually two things um yeah like that's there's a big market there like however big the market is for g services, which is big for sure. The market for recruiting engineers is at least as big. You know, what's the, so what's the enterprise version of GitHub? You're paying effectively $250 per seat per year, right? But it costs $30,000 to recruit an engineer who's going to stay at your company for somewhere between

one and X years, you know, certainly not enough, way more in the upfront recruitment fees than however much you're going to pay for a GitHub seat for. Yeah. It's kind of interesting over that say they they're there for three years. It's $750 versus 30,000. Yeah. That's a big delta um and maybe there's also a piece of like you know who just like any other company in technology is locked in talent wars for recruiting engineers microsoft wow did they spend seven and a half billion dollars just to uh peek under the hood and and see what we've been working hard here to acquire. These delusional thoughts are flying around. What is the what's the presumably the license doesn't let you do this. And maybe there's even a GDPR thing around this.

But like, imagine you're a rock star developer at Apple. And Microsoft now has, I mean, actually, they have access to these code bases, which I'm sure is completely off limits. But like, what signal could they mine about you? Or even like, you don't even have to go that far. Just like, it's funny, we've been talking about for lots of reasons, Ben and me and, you know, us at Wave, like perceptions of Microsoft. And certainly, you you know vastly improved since satya novella nadella became ceo however still in the valley like and i know like having lived in both worlds in seattle in the valley like i view microsoft very differently than i think a

lot of people in the valley do like to a lot of people here microsoft is still microsoft but microsoft now owns linkedin now owns github they almost certainly are going to brand linked uh uh github just so that every single page view of an engineer everywhere seeing them every day gets a flash of the microsoft logo as a soft recruit yeah i mean they have to i mean github beloved uh by engineers either they have to or that would be like disney slapping the uh walt disney castle at the beginning of star wars either they have to or it's completely off limits and i can't decide which one yeah i don't know either so david we're dragging out this episode length because neither of us want to answer the hard question what would you grade this acquisition i've been trying to

avoid this for like an hour plus at this point um i i don't feel good about it i'll just i'll start okay yeah whatever so i think the question facing us is like what do we think like you know fast forward five years how are we gonna look back on this so the reason i don't feel good about it is because it's so much cash for a money losing thing that doesn't actually have that much revenue um so then it's clearly not a business line that never will be a business line to microsoft it's it's a strategic thing um and the point i was going to make when i was looking at it more as a business line was at what price would i like this deal is it a billion dollars is it two billion dollars, but if it's a strategic thing and I don't quite understand exactly how it fits in yet, if it's worth two, surely it's

worth seven and a half. There's this great, great quote. We do need to do a Twitter episode someday. Uh, but there's a legend and lore, um, that, uh, Facebook tried to buy twitter uh for i think uh i think something like 500 million dollars or a billion dollars it's publicly reported whatever it was at some point early in the in the life cycle and uh i i believe it was ev williams after the meeting where they talked price it's like you know if we're worth a billion dollars we're worth 10 uh that's that's the and they were the equivalent and they were uh more than that as a matter of fact um okay yeah for me i oh so you what's your grade i i hate this It's super high variance, but I'm going to go C plus. Okay. Um, and hope Satya makes me look like an idiot in a couple of years. Great. Great. I actually think the most

likely path here, uh, I hope this isn't a cop out, but I don't think so. Is it just land somewhere in between, you know, I mean like Microsoft's a huge company, lots of divisions. Like if this were a LinkedIn, like clearly it's going to be standalone, like, you know, a little more,

but like there's some high degree of difficulty here, but Microsoft's like, you know, Satya gets it like all this stuff, but it's just going to be hard to really pull this off. Um, so I think it probably ends up somewhere in the muddy middle. I'm going to give it a B muddy middle B.

Yeah. Yeah. All right. Fair. Carveouts? Carveouts. Mine is from Chris Dixon, great blog post called The Idea Maze. I'm sure many of you have already read it. It's been floating around the web and I'm a little late to the party here, but it's a really great great read it's short and it's a lot about basically teasing out the there's a phrase that floats around that's it's not about the idea it's about execution and ideas are worthless and blah blah and he really teases out like ideas aren't worthless we just refer to the idea as like your original two minute pitch. And a company is actually a series of ideas and execution is really a bunch of ideas. And so to the extent that, uh, ideas matter,

or to the extent the execution matters, then there's a bunch of ideas along the way that matter. And it's a really great blog post about sort of the things you realize while you're executing reasons to get out into market ways that you can sort of learn faster to make better decisions, and to basically be an informed, continuous idea person as you operate your business. And so I highly recommend that. Nice. Mine, related to that,

blog post that went around the internets, the interwebs, about a week ago, Eugene way, uh, former Amazon employee and, and part of the original team at Hulu, um, wrote a great blog post called invisible asthmatotes about, um, his time at Amazon. And they're in the relatively early days. Uh, I think just after going public days, when they started thinking about the business in terms of what are the ceilings to growth and market size that we're going to bump into? How do we address those in the product? And then how do we start adding more? Really cool, interesting, unique take on thinking about strategy and tech that I hadn't thought about before.

Highly recommend if you haven't read it already, which I assume many of you already have. Well worth doing. Cool. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring. Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yeah, Vanta is the perfect example of the quote that we talk about all the

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Feel free to share with your friends. Tweet. I hear that's doing well. Twitter's back in the S&P 500. Yeah. Acquired is blowing up on Twitter, by the way. We got like 50 new followers last weekend. You could be that 50 first.

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