Season 2, Episode 9: GitHub

0:00 This is where I Um definitely my brain is not working right. Um, it has been a long day. Mm-hmm. Welcome to Season 2, Episode 9 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert, and we are your hosts.

0:31 Today we are coming at you on Tuesday, June 5th, the day following the big announcement that Microsoft is buying GitHub. Well. Day after Monday, June fourth. It is also

0:44 after Monday, June fourth. And uh Um You know, this show is clearly patterning after acquired. Um it is a a San Francisco company and a Seattle company that are uh um joining forces and uh I I don't know where I'm going with that, but we sit here in Wave Capital in San Francisco, uh, near the the headquarters of GitHub to uh

1:07 to celebrate this momentum occasion. Indeed, indeed. And uh This is our second in person episode in a row. Uh we actually recorded what we thought was episode nine last week together in Seattle. We did. And Turns out now that that's episode ten. So listeners, you'll have to Wait and find out what that could be.

1:29 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 acquire.fm. You can also check us out on Apple Podcasts, and we appreciate any love or reviews that you could show there. Uh love coming in the form of reviews. All right listeners.

1:50 Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus.

2:24 They embedded inside a massive law firm. For months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagora's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

2:57 And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Legora now has over a hundred thousand lawyers. on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR.

3:43 In about. Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reach for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.

3:59 If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com slash acquired. And just tell him that Ben and David sent you. Alright. David, are we ready? Let's get into it.

4:15 Uh so we didn't have a lot of time. To research this one, given that it's hot off. The press. Yep. But fortunately. I actually had a little bit of a shortcut, which was

4:25 Back when I was a first year a young whipper snapper Yeah. uh in one of my uh one of my classes. I believe it was like High tech business strategy or something like that. Sounds official. Uh it sounds very official. Uh

4:44 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 seventeen 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 twenty thirteen, but um As we will see, not that much has changed with GitHub since twenty thirteen. Um Okay. So uh With that fun Oh, another fun story. Uh, one of my professors at the time, not actually in this class, but one of my professors uh at GSB was

5:20 Peter Levine, the uh general partner at Andreas and Horowitz, who led GitHub. Series A and uh it was on the board. Unprecedented freaking hundred million dollar 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

5:41 To start before we get into the history of GitHub the company, there are a couple of things that we wanna Uh that we want to cover that are pretty important to understanding the context here. And uh

5:52 Ben and I were were laughing before the show. probably half our audience, the the more technically minded uh folks in our audience, engineers and the product managers are Probably gonna know all this already. probably will know it in greater detail than us and uh we'll we'll write in and tell us what we got wrong. Yes, as as usual with a technical acquisition, uh 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 I hope that we can make something that's um

6:24 Yeah, uh 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. 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

6:40 Okay, so so basically they're they're kinda two Concepts. Uh to Not concepts, but um

6:51 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.

7:03 Or S C M Um for uh as for as initials. Um As an acronym. Um The other area that we wanna make sure we talk about is kind of the evolution and dynamics of the open source software ecosystem.

7:18 Uh, 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

7:30 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 codebase for a private um uh 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 uh are making. And I would say even uh just as one person, as as a as a person that used to write PHP scripts and then name them V two and uh switched and uh dot backup, uh it is uh excellent to be able to use uh uh version control and all elements of software configuration management, even for your own private projects. For all our investment banker and former investment banker friends, you've certainly lived through

8:18 You know, uh merger model V twenty four. Final final. Underscore, final, underscore, do not delete, underscore V You know, DR Uh This is basically making all of that. Easy and seamless. for way more people than ever work on an Excel model. Yeah, in cases.

8:37 Um So there's basically kind of three way main ways to do this. In the very, very Old school ways. Um

8:45 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 engine working on the code base, you went on that machine or you uh telex 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 the code 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.

9:24 And so David, you know, let's say uh s I'm just doing a little weird thing on the side here. I don't really want anyone else to know it 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 This client server centralized model. No, Ben. Why would you want to do that? Hm. Feels like I'm gonna 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.

9:57 Uh, 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 and uh uh maybe over the course of several months and upload that back up. That that feels no that would be tough. So as you can see, this kinda 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 nineties, just as

10:29 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. Uh a company and a product called BitKeeper.

10:49 Developed in the late nineties. Um 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

11:13 Uh was it the precursor to Git? Did they develop Git? No. So uh BitKeeper, 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 Tar Vault.

11:42 Uh they BitKeeper 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 like massively scale the number of developers all around the world that could work on these projects. Um So that continues for a couple of years, uh and all sort of well and good.

12:08 But then in two thousand five Bitkeeper the company actually pulls the free license. uh that they had been providing to the open source community. Uh they um Uh yeah, exactly. You get what you pay for. And uh

12:24 Um and so this creates A huge kerfuffle. in the open source community. What of course As um We will get into people have lots of uh opinions, uh and lots of different opinions. And and this leads to

12:38 Two Separate projects. That are pioneered and and undertaken really in an amazingly short period of time. to replace Bitkeeper.

12:47 Um And those two projects are Uh first was Mercurial, uh, 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 uh runs on the Mercurial uh source control um system. Mm-hmm. Um

13:05 And the second Which leads directly to where we are today. is a product called Git. No Git is interesting because it is actually developed

13:14 And implemented in like a week. uh, apparently by the open source man himself. Linus Torvalds. Yeah. Well, if somebody was gonna do it in a week, it would be him.

13:26 It would be him. Uh and then quickly uh he I don't know that he loses interest, but he hands off the project to other folks to uh keep um implementing and developing. Um So Git uh naturally, because it was developed by Linus becomes first the uh source control management uh system that Linux uses, the Linux kernel uses. Um, then it starts quickly gaining adoption in the rest of the open source community. Uh Hadoop moves over to it, the uh the Hadoop project, many others

13:58 Um, 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 i 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 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

14:24 Software. uh in and itself is software that manages the version. It doesn't actually Host the software. Uh the code, which itself is just files, has to actually

14:35 Live somewhere. uh still on a server or on a distributed set of servers. Um And so Ben, just like you said, there's still no way to really do this in a in a nice graphical user interface way. There are

14:49 Um there are what's called forges, uh, which are essentially servers that that host code out there and and they're used in the open source community. They really should have kept that name. They really should have. They really should get forge. Um And uh so these are companies like like SourceForge Uh I think a lot of people will know Google actually launches its own version of this called Google Code. Yep. Um, and they're the most popular places for for The code to actually live. Um

15:19 But the problem is there there's not much more to them beyond a place to live and like a like very standard Wikipedia style webpage 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 Git or Mercurial to manage all of the changes made to the code. Um So right around the same time, we're now into like

15:45 Two thousand six, two thousand seven, two thousand eight. We're in the heyday of on the completely other side of the tech world from all this infrastructure, you know, developer technical friendly or technically heavy work. Um 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

16:07 what is possible when you take software and people and 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

16:40 If you were contributing to an open source project There was likely a flame war. Like there was there it was political, people were um you know, grabbing on for deer 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, like it's not purely because the the software made it all better, the the industry's matured quite a bit, but it is, you know, we we've we've moved on from that time, um, at least with a lot of the major open source projects in a lot of ways. Yep. So

17:09 People are thinking like 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. Uh And that gets into The founding of GitHub. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta.

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19:00 So you can get$1,000 off Vanta at vanta.com slash acquired. That's V-A-N-T-A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. So I'm gonna I'm gonna switch over here now to the canonical founding history in the words of Co founder Tom Preston Warner himself.

19:21 Uh quote. And Tom Tom was a uh 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

19:35 In his own words, I was sitting alone and In a booth at Zeke's sports sports bar and grill on Third Street in San Francisco. This is in summer. I wouldn't normally hang out at a sports bar. Let alone Love it. This is just like this episode is gonna be filled with with uh

19:55 Just instantly throwing shade on anybody who's like not a not a proper nerd. So many tropes. Um 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. Ruby, of course, referring to Ruby on Rails, the web development language that was starting to take off and was Um 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 a Rails app.

20:28 um that like massively, massively didn't scale. And that was why it says the the front end would always fall over. And I think Alex Payne was brought in a total side tent, but uh A L three X on Twitter, Alex Payne was brought in um to kind of redo that whole thing in Scala and decouple the the front end from the back end. Uh, totally. Oh, what a mess. Facebook originally, of course, being built Not even in Ruby, but PHP. Yeah. Um actually I think GitHub is still uh largely Ruby. GitHub itself. Uh.

20:59 Interesting. Yeah, that would make sense. That would make sense. Um So it's I Can has Ruby Night, of course, as been alluded to a reference to the I can has cheeseburger memes. L Cats. Lol Cats, uh from the Seattle company, I can has Cheeseburger, uh at the time.

21:15 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. uh his not even friend, acquaintance

21:33 Uh 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. Um And Tom for some reason, uh even as he's writing this, he doesn't know why he does it. He just kinda gestures Chris over to the booth and he's like, Hey man Check this out. I've got an idea I'm working on.

21:53 And the moral here is always be looking for people gesturing to you uh that could have startup ideas. In sports bars and so uh 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 Dist these distributed Git 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 this code that he's written for accessing these repositories and

22:26 And and turn it into a website that can act as one like this kinda idea of social coding that people have been talking about. And apparently. Chris they they like barely even know each other. He's like I'm in. Let's do this. And this is like the literally hold my beer. Th this is like literally the dream of of engineers with like this thing happens ten thousand times more often than it works. Yes. Like

22:54 software developers can make anything and what ideas people come up with are generally problems they're ex experiencing themselves. And so it is like the total dream of I have an idea that is a tool or a um 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 to be five hundred million, billion, billion dollar plus companies. Um 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 than 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 stud full time jobs. Again, Tom is working for PowerSet, uh, which was a search technology company. Uh, and Chris has his own startup with his co founder, PJ Hyatt.

23:51 That they're working on. Um they get an MVP kinda hack together. and Chris and P J start to decide that they're gonna start using this um This interface uh on top of Git within their own startup.

24:04 And pretty quickly it works great. And like everybody who's working there is like yeah, this is awesome. The the whole be your own first customer thing. Exactly. Exactly. So they work on it for a few more months, uh January two thousand eight. 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 uh 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 it's one of these things, it's it's a lot like sort of Uber when it launched or Twitter when it launched, where as soon as soon as you you turn the lights on, there's perfect product market fit.

24:47 Perfect. Uh the product market fit was so Perfect. That And so many people started using it.

24:56 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 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 in there again, and so there's lots of like, you know, reasons why it's good, but it's still a it's like a 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. It is funny. I thought about that a lot with um Um so

25:39 Cloud computing. Is this uh client server model. Where if you look back in the eighties, 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. Then you could buy cheap computers. So we didn't do anything in 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

26:07 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 of centralized, decentralized, you know, client server back to to It's uh It's the Never ending Tic Tac of

26:30 The technology cycles. It is. Uh So um They're worried about hosting uh all of these Centralized, decentralized

26:40 Uh Forges uh this forge that they have now. And they're like, Oh crap, we gotta build a business model into this. uh A S A P'cause they had launched it and anybody who was uh who had a Git based project, um, could use it. Could be open source, could be a private company. Like, what could we do? Well, what if we just keep it free for open source? Because remember when

27:02 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 try 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 uh code bases, we'll just charge them and we'll make it free for open source.

27:29 It's really brilliant. Like it is w the thing that's keeping us growing, the ability for public repos that have no permissions set on them, that people are doing open source projects being free to access and thus continuing to fuel growth. However, monetizing people that want to do things that our counter to growth by locking it down, it's like the perfect place to draw the freemium line. Totally. I I think that from a lot of the companies that we've examined on this this show, I'm um I think it's really helped me inform um 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 the the a 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

28:20 finding it so valuable that they'd be willing to pay. And w and when people want to do private repos, like that's exactly that place. It's exactly that place. And not only that, they just completely nailed the timing back to Are hopefully not Two

28:34 Dense and not too Poor description of the open source community early. Yeah, more more more you can say exactly. I I agree. Please don't judge us harshly. It's been a long day. Um the uh Uh back to the open source community, this is right at the time when Open source

28:54 projects and development is just exploding. Like it was like people used to think open source, they used to think Linux and operating systems. And value destructive. Yes, and value destructive. Interestingly, uh and 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 uh uh 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 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 tools, you've got visualization tools, you've got

29:45 You know, I 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. So you can pick Mm. four of them and use them in w some strange concert that the proliferation of open source tools, needless to say, has its own uh And that had a couple there were a couple secondary effects from that. Um One is that simply there's so many more projects, so many more people working on it. Um, that just leads to lots of people now using GitHub, um, period. But also

30:20 It becomes your your sort of your resume, your badge of honor, uh as a software developer, people want to know not where have you worked, uh 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 um which contributions you have made that have actually become part of the uh accepted by the community as core part of the project, what's your impact? And that's way more traceable and um open in a way, just like LinkedIn and Facebook, uh in the business world and the social world, um, than it ever used to be. Yep. 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.

31:02 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 your your code and and what your um what small problem you were passionate about solving. And that's a thing that I think is looked for much more by protective h uh prospective hiring managers than um open source contributions for a lot of employees. Yeah. Well, certainly both are. Uh and it depends what you're hiring for. Yeah. Uh but totally changed the way that software development recruiting was done. Completely. Uh none of that visibility existed at all. I mean it was like literally it was like LinkedIn, uh which you know we'll get to with Microsoft and the acquisitions in a little bit, but um It was like LinkedIn in your resume before 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.

31:53 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.

32:07 They realize they need to start making money to keep the lights on. Uh they quickly. April two thousand eight, 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 been 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

32:28 Uh GitHub you have to pay GitHub a certain amount per month. Um to cover that. And Once again. It works like wildfire. Um shortly there after that, we had alluded to power set where Tom was working. So

32:43 Chris and P J 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 PowerSet. July two thousand eight. PowerSec gets acquired by Microsoft for a hundred million dollars. And uh Microsoft offers Tom a three hundred thousand dollar

33:07 retention bonus if he signs on to stay for I believe three years. H Tempting. Tempting. But this freemium thing is really kind of taken off and get up. So Tom makes the correct decision. Does not go work for Microsoft. Uh Leave's power set, Microsoft and Goes full time.

33:26 on GitHub. Uh and so the three of them are full time. Tom is CEO, um, but it's completely flat. They're all equal, uh, and working uh working on the company. And so just like uh in the Atlassian episode, which we also covered and is also very reminiscent of developer tools and tools for teams and collaboration. Um They decide that they're gonna 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

34:00 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. Um they still haven't hired anybody, it's just the three of them. Um And that uh that goes on. They also decide though that they Um, since they have started the company they need a logo.

34:20 Where should they look for a logo? Uh stock photos. This is this might be there 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 I'm actually it's it's unclear to me if they're friends with the founders of Twitter. Um they must have been it was actually still a much smaller place, uh 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

34:53 The Twitter logo, uh, the bird, um, not the bird you see today, but the original version of the bird. was actually an eye stock photo by the British graphic designer designer Simon Oxley, who is just very prolific and produced tons of stuff. Tons of Stock art on i stock photo. Uh

35:13 The Twitter founders saw that on there and like, that's the bird we want. And they paid fifteen dollars. 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? Well they so the the quick aside, the newest um and and really nice, really simple, really beautiful mark for Twitter is a uh you know, aspirational sort of upward turn bird. And the when the day they announced it made a bunch of hay about it, um

35:43 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 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. It was also like really disorienting because You know the The current Twitter bird logo faces right. But the original one faces 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.

36:33 Um This is not the Twitter episode. Total aside. We will revisit that in a Twitter episode someday. But his helpful background. The GitHub founders, they're like great.

36:45 Work for Twitter. We're gonna go on ice talk 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. Yeah. Animal like bird, sure, what should we find? What is it 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.

37:10 No. It also only had five tentacles. It's very confusing. Very, very confusing. Um No, it was not yet called Octo Cat. I I did look up but I forget what it was what it was originally called. I think it was Octopus. Yes, I think it was yes, I think it was octopus or something like that.

37:26 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 fifteen dollars 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

37:49 So they buy the Octopus. rename it the Octo Cat. And that is how the Octocat became the logo and then very quickly official mascot.

38:00 uh adopted worldwide by GitHubers and GitHub fans. Um around the world. And With that, um

38:11 really on the back of the Octo Cat. Uh, growth Continues to come very quickly. So about a year we're in early two thousand nine now. That's a causation correlation area. Absolutely. I think it was no doubt causation. Early two thousand nine, they announced that they now have over fifty thousand 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

38:40 GitHub. They n they never they never talk about how many private repositories they have. Um July two thousand nine, they announced they have over a hundred thousand registered users. Um so a hundred thousand developers. Which is a lot like the they're not that many developers uh in America so they already have well around the world there more, but they have pretty high penetration pretty quickly. Um

39:02 They have ninety thousand unique public repositories. By the next year, they have a million. Public repositories. Uh twenty eleven two million public repositories. And when you look at the these numbers are a little hard to comprehend uh here on the radio. But when you look at charts, I mean b either by repo or by

39:21 um user growth. It is just at at any scale that you look at it, just completely geometric or or actually I don't know if geometric, exponential, logarithmic, whatever. It is it's up as it goes to the right. It is getting upper as it goes right or By the middle of twenty eleven. They have now GitHub has now surpassed so we're three years into the company.

39:44 uh it has now surpassed SourceForge and Google Code as the number one place where projects were um open source uh and and any personal public uh projects are hosted on the internet. Um so that was a major, major milestone for the company. Um Then the next year, so they've they've been bootstrapping the whole time.

40:05 Profitable the whole way, uh, and making money and very nice salaries by we would assume by the formula that the three founders devised. Um July twenty twelve. Andreas and Horowitz. uh comes in and invests a hundred million dollars in the company. The largest check that they've ever written

40:23 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. Gotta be. It's gotta be now. It wasn't really a series A because like the company existed. They had a hundred employees. Uh it had just been bootstrapped for a long time. Um, but it was their first round of funding. It was at a seven hundred and fifty million dollar valuation. Um

40:48 Incredibly, incredibly impressive. Yeah, and from what from what David and I understand from some some primary source research, a very, very competitive round. Yeah. Where Andrees and Horowitz just decided. Yeah, we're gonna do this and uh nobody is gonna nobody else is gonna do this. It's just gonna be us. And and It was um Uh

41:09 A great company, obviously very hot, a great round to do, and and obviously Andreessen did great in the investment, but also not super clear that uh it warranted that much. I mean they had grown so much. Uh as we alluded to, uh, I wish I had um in my old uh uh in my old term paper from GSP, 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 Git 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.

41:44 And one would be correct. Um So January twenty thirteen, six months after they raised the series A, they announced that they have three million users and five million. Repositories. Uh.

42:00 And again, you're wondering about how much headroom is there in the market. By the end of twenty thirteen, they have Ten 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.

42:17 Unfortunately, twenty fourteen 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. Um at the end of twenty twelve, GitHub had almost two point oh eight million members compared with the total professional software development burp. the software developer population of the United States of only one point three million. Right. So they had over a hundred percent of the United States software developer population. Right. So presumably it would international what, like, you know, half a million from the US and a ton internationally or something, but

42:49 Crazy. Crazy. How much bigger can it get? Um So As we were alluding to, twenty fourteen was not the best year for the company.

42:58 Um Tom Preston Warner, who We uh had talked about who originally had the idea for the GitHub and was the first CEO. Um

43:08 In a sort of bizarre series of events that it's un 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.

43:19 led to an internal investigation and and ultimately and um leaving the company. Um so since two thousand f fourteen he is he's still a founder, but has not been part of the company. Yeah. And 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 y and you know, by all accounts it's it's still kind of unclear, um w w what happened there, but you know, you can kind of read between the lines on Um

43:46 you know, super young founding team, company growing incredibly fast. Um you know, a lot of very unorthodox uh sort of management principles. They adopted the valve management uh style of a completely flat organization, nobody reported to anyone else. 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.

44:11 Good. Uh I would say we the the public never really f knows the true story of of what went what went down there, but the internal investigation did reveal um Um I believe it revealed

44:24 According to the internal investigation, Not specifically harassment, but lots of signs of laps in judgment. Judgment, yeah. Um Anyway, uh 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, re results in Tom leaving the company and Chris Wanstraff the co founder.

44:45 Who walked into the bar becoming the CEO. Um And he would remain the CEO until Mm-hmm. Yesterday. But we will continue on that. Um The company still keeps going. In in twenty fifteen, Google just gives up and Google shuts down Google code. Says just go to GitHub. It reminds me of Google Video, except they didn't acquire in this case. Yes, they did not.

45:11 Microsoft did. Could you imagine if Microsoft had acquired YouTube? That would be uh What would have happened otherwise? Uh. It just doesn't have the same ring to it. We love Microsoft, but uh we we really do.

45:32 July twenty fifteen, uh things Are back on track. Going really well. Uh The company raises another two hundred and fifty million dollars led by Sequoia. uh at a two billion dollar valuation and they announced that they have ten million users. Yeah, and it's important to note this is not uh we have covered uh times on this show before um

45:54 where a company is cash flow positive or profitable. um or sort of the the uh could be profitable at any 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. Um This is not the case. This is uh we are not running a profitable business. We're we're generating nice revenues and the adoption is crazy and the stickiness is is huge. Um, but we are you know, we need this capital in order to continue to operate the business. Well, and uh and you know

46:31 I think it's also a fair question to ask. Um Certainly the Any market size estimate of the number of software developers in the US or in the world in twenty eleven, twenty twelve would have massively underestimated the growth.

46:46 Yeah. Certainly. That said, the 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

47:01 How much of the I'm sending 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

47:16 been as as you referred to. You know, over the next few years, um Again the company continues to grow. Very nicely. Uh But

47:24 Last End of last summer. August twenty seventeen. They make A curious announcement.

47:30 Um They announce that they have passed the two hundred million dollar annual revenue run rate. Mm-hmm. Um

47:38 Which is you know, impressive. Uh, but relative to being valued two years before at two billion dollars. Um it is Lower uh than you would expect. Um and the punch of that announcement comes from the fact that uh a hundred and ten million of that

47:54 was from their um 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 uh in part to tout, hey, we actually have a real sort of uh enterprise B to B 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

48:44 in the company to bring in a New um you know, experienced Uh not that Chris hasn't experienced at this point, but a new more experienced CEO to run and lead the company. An action jack, if you will. Indeed. Indeed.

48:59 Um And then that leads to yesterday. Uh well, really to over the weekend when the rumors started swirling. Uh, but then the announcement yesterday, which was that they had found The CEO. Nat Friedman. uh who had been the founder of Zamarin, uh a developer platform

49:16 mobile developer platform, right? Mm-hmm. Cl cross platform mobile development that Microsoft had acquired a few years ago. Uh he's going to be leaving the Xamarin into a division within Microsoft to run GitHub And concurrently Microsoft is buying the company. Oh yeah, and there's another piece of the announcement too. Oh yeah. Um Yeah. We're getting this guy as CEO. Also he's currently employed Therefore. We're gonna get owned by them.

49:43 Um so a curious uh a curious case of of a CEO search. Yeah. But An incredible outcome. Seven and a half billion dollars. uh is a lot of money. And David and I joke, but um it it's certainly not how it went down. It absolutely went down from the the um GitHub uh um investors uh and and the GitHub board and the GitHub management uh you know

50:10 uh entertaining the sale of the company, uh hiring investment bankers, I believe Morgan Stanley in this case to m to to help make it happen, to get the best price, um, to looking around for for counterparties, and then when the transaction, you know, in thinking about how the transaction was gonna 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 um process with the the the former Zamarin CEO to um um to make that happen. But really interestingly leading with the leadership announcement in the press release because they sort of anticipated uh people are gonna 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 to this

50:59 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 Um software development uh and 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

51:29 That's not Microsoft. And now Microsoft is buying GitHub. Yeah. So uh uh storytime 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 Uh actually first it was not to look at any any patents. Then it was do not look at any source code that has the GPL V three 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. D P L license being the Uh

52:06 Gano public license. the the the core of legally what it means to be open source software. And there's other ones, so there's the GPL V two, there's the MIT license, but I and I caveat I'm 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 GPL V three licensed in our software, then we could be forced to open source the whole thing.

52:36 Wow, like all of Windows, all of Office. And it was sort of unclear exactly what all of would be, but um L CA 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,'cause there's so much also like In open source and and all of technology, um Of the sixties counterculture, you know, uh element embedded in is this part of the the whole copy left?

53:02 Idea. So there's copyright. I'm not sure. And then there's the idea of copy left. uh which was part of the open source software movement, um, 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 from it. To contribute back, to keep open and anything else you use in conjunction with it to open as well.

53:24 Yeah, and so uh even one step further, uh I remember at one point I had GitHub open. uh during my my internship and uh uh got in a little trouble. Um and it was it's kinda crazy. I mean it was it was reprimanded by Microsoft for

53:41 Yeah, only eight years ago. Eight years ago, something like that. Uh I got in trouble with 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 uh my end at Microsoft, uh there was a group starting MS Open Tech that was a um partnership between Microsoft, it was like a sort of Microsoft half spin-out Um and then slowly the the dramatic uh adoption of open source software in the company, so being able to to do Linux on Azure and um uh And to the point where Microsoft of course

54:18 Uh we we really in the best interests of everybody, including ourselves, glossed over a lot of the history of version control software and and software configuration management. But Microsoft has a massive uh historical um product uh that they've sold and made a lot of money in the space called Team Foundation server. Uh and that was based on an old centralized version of of source control management. But to the point where in in two thousand thirteen, they actually added Git support uh to TFS.

54:46 Yep. And even today they have uh 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. Um they cut they shut down Codeplex about a year ago and or maybe six months ago. And you know, the the company uh has this incredible developer division or group of people that produce software to uh 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, th it's not like Microsoft hasn't thought about this problem. Yeah.

55:29 Wanna be What will be interesting Well, uh flash forward here to to grading. I don't even know how we're gonna put a grade on this, but um given it happened yesterday. But um Will Microsoft keep those or will they m 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 four different customers, blah, blah, blah. Uh

55:58 You know, we w 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 their 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. Okay. Um, this is a different Microsoft. Uh I don't think that will happen. I think this will look a lot more like it 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

56:35 Uh that one's harder to screw up. Yep, yep. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making.

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57:27 Every device on your network, every permission across every system. Every AI agent visible and secure in one place. And ServiceNow can do this because they've spent more than twenty years building the operational backbone of the enterprise, the workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow already runs more than a hundred billion workflows annually and trillions of transactions for more than eighty-five percent of the Fortune five hundred. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is.

58:14 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale. Go check out service now dot com slash acquired and tell'em that Ben and David sent you. Well. Should we move into acquisition category? We should.

58:31 We should. Um I invented a new one for this because Innovation. Uh it depends. Is the uh is is is our structure uh Uh following a copyleft license.

58:47 Absolutely. I'm gonna 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 uh the part where that gives David and I license to do whatever we want because we are the hosts. Um

59:10 I initially said product. uh and not business line because if you look back at the that stat of two hundred million dollars in revenue, um, they I don't believe were profitable. If you uh take another uh stare at that from the previous year, um the run rate in twenty sixteen was that they did a hundred and forty million dollars of revenue and generate an eighty eight million dollar loss. I don't think they had reversed that uh in the in the next year, probably not the next two years either. Um but they could be closer.

59:42 Um Uh As is if if if it was a two hundred million dollar revenue business, it would be a thirty eight X revenue multiple purchase. Uh for a probably unprofitable business, so I shied away from saying uh from saying business line. But as I thought about it more

59:59 I think product is right. Um because they're gonna they're going to sell this product through their sales sales channels to additional enterprise customers because Satya Nadella said that one of the stated reasons is to accelerate the adoption of GitHub and the enterprise. And they believe that they can do that. I'm sure they can they've 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.

1:00:25 And that's that 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 uh growing consumer base, with the sort of uh enterprise shift to be more open to other things, they've sort of lost the ability to uh coerce developers by just saying, uh, everybody's on Windows, I'm pretty sure you're gonna develop for Windows. So it's a way, uh it's it's a way to sort of get the ecosystem of developers um to sort of continue to be a friend of Microsoft. And can Yeah, so this is didn't so Ben Thompson's take on this was similar to this, right? Yeah, he described it as having the leverage to be able to yep.

1:01:10 Yep. Uh Ben Thompson, of course, of Sha Techari. Uh Which we're great admirers of here here on Acquire. Um Yeah, it's okay, interesting. I I can buy that. It's like the Equivalent of like

1:01:24 strategic reasons. I'm doing the air quotes here. Yeah. Yeah. Yeah. Um Yeah. Product. Uh I went through the same line of thinking about like

1:01:36 Business line like LinkedIn business line. I don't remember what we said LinkedIn was, but I'm I 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 Freedman, founder of Zamarin, 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.

1:02:03 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.

1:02:17 Um You know, in the coming years. Yeah, and another way to put it is they bought a customer base. Mm, mm-hmm. And and obviously they're gonna 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

1:02:35 You know, I think they bought a customer base And they bought that customer base for years to come. It almost recalls a another uh famous saying within uh Microsoft from one particular man who's no longer at Microsoft, who we also did an episode on. Developers, developers, developers, developers, developers, developers, developers. Uh

1:02:58 You've honed that. 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 some day in the distant future when Sati Nadella is ready to retire. I think we we've got a good candidate for next Microsoft CEO. A return to the honey pouring developers, uh Lifestyle. We've got Balmer on at some point. We'll redo the clippers and have him on. Yes.

1:03:28 Definitely have to have Bob for the Clippers. Not for anything. For for what it's worth, I'm a I'm a huge fan of post Microsoft Balmer. I think he's just killing it. USA Facts is an awesome project. He's teaching at Stanford G S B. I don't know if he still is, but he was for a while. Can't knock that. Okay, what would have happened otherwise?

1:03:47 I think the specific question is 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 w when an announcement comes out like Uh. We just cost two hundred million in revenue. And we're starting a CEO search. Like yeah, you're definitely looking you know, you you're gonna be entertaining acquisition offers. Right. Um

1:04:06 So I think the question is who else? Could was in the mix. Uh Yeah, buying this year. And every listener, um, or lots of listeners, I'm I'm sure you're also thinking. Google.

1:04:16 Like Google's Google has to have have um uh reports are that they didn't formally but informally sort of entertain does this make sense for us? And and Google was one of the main competitors of of GitHub, of course, with Google Code. And they just You won. We're we're done. Yeah, I think so going back to the point from Stratekeri

1:04:40 Ben Thompson had a really interesting point that is that If someone like Google had But GitHub. there would be enormous temptation to leverage it.

1:04:52 to funnel developers at your product. And the great thing about GitHub is that it's Switzerland. Like it works for all these things. It gets to be a horizontal And I 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 and by product you mean uh G C E Google Cloud Engine. Google Cloud Engine, Android, um I don't probably not Chrome or Chromebook developers, but you know, there there's more uh sort of thriving developer ecosystems such that if they bought it, there's an open question of do they prioritize

1:05:29 their own platforms on that and use this horizontal thing to feed the vertical. Certainly at least Google Cloud Edge. I mean they're locked in a war with AWS trying to do everything they can to get market share. Like if you've got all the developers in the world, you know, pretty much more than a hundred percent 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 gonna do that too with Azure? Like is there gonna be some like ease ease of deployment to Azure? You can deploy it anywhere, but like we made this extra easy button. I don't know.

1:06:05 Hm. 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 m 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.

1:06:25 Um, but They could try to change Git upstream. to add in enterprise features so that it's m uh uh Git and then therefore the open source project of GitHub 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 GPL V two license, which is copyleft. And so

1:06:57 if Microsoft decided to change anything in Git specifically for GitHub without going to um sort of Git 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 to um improve the enterprise functionality. So I think what what Microsoft may do is try and uh get that support added to GitHub and then it would come downstream to them. Uh I'm sorry, to get come downstream to them for GitHub. Um and they 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 they can push through their channel, but I don't know. What does Linus Torvalds think about this is my question. Yeah, no kidding. No kidding. Hopefully that guy goes on a podcast.

1:07:48 Yeah. So so another really interesting point, um And this was on the Motley Fool podcast. Very interesting that this was an all stock acquisition. Very interesting. So Microsoft couldn't afford the cash.

1:08:05 No, Microsoft has forty three 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 thirty 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

1:08:25 We're gonna pick it up on the cheap. We got some cash. We like holding our stock. We it it should it's show of good faith for the company the for the future. If you think that's why the stock said they buy the stock and retire it, so they reduce the number of shares outstanding, so everybody's value goes up. Right. Uh antivolution. Yeah. Yeah. So But then they go and they buy a company in all stock.

1:08:47 which if you have the option to buy in cash and you think your stock is gonna 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 in uh It's a good question. The the other thing that the the host of that show postulated, which I thought was interesting, is maybe they're gonna do something else with the cash.

1:09:12 and that maybe there's another acquisition coming that is gonna be an uh r require more cash. I don't know if we can read that much into it, but that was interesting. It seems like Microsoft has so much cash. Yeah, um Interesting to speculate why they did this in stock. Yeah.

1:09:31 Which we should also say the uh Uh founders of GitHub are now the largest shareholders in Microsoft 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

1:09:57 would have point one six percent. of Microsoft from this because the the acquisition uh was about one percent of their market cap Um And so That's about

1:10:09 ten times more than Satya Nadella. Wow. Fourteen times more than President Brad Smith. And among insiders, only co founder Bill Gates one point three port one point three four percent would exceed theirs. So I guess the moral of the story is Satya and Novelle. Each of the GitHub co founders now owns more of Microsoft than Satian Nebel. Each of them. Wow. Yep.

1:10:32 And so the moral here, I mean there's a there's a bunch of morals, but Uh late capital raises after bootstrapping. So super low dilution they did that. w one hundred on seven fifty rays. Um and then that two point five on two. I mean you're you're just taking very little dilution there. So late capital raises after bootstrapping plus few capital raises plus an all stock acquisition

1:10:54 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 on like

1:11:13 The world in which we live in San Francisco in twenty eighteen. So you're saying these guys could probably buy some h like a house? Yeah, a house. Imagine that. Yeah, they could probably buy a shack here in San Francisco. Uh Well Cool. Okay, so uh any any other points on that? Like what uh so m let's say they don't get acquired. Can this company go public? Like do they end up

1:11:36 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, uh but It's been a long day. Um They compete. We're gonna leave it at that. Um In the Atlassian episode we we were grading their IPO

1:11:59 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 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 with GitHub here to Ultimately go public. The CEO was leaving. Um they've had a history of, you know Management turnover. Um

1:12:31 There clearly was a lot of company building work left to be done here, um 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 feel like a great outcome. Yeah, so interestingly, maybe if if Um

1:12:48 If the assertion there is that there's a lot of company building still to be done, Maybe there is gonna be a lot more integration with Core Microsoft than LinkedIn had. Like LinkedIn was a family public company, public company, like all the executive team in place. Um Jeffliner's still there, you know, doing great. Um Yeah, very different situation. Hm. Well

1:13:12 I think Let's do tech themes and then I wanna 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'em. Microsoft's monumental reversal of philosophy on open source was a big one.

1:13:32 Um uh point of integration is a big one. And this is getting back to that that strategy 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. Um without that Enduring linchpin. Um you know, you have to take other measures to get people if if developers are a core

1:14:07 Um core element of your ecosystem, you have to take great measures to get those those uh 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 two billion people that are using it. Um, because seven bucks a month, uh, or even the twenty five hundred dollars a month for ten seat enterprise license of GitHub is not nearly as good of a business as selling Windows. So um if you're not making en um 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 um yeah, that's a a a

1:15:00 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 and develop and when you don't have that Doing things like this. Yep.

1:15:16 I think we've hit everything. The only thing I just want to highlight again, um that I actually hadn't quite Thought about till till you brought it up earlier in the episode. So I'll bring it up again is um The power of freemium models If and only if you'd get

1:15:31 the the line, you know. 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

1:15:47 very easy to understand and um aligned incentive way to monetize around that. Um And could have just nailed it out of the gate. Might be I mean Uh. I'm having a hard time thinking off the top of my head. Certain, you know, top three, if not best premium model.

1:16:05 Ever devised. Mm-hmm. 'Cause 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 uh 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

1:16:41 If it requires network effects, it should be freemium. If it's a utility for you personally, it can be time bound trials. Mm-hmm. And GitHub sort of

1:16:51 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 in in placing the line exactly in the right place to to convert people. Mm-hmm. But even Spotify I would say, like it's still like the network effect isn't really important in Spotify. Got him off the ground, but it's not that important anymore. 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 GitHub for free doesn't make GitHub better for everyone else. Absolutely. Yeah.

1:17:24 Absolutely. Um Cool. That's what I got. Um Great idea. How do you want to approach this?

1:17:35 Okay, well let's first talk about What we think they're gonna do with it. I'm I'm I'm I there's two things that I think they could do, and I'm so hand wavy. I Like I'll 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 s Microsoft sales channel and recommending this to all the Microsoft uh customers that are developing on any part of the Microsoft stack, um

1:18:04 Which of course may compete with visual V S uh V S T S or whatever that is. Whatever it's called. Yeah. Um it you know, you could you could start turning this into a profitable business line. I it doesn't feel like that's gonna make a ton of money. Um Probably not enough to earn back seven and a half bees anytime soon. Yeah.

1:18:25 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

1:18:46 Sense. GitHub It serves many other purposes, but it's is sort of LinkedIn for developers. doing some kind of LinkedIn integration or some kind of hybrid product

1:19:00 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.

1:19:14 I Starting to integrate them with this. This acquisition so I I don't know how they'll play together yet. But I

1:19:21 the th 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.

1:19:35 Interesting. Yeah, 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

1:19:52 Software developers now. Um and it's kinda like in it's kinda 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, and this might be what they nobody's said this, but like It costs thirty thousand dollars to recruit an engineer. Well r okay, so this is where I was gonna go at this. 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.

1:20:25 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 GitHub services, which is Big, for sure.

1:20:38 Um The market for recruiting engineers is At least as big. Um Uh, you know, what's the so what's the enterprise version of GitHub you're paying effectively two hundred and fifty dollars per seat per year, right? Yeah.

1:20:51 But it costs thirty thousand dollars to recruit an engineer who's gonna stay at your company for somewhere between One and X years. You know, not enough. Way more in the upfront recruitment fees than however much you're gonna pay for a GitHub seat for Yeah, it's kind of interesting. Over the say they they're there for three years, it's seven hundred fifty dollars versus thirty thousand. Yeah. That's a big delta.

1:21:16 Hm. 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.

1:21:29 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 I 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.

1:21:53 Now has I mean, actually they have access to these codebases, 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 for lots of reasons. Uh

1:22:11 Benamine, uh you know, I've said wave like perceptions of Microsoft. Uh and certainly, you know. vastly improved since Satya Novella Nidella became CEO. However, still in the Valley, like and I know like having lived in both worlds in Seattle and 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 gonna 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.

1:22:46 Yeah, I mean they they have to. GitHub Beloved. Uh 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

1:23:12 An hour plus at this point. Um I I don't feel good about it. I'll just say yeah, whatever. So I think the question facing us is like, what do we think like, you know, fast forward Five years.

1:23:29 How we gonna look back on this? So the reason I don't feel b good about it is'cause 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 gonna make.

1:23:48 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? Um 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.

1:24:06 There's this great great quote, we do need to do a Twitter episode some day. A legend and lure. Um that Uh Facebook tried to buy Twitter.

1:24:19 Uh, for I think Uh I think something like five hundred 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 Evan Williams after the meeting where they talked prices like

1:24:36 Uh, you know, if we're worth a billion dollars, we're worth ten. 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 well, so you what's your grade? I g

1:24:53 I hate this. It's super high variance, but I'm gonna go C plus. Okay. Um And hope Satya makes me look like an idiot in a couple years. Great.

1:25:03 Great. I actually think the most likely Yeah. Mm-hmm.

1:25:10 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 LinkedIn, like clearly it's gonna be standalone, like you know, a little more but like there's some high degree of difficulty here, but Microsoft's like, you know, Satiya gets it, like all this stuff. But it's just gonna be hard to really pull this off. Um So I think it probably ends up somewhere in the muddy middle. I'm gonna give it a

1:25:34 Buddy Middle. B Yeah. Yeah. All right, fair. Yeah.

1:25:42 Carvels. Carve outs. Mine is uh from Chris Dixon, great blog post called The Idea Maze. I'm sure many of you have already read it. Uh it's been floating around the Web and I'm a little late to the party here, but it is uh it's a really great read. It's short. Um and it's a lot about

1:26:00 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 blah. And he really teases out like ideas aren't worthless. We just refer to the idea as like

1:26:15 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 it's a really great blog post about sort of the things you realize while you're executing, reasons to get out to into market, ways that you can sort of learn faster to make better decisions, um, and to uh to basically be uh be an informed, continuous idea person as you operate your business. And so Highly recommend that.

1:26:50 Nice. Mine um Related to that. Blog post it. Went around the Internet, the interwebs.

1:26:56 uh about a week ago. Uh Eugene Way, uh former Amazon employee and and part of the original team at Hulu. Um wrote a great blog post called Invisible Asymatotes. about um his time at Amazon. And they're in the relatively early days.

1:27:15 Uh I think just after going public days, uh when they started thinking about the business in terms of what are the What are the you know, ceilings to growth and market size that we're gonna bump him to. How do we address those in the product and then how do we start adding more? Um

1:27:32 Really cool, interesting. strategy in tech that I hadn't thought about before. Um Highly recommend if you haven't read it already, which I assume many of you already have. Well worth doing.

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