Two months after Satya Nadella took over Microsoft in 2014, the company closed its almost $8 billion purchase of Nokia.
It was a catastrophic deal and represented the last vestiges of the Steve Ballmer era.
While Nadella inherited Nokia, an acquisition that was struck the prior year, he’s taken a very different approach to dealmaking than former CEO Ballmer, and has been lauded for luring large and growing communities of users and developers to a company that had become notorious for missing out on technology trends.
On Monday, Microsoft said that it’s spending $7.5 billion on GitHub, a popular platform used by software developers to collaborate and share code. GitHub, which was last valued at $2 billion by venture investors, is light on revenue because a lot of customers use the free version. But it’s a service that’s been almost universally adopted by developers.
Similarly, when Microsoft made its biggest purchase ever in 2016 — the $26.2 billion acquisition of LinkedIn — Nadella was bringing in by far the most popular website used by working professionals to connect with one another. That’s an immensely valuable data source that Microsoft can weave into other products, like its software that’s used by salespeople.
Wall Street has celebrated his strategy, lifting the stock over 160 percent in Nadella’s four years at the helm. Microsoft has finally returned to growth but more importantly, it’s positioned in markets with momentum.
The GitHub deal is just the latest example of Microsoft’s embrace of open-source software, which is necessary if the company is going to get developers innovating on its platforms. Nadella has forged partnerships with longtime rivals of Microsoft with the view that customers want to use what they want to use, so you might as well make it easy for them.
Nadella hasn’t only made his mark in the enterprise. After LinkedIn and GitHub, Nadella’s next biggest deal was for Mojang, the maker of Minecraft, which Microsoft snapped up for $2.5 billion in late 2014
“If there is a secular market segment that is going to grow, we’ll always be attracted to that,” Nadella told CNBC’s “Squawk Alley” on Monday.
“We need to have a real position that we can contribute something unique to that market. In this case, being a developer-first company from the very start gives us confidence that we can bring real value to the developer community.”
Developers were always important to Microsoft, but during Ballmer’s later years they were working on other platforms, whether that meant Android and iOS on mobile devices or Salesforce and Amazon Web Services in the cloud. Microsoft’s purchase of Nokia’s handset business was an example of chasing revenue from old technology, and it ultimately led to a $7.6 billion writedown.
Ballmer got mixed results out of the acquisition of Skype, which remains a popular service in a very competitive market. AQuantive, however, was a $6 billion bust in the online advertising market, and the $1.2 billion spent on enterprise chat service Yammer never really paid off in a market that Slack now occupies.
Nadella still has to prove that Microsoft can take a small business in GitHub and turn it into a revenue-generating asset big enough to justify $7.5 billion. But he has already cleared a high hurdle in getting developers back into the ecosystem.
Sequoia, one of GitHub’s venture backers, applauded Microsoft for its stated commitment to keep the site independently operated, at least for now.
“Satya understands that GitHub’s value to the developer community is rooted in openness,” wrote Jim Goetz, a partner at Sequoia, in a blog post on Monday.
Source: Tech CNBC
Nadella's acquisition strategy is much different than Ballmer's — and investors are rewarding him