Microsoft Roundup: Buying GitHub, Drowning A Data Center, Smashing E3

Last week, Microsoft (NASDAQ:MSFT) announced that it was buying GitHub, checking the feasibility of an underwater data center and exciting new stuff at the electronic entertainment expo. Here are the details-

The Huge GitHub Purchase

Microsoft’s $7.5 billion GitHub purchase is a very big deal because open source prospects have increased hugely in the last few years. And GitHub is the platform hosting the largest open source community of 20 million members with its storage, collaboration and communication tools.

The platform functions through three processes: forking, which allows any user to copy a repository to his own account to develop the idea (GitHub has 57 million repositories); pull request, which is a request to the original owner to accept the change if desired; and merge, which allows the owner to accept the change by the click of a button after also checking the member’s credentials and past work done on the platform.

GitHub charges through a subscription model that includes unlimited public repositories for all plans. Private repositories cost $7, $12, $22 and $50 a month for Micro, Small, Medium and Large plans including 5, 10, 20 and 50 private repositories, respectively (for individuals). Teams are charged $25, $50, $100 and $200 for Bronze, Silver, Gold and Platinum plans that include 10, 20, 100 and 200 repositories, respectively. Users can add additional storage and bandwidth, each at $5 for a 50 GB pack.

Businesses are charged $21 per user per month. GitHub Enterprise (hosted on a company’s own servers, AWS, Azure, or GCP) starts at $2,100 per 10-user seat pack per year, which includes maintenance, upgrades and technical support at no extra cost.

And still, GitHub has yet to make a profit, which is why it needs a bigger partner that can provide it with funds and additional resources, while also helping it to market the business and enterprise segments.

That’s where Microsoft comes in with its deep pockets, huge sales team and enterprise focus. CEO Satya Nadella was very clear about the rationale for the deal. He said that software was increasingly getting into non technological sectors at an unprecedented rate such that these sectors were hiring 25% more developers than the technology sector.

Microsoft wanted to capitalize on this trend. It isn’t hard to understand that these people would need a platform on which to communicate and collaborate. Microsoft could merge some of its tools into the GitHub platform and market them jointly to its huge enterprise customer base.

There are some trust issues as some older developers remember Microsoft’s past, when it was the bitterest critic of the open source platform and used its might to ensure that its own paid platform continued to dominate. But as the new GitHub CEO Nat Friedman has said, the company is determined to regain that trust. As developers understand that the success of the acquisition depends on its remaining open source and as independent as it is today, these problems will be automatically resolved.

The Second Underwater Data Center

Microsoft is sinking a data center called Northern Isles into the North Sea off the Scottish coastline in an attempt to lower cooling costs in the second phase of trials as part of what it calls Project Natick. Natick is a research project studying the efficiency of data centers. In the first phase, a smaller data center was put on the sea floor off the California coast for 105 days with the goal of seeing whether it was possible to operate such a submerged data center.

In this phase, Microsoft is going to study the logistics and cost of operating such a data center, as well as its impact on the environment, including the effect of heating up the waters and disturbing surrounding wildlife. A data center uses just 2% of the energy it receives with the rest dissipated as heat that because of its nature, can’t be transported or put to other use.

The experimental data center is medium sized at 12.2 meters in length and 3.18 meters in diameter, containing 12 racks housing 864 servers. It has a capacity of 27.6 petabytes, which Microsoft says is as much storage space as five million movies and packing as much power as thousands of high-end PCs. Some of the servers will be kept as standby because repairs won’t be possible during the 12 months it is intended to remain underwater.

Microsoft says that once submerged, the data centers can be moved with relative ease to the places where it’s most required and since most people live by the coast line, this will mean faster games and lower latency for all operations, including self-driving cars.

Microsoft at E3

E3 for Microsoft was a statement that the company remains as determined as ever to make good on the ground it lost with the last game console.

First, it announced 52 new video games including 18 exclusives, which is a big deal given that exclusives are what differentiates a gaming console. This year, the exclusives included Halo Infinite, Gears 5, Gears Tactics, Ori and the Will of the Wisps, Forza Horizon 4 and Battletoads.

Second, it announced that some games that had been exclusive to Sony’s (NYSE:SNE) console, such as the Disney-themed adventure Kingdom Hearts 3, Activision’s (ATVI) Sekiro: Shadows Die Twice and Capcom’s Devil May Cry 5 are now also available on Xbox.

Third, indicating its focus on exclusives, Microsoft announced the acquisition of a number of gaming studios, including Seattle-based Undead Labs, Montreal-based Compulsion Game, and UK-based Playground Games and the BAFTA-winning Ninja Theory. It is also forming a new gaming studio called The Initiative in Santa Monica, California, headed by industry veteran Darrell Gallagher.

Microsoft also said that the next Xbox was in the works and that it was in the process of developing a new streaming service that would enable gaming on Xbox, PCs or phones.

Recommendations

Microsoft shares carry a Zacks Rank #3 (Hold). Other software stocks worth buying instead are Aspen Technology (NASDAQ:AZPN) , Cadence Design Systems (NASDAQ:CDNS) , Citrix Systems (NASDAQ:CTXS) , PTC Inc (NASDAQ:PTC) or The Ultimate Software Group (NASDAQ:ULTI) . Oryou can take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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