Muscle or Brains: Why Microsoft Paid More for GitHub Than Linkedin
Selling high-quality hardware with a low-profit margin is sometimes justified in the benefit of selling a high-margin consumable.
This works in the medical diagnostics industry (analyzers/reagents) as well as in the game console or printer industry.
The investment required to develop and produce high-quality hardware is often justified in the software or consumables associated with its use.
How valuable is your company?
It is similar (though not the same) to what happens with company acquisitions.
I can buy a company that does not make a significant profit but allows me to sell my other product with another profit margin.
In that case, I justify the price I pay for the company, not because of its product but because, for example, it is a channel for selling my own.
Microsoft paid a high price for the 27 million developers and 80 million projects it had in its Github community in 2018.
It didn’t buy it for its profitability.
Or instead, it paid more than its profitability justified.
With the 7,500M that Microsoft put in, it paid almost 30 times the company’s recurring revenue.
While for Linkedin, although of higher value, it only reached 7.2 times.
It is these types of bets that separate a strategy from what is simply asset accumulation and consolidation.
Muscle is one thing… and brains are another.
