The GitHub Business Model – How Does GitHub Make Money?

Executive Summary:

GitHub is a platform that allows software engineers (and other collaborators) to manage projects online.

GitHub makes money by offering premium subscription plans to teams and organizations as well as a fee it generates when users purchase third-party apps on their platform.

Founded in 2008 and headquartered in San Francisco, California, GitHub has become the leading online collaboration tool for all things software. In 2018, the company was acquired for $7.5 billion by Microsoft.

What Is GitHub & How Does It Work?

GitHub is a platform that allows software developers to store and edit their coding projects as well as track any changes made to that project.

GitHub, as indicated by the name, is based on 2 core principles: Git and version control. Version control is a system that allows developers to track changes made to a file (or set of files) over any given period.

In the past, these version control systems were hosted locally on the developer’s machine. The localized approach, especially in a project containing multiple developers, makes it extremely hard to navigate and synchronize all the changes made to the code base.

Over the past few years, development teams have moved towards a concept called distributed version control. Rather than having one central repository on which the projects synchronize, each developer’s working file represents a repository by itself. The working files are then synchronized by exchanging so-called patches between each party.

Git is one of the many version control systems that enable this distributed file synchronization. It is an open-source software (like Java or Python) that was created in 2005 by Linus Torvalds (who’s also the brain behind the Linux operating system).

GitHub, in essence, is a hosting platform for distributed version control collaboration. The main advantage of using GitHub comes from the simplicity of usage. It provides an easily digestible user interface that can get you started on collaborating right away.

The platform is so easy to navigate that it not only attracts software developers, but even non-tech folks such as authors who collaborate on books.

Another major advantage is the platform’s customizability. Users can add third-party tools, such as Slack or Trello, via GitHub’s marketplace.

On top of that, GitHub offers a plethora of educational material and events as well as an online forum to keep its community up to date about best practices in the world of (software) collaboration. 

Over 50 million users have now created more than 100 million repositories on the platform. Furthermore, more than 2.9 million organizations around the world are now using GitHub to manage their workflows.

GitHub can be accessed via the company’s website, its desktop app, as well as its mobile phone application (available on Android). 

A Short History Of GitHub

GitHub, headquartered in San Francisco, California, was founded in 2008 by Tom Preston-Werner, Chris Wanstrath, and P. J. Hyett.

Prior to starting GitHub, all four founders had spent significant amounts of time working as software developers in the corporate world.

The slowness, bureaucracy, and lack of autonomy of large businesses started to frustrate the founders.

Hyett and Wanstrath even quit their high-paying jobs at CNet to become their own bosses. The problem was that they did not have any idea what to do with all that free time.

They, therefore, spent the first few months building websites for other Bay Area startups. Eventually, the duo settled on an idea called FamSpam (a mailing list to allow communication between extended families), but apart from Hyett’s mom, no one else seemed to love it.

Luckily, as these stories go, they ended up meeting Preston-Werner who, at the time, worked on a portal that let web developers share and edit each other’s code. Sounds familiar, right?

Before we proceed, a little bit of backstory about the man who came up with the idea. Preston-Werner, who dropped out of his Computer Science studies at Harvey Mudd College, picked up a job as a Java developer in the early 2000s.

Unfortunately, due to the burst and rippling effects of the tech bubble, he found himself jobless in 2003. Instead of hunting for a new role, we decided to give in and finally succumb to his thirst for entrepreneurship.

That same year, he started Gravatar, a platform that allowed WordPress users to create and share unique avatars on their (and other) websites. Gravatar essentially became his first endeavor in the world of open source – and a successful one on top of that.

In 2007, Preston-Werner sold Gravatar for an undisclosed sum to Automattic (the company behind WordPress.com and Akismet). Soon after, he moved to San Francisco to join Powerset, a natural language search engine.

Preston-Werner became acquainted with Wanstrath and Hyett during one of the Ruby on Rails meetups that all of them frequently attended. But apart from compliments on each other’s code, no deeper interaction had occurred between the 3 of them.

That is until that faithful Thursday night in 2008. Preston-Werner was hanging out at a local sports bar in San Francisco, working on the project that would end up becoming GitHub (which he just had started a week prior).

When he saw Wanstrath entering, Preston-Werner invited him to come over and showed what he was working on. Minutes in, Wanstrath responded “I’m in. Let’s do it!” – and GitHub was born.

The trio, with Hyett eventually tagging along, began developing the GitHub platform over the course of the next few months. In January 2008, they launched the site into private beta. In the beginning, only their (developer) friends could use the platform.

github old website
Wayback Machine

A few months later, in April 2008, GitHub finally launched to the public. The founders decided to bootstrap the business, which was all the way more impressive given Preston-Werner’s personal situation.

In July 2008, just a few months after the launch, his employer Powerset was acquired by Microsoft. The Seattle-based tech giant wanted to keep Preston-Werner, even offering him $300,000 as a signing bonus.

Luckily, GitHub had already shown great signs of promise, which made it a lot easier for him to turn down the offer. On their launch day, the founding team was already able to generate over $1,000 in revenue.

And because the platform was solving such a big problem, it started spreading quickly based on word of mouth alone. Within the first 6 months of operation, GitHub had already recorded over 10,000 open source projects on its website.

A year later, the team even won a Crunchie (an award hosted by TechCrunch) for being the best-bootstrapped startup, joining the likes of imgur and Grammarly. Over the coming years, GitHub continued to add users and projects to its platform.

To further scale the company, the founders decided to take their first-ever outside investment. In July 2012, Andreessen Horowitz invested a whopping $100 million into the firm. That same year, GitHub crossed the 2 million developer mark.

The GitHub funding certainly fit Andreessen’s investment thesis like no other. Back in 2011, one of its founders, Marc Andreessen, famously stated that “software is eating the world”. GitHub became one of the major accelerants of that statement.

The funding allowed GitHub to further build out its suite of Enterprise products and hire the necessary manpower to engage in the lengthy sales cycles that are prevalent when dealing with corporates.

A year after the funding, GitHub finally started to enter the public eye. In May 2013, the White House drafted and released a document for its Open Data Policy of the United States. Others started to use it to write a book, file legal documents, or even plan their wedding.

At the beginning of 2014, GitHub announced some major reshuffling within its c-suite. Preston-Werner, who served as GitHub’s CEO the years prior, moved to become the company’s Executive President.

Preston-Werner was replaced by Wanstrath who held the President position in the years prior. The change was announced, well, I let you be the judge of that…

techcrunch.com

Unfortunately, not all was fun and well at GitHub – and the executive swap an early sign of things to come. A few months later, in March 2014, news broke stating that Julie Ann Horvath, one of the company’s former employees, had experienced discriminating and sexist behavior.

Horvath announced her resignation via Twitter and issued her frustration (without explicitly stating names) about her treatment at GitHub. The company launched an immediate investigation, which resulted in the termination of one of its employees – and co-founders.

In the following weeks, detailed reports emerged, stating that Preston-Werner and his wife (who also worked for GitHub) were the employees these harassment claims were targeted at. While both never admitted any wrongdoing pertaining to the sexual harassment, both husband and wife resigned from the company just weeks later.

But even the executive shakeup didn’t seem to faze the company. Its grip on the software development world became so imminent that it even forced other tech giants to abandon similar projects. In 2015, Google would shut down its Code tool. Microsoft would follow suit in 2017 with the termination of CodePlex.

That same year, GitHub would announce its second major funding round. The company’s Series B netted GitHub another $250 million (led by Sequoia Capital with participation of existing investors like Andreessen Horowitz).

The increasing worldwide relevance came with its own set of problems, though. GitHub’s platform started to experience regular hacking attacks, which in turn shut down the site for hours. Given the firm’s push into enterprise customers, which tend to impose high-quality standards, it certainly was not a good look.

But even with mounting attacks from hackers, GitHub’s rise to tech stardom became imminent. In 2018, 10 years after the company’s inception, GitHub finally found its exit opportunity.

The company was acquired by Microsoft for a whopping $7.5 billion in stock. GitHub’s acquisition represented a major strategic shift that Microsoft had undergone ever since its foundation.

Within a year of starting Microsoft, Bill Gates published an open letter that stated copying someone’s software is an art of theft. By the late 1990s, Microsoft saw the movement towards open source as one of the major threats to its business and leading position.

Under Satya Nadella’s leadership, who took over as Microsoft CEO in 2014 (replacing Steve Ballmer), the Seattle-based tech company did a complete 360 on how it approaches open source. Nevertheless, many in the development community became increasingly worried that the acquisition would result in increased pricing and a shift towards Microsoft products.

Luckily for its users, the opposite occurred. Under GitHub’s new leadership, with former Xamarin CEO Nathan Friedman replacing Wanstrath, the company continued to retain its developer-first ethos.

In 2019, for instance, the company announced that its free users would receive unlimited private repositories. A year later, the announcement was followed up by making private repositories free for all teams, a move that especially benefitted early-stage software founders.

Nevertheless, despite (or maybe even especially) being under Microsoft’s umbrella, GitHub continued to stay in the public eye. The platform became somewhat of a political battleground between some of the world’s biggest nations.

In July 2019, GitHub prevented developers from Crimea, Iran, Syria, and other sanctioned countries from accessing parts of its service as I direct result of the United States immigration policies.

What made the block even spicier was the fact that GitHub renewed a $200,000 contract with ICE (the Immigration and Customs Enforcement agency of the United States), which upset many of the company’s employees – and even saw one of them resign.

One sign of GitHub’s significance in the software world became the fact that the Chinese government decided to build their own version of it. Naming it Gitee, the platform is intended to shift much of the code developed by Chinese engineers over to the motherland.

Today, over 50 million people are using GitHub’s platform. The company employs over 2,000 people across 8 worldwide offices.

Does GitHub Make Money?

GitHub makes money via subscription plans and fees on third-party app sales. Let’s take a closer look at each of these revenue streams below.

Subscription

GitHub offers 4 distinct subscription plans for both individuals and teams. The plans are called Free, Team, Enterprise, and GitHub One.

The Free plan, as the name indicates, can be used free of charge. The plan is suited for individuals or small development teams that do not need a lot of features and storage.

In this case, GitHub utilizes a freemium model to eventually lure in paying customers by getting them used to the platform and creating a need for more premium features (for instance, once a project scales).  

If users decide to scale their projects, they can do so by opting into one of GitHub’s premium plans. These are:

  • Team, costing $4 per user per month
  • Enterprise, costing $21 per user per month
  • GitHub One, with pricing being available upon request

The premium plans grant users benefits such as increased repository storage, higher workflow automation minutes (called Actions), secured sign-ins, or dedicated support.

In some instances, GitHub generates further revenue when users or teams are exceeding certain limitations imposed by their plan. For example, customers pay an additional $0.25 for every gigabyte they exceed within their repository storage.

Marketplace

Users on GitHub can download and utilize third-party apps via the firm’s Marketplace product. Just like the subscription plans, users can use the apps either for free, pay a flat rate, or per unit used.

The apps are intended to extend the functionality of GitHub’s platform. Example apps include graphic user interfaces (GUIs) for software development, image optimization tools, task boards, and many more.

GitHub generates revenue whenever users opt in to any of the paid tools. In all likeliness, the company receives a percentage of the overall price charged.

GitHub Funding, Valuation & Revenue

According to Crunchbase, GitHub has raised a total of $350 million across 3 rounds of venture capital funding. Investors into the firm include Andreessen Horowitz, Sequoia Capital, Institutional Venture Partners (IVP), Thrive Capital, and more.

GitHub is valued at $7.5 billion – at least to Microsoft. As of now, the Seattle-based tech giant does not disclose how it values GitHub’s business.

At the time of the acquisition, Microsoft paid a 25x multiple on GitHub’s revenue to acquire the company. This means that GitHub generated annual revenues of about $300 back in 2018.

Unfortunately, Microsoft chooses not to report on revenue numbers for GitHub during its quarterly and yearly filings.

Viktor

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..