Microsoft's acquisition of GitHub is a win-win deal. This acquisition is similar to Oracle’s acquisition of MySQL. Though the cost of acquiring GitHub is huge, (7.5B, close to 30x annual recurring revenue) the value proposition is pretty clear with the following benefits:

Positioning

Microsoft is notorious as a closed-source software company. Microsoft badly wants to flip this perception. This acquisition positions itself at the heart of open-source and strengthens its recent commitment as a developer-first company.

Timing

GitHub is not making a profit. GitHub is struggling to replace its existing leadership and is struggling to deal with investors. This deal would have been unbelievable just a few years ago, but now it will benefit both Microsoft and GitHub

Monetization

Microsoft can offer free features of its tools on GitHub and monetize when a developer buys premium features of these tools. For example, GitHub is weak at CI/CD and Microsoft is willing to offer some of these features through GitHub for free and monetize on its premium features. Microsoft already offers tools like VS Code and Azure tools to GitHub customers via seamless native integration

Growth

GitHub is one of the very few enterprise companies with network effects. This acquisition will open a few more growth possibilities for Microsoft.

Competition

At this point in time, Microsoft can’t come up with a feasible competitor to GitHub. Microsoft can knockout competitors like Google, Facebook and Amazon by owning this largest repository of open-source software and the most popular version control system. With GitHub, Microsoft could restrict a crucial platform for its rivals. Also, Microsoft can mine data about competitors since it has full access to every single repository in GitHub including the private ones which can give some competitive advantage for Microsoft in the long run.

Availability

Over the years GitHub was emerging as a monopoly. Microsoft wants to break this monopoly.

Engagement

98% of developers use open-source tools and 92% of developers prefer Git as their version control system. Microsoft definitely will have a huge strategic advantage by driving other platform developers to the Microsoft developer ecosystem.

Even after the acquisition, GitHub will continue to be the largest open source community in the world and Microsoft will continue to be the top contributor of open source on GitHub.