Tag Archives: Billion

AppExchange, acquisitions key to the future of Salesforce

If numbers such as $13.28 billion fiscal 2019 revenue or 171,000 Dreamforce attendees last month are any indication, Salesforce nailed the tech side of building a wildly loyal customer following for its sales, marketing, customer service and e-commerce clouds during its first 20 years.

For the next two decades, it will take continuous technology innovation, especially in the areas of cloud integration, AI and voice to prevent those customers from defecting to Adobe, Microsoft, SAP and Oracle platforms. Far more important to the future of Salesforce,  employees, customers and analysts said, is growing a Salesforce talent pool beyond the company’s control: partners, developers, admins and consultants.

To woo partners, Salesforce opened its platform. It hosts the AppExchange, a third-party marketplace similar to the Apple App Store or Google Play. Lightning Platform, a low-code appdev environment launched in 2009 as Force.com, enables individual users to create low-code apps and integrations themselves. Finally, Trailhead, a free, self-paced Salesforce training site, debuted in 2014; it has attracted 1.7 million people to learn developer, admin and consultant skills.

Yet it’s not enough. Salesforce developer and admin talent are in short supply. They will get even shorter if the company realizes CEO and founder Marc Benioff’s oft-stated revenue targets of $20 billion by 2022 and $60 billion by 2034 as more customers come to Salesforce.

“Salesforce’s biggest innovation is building this open community, whether it’s admins and recognizing how crucial they are, or creating Force.com and encouraging other developers to come in and develop on their platform,” said Nicole France, an analyst at Constellation Research. “Going forward, the challenge will be keeping up with the pace of innovation — it’s a lot harder when you’re a behemoth company.”

Salesforce's 20-year boom

AppExchange, Dreamforce built over many years

When Salesforce first started, what we call cloud companies today were referred to as application service providers. Salesforce’s big innovation was building an entire platform in the cloud instead of just one app, said Michael Fauscette, an analyst at G2.

When Salesforce first got into the enterprise, they didn’t go in the traditional way. IT bought tech — except for Salesforce automation. It came in through the sales guy.
Michael FauscetteAnalyst, G2

“Salesforce, and NetSuite, too, really had this idea of scaling infrastructure up and down really quickly with multi-tenancy, according to need,” Fauscette said, which found a different buying audience. “When Salesforce first got into the enterprise, they didn’t go in the traditional way. IT bought tech — except for Salesforce automation. It came in through the sales guy. They could just start using Salesforce immediately.”

Quickly, though, Salesforce knew it couldn’t keep up with every individual customer’s tech needs, especially integrations with outside business applications. So, in 2006, it threw open its platform to third-party developers by introducing the AppExchange, which provided sales teams with tools to integrate Salesforce with applications such as calendars, email, accounting, HR and ERP. Today, AppExchange hosts 3,400 apps.

Force.com, now called Lightning Platform, came along two years later, and enabled individual developers or even nondevelopers to build their own apps and connectors among Salesforce and other apps.

The AppExchange evolved into a Salesforce revenue generator in several ways, said Woodson Martin, executive vice president and general manager of Salesforce AppExchange. First, Salesforce earns revenue when an app is sold. Second, AppExchange enables customers to use Salesforce to grow their companies and, in turn, increase their Salesforce subscription. Third, it generates new leads for Salesforce when a developer creates a connector to a vertical-specific app.

“We think of AppExchange as the hub of the Salesforce ecosystem,” Martin said. “In some cases, apps are the tip of the spear for new industry verticals.”

G2’s Fauscette said that shuttling data between clouds, and between clouds and on-premises systems, will require more and more integrations between Salesforce and outside applications for at least the next decade. That makes AppExchange a crucial part of the future of Salesforce.

Acquisitions give partners new opportunities

Moving forward, AppExchange will expand into new domains, Martin said, as Salesforce integrates features and capabilities from companies it acquired, including Tableau and MuleSoft, into its platform. That will create opportunities for developers to create new customizations for data visualizations and data integrations.

Martin also said that Salesforce closely watches technology trends in the consumer retailing and e-commerce space — personalization and AI are two recent examples — to bring to its B2B platform. That’s what customers want, he said: a B2B buying experience that works as well as Amazon does at home.

But it takes outside developers to buy into the AppExchange concept, and so far, they seem rosy on the future of Salesforce. AppExchange partners such as configure-price-quote (CPQ) provider Apttus generally believe there’s room for developers of all stripes to grow their own franchises, even when Salesforce adds native overlapping features that directly compete.

That happened when Salesforce acquired Apttus competitor SteelBrick and added Salesforce-native CPQ three years ago, said Eric Carrasquilla, senior vice president of product at Apttus. That’s because Salesforce has hundreds of thousands of CRM customers now — and the number keeps increasing.

“Salesforce is a force of nature,” Carrasquilla said, adding that Apttus and Salesforce CPQ have roughly 3,500 customers combined. “That’s still a fraction of a fraction of a fraction of the opportunity within the CRM market. It’s a very deep pool, businesswise, and there’s more than enough for everyone in the ecosystem.”

Read how Trailblazers also figure heavily into the future of Salesforce in the second part of this story.

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With Time on its hands, Meredith drives storage consolidation

After Meredith Corp. closed its $2.8 billion acquisition of Time Inc. in January 2018, it adopted the motto “Be Bold. Together.”

David Coffman, Meredith’s director of enterprise infrastructure, took that slogan literally. “I interpreted that as ‘Drive it like you stole it,'” said Coffman, who was given a mandate to overhaul the combined company’s data centers that held petabytes of data. He responded with an aggressive backup and primary storage consolidation.

The Meredith IT team found itself with a lot of Time data on its hands, and in need of storage consolidation because a variety of vendors were in use. Meredith was upgrading its own Des Moines, Iowa, data center at the time, and Coffman’s team standardized technology across legacy Time and Meredith. It dumped most of its traditional IT gear and added newer technology developed around virtualization, convergence and the cloud.

Although Meredith divested some of Time’s best-known publications, it now publishes People, Better Homes and Gardens, InStyle, Southern Living and Martha Stewart Living. The company also owns 17 local television stations and other properties.

The goal is to reduce its data centers to two major sites in New York and Des Moines with the same storage, server and data protection technologies. The sites can serve as DR sites for each other. Meredith’s storage consolidation resulted in implementing Nutanix hyper-converged infrastructure for block storage and virtualization, Rubrik data protection and a combination of Nasuni and NetApp for file storage.

“I’ve been working to merge two separate enterprises into one,” Coffman said. “We decided we wanted to go with cutting-edge technologies.”

At the time of the merger, Meredith used NetApp-Cisco FlexPod converged infrastructure for primary storage and Time had Dell EMC and Hitachi Vantara in its New York and Weehawken, N.J. data centers. Both companies backed up with Veritas NetBackup software. Meredith had a mixture of tape and NetBackup appliances and Time used tape and Dell EMC Data Domain disk backup.

By coincidence, both companies were doing proofs of concept with Rubrik backup software on integrated appliances and were happy with the results.

Meredith installed Rubrik clusters in its Des Moines and New York data centers as well as a large Birmingham, Alabama office after the merger. They protect Nutanix clusters in all those sites.

“If we lost any of those sites, we could hook up our gear to another site and do restores,” Coffman said.

Meredith also looked at Cohesity and cloud backup vendor Druva while evaluating Rubrik Cloud Data Management. Coffman and Michael Kientoff, senior systems administrator of data protection at Meredith, said they thought Rubrik had the most features and they liked its instant restore capabilities.

Coffman said Cohesity was a close second, but he didn’t like that Cohesity includes its own file system and bills itself as secondary storage.

“We didn’t think a searchable file system would be that valuable to us,” Coffman said. “I didn’t want more storage. I thought, ‘These guys are data on-premises when I’m already getting yelled out for having too much data on premises.’ I didn’t want double the amount of storage.”

Coffman swept out most of the primary storage and servers from before the merger. Meredith still has some NetApp for file storage, and Nasuni cloud NAS for 2 PB of data that is shared among staff in different offices. Nasuni stores data on AWS.

Kientoff is responsible for protecting the data across Meredith’s storage systems.

“All of a sudden, my world expanded exponentially,” he said of the Time aftermath. “I had multiple NetBackup domains all across the world to manage. I was barely keeping up on the NetBackup domain we had at Meredith.”

Coffman and Kientoff said they were happy to be rid of tape, and found Rubrik’s instant restores and migration features valuable. Instead of archiving to tape, Rubrik moves data to AWS after its retention period expires.

Rubrik’s live mount feature can recover data from a virtual machine in seconds. This comes in handy when an application running in a VM dies, but also for migrating data.

However, that same feature is missing from Nutanix. Meredith is phasing out VMware in favor of Nutanix’s AHV hypervisor to save money on VMware licenses and to have, as Coffman put it, “One hand to shake, one throat to choke. Nutanix provided the opportunity to have consolidation between the hypervisor and the hardware.”

The Meredith IT team has petitioned for Nutanix to add a similar live mount capability for AHV. Even without it, though, Kientoff said backing up data from Nutanix with Rubrik beats using tapes.

“With a tape restore, calling backup tapes from off-site, it might be a day or two before they get their data back,” he said. “Now it might take a half an hour to an hour to restore a VM instead of doing a live mount [with VMware]. Getting out of the tape handling business was a big cost savings.”

The Meredith IT team is also dealing with closing smaller sites around the country to get down to the two major data centers. “That’s going to take a lot of coordinating with people, and a lot of migrations,” Coffman said.

Meredith will back up data from remote offices locally and move them across the WAN to New York or Des Moines.

Kientoff said Rubrik’s live restores is a “killer feature” for the office consolidation project. “That’s where Rubrik has really shone for us,” he said. “We recently shut down a sizeable office in Tampa. We migrated most of those VMs to New York and some to Des Moines. We backed up the cluster across the WAN, from Tampa to New York. We shut down the VM in Tampa, live mounted in New York, changed the IP address and put it on the network. There you go — we instantly moved VMs form one office to another.”

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Microsoft releases 18M building footprints in Africa to enable AI Assisted Mapping

In the last ten years, 2 billion people were affected by disasters according to the World Disasters report 2018. In 2017, 201 million people needed humanitarian assistance and 18 million were displaced due to weather related disasters. Many of these disaster-prone areas are literally “missing” from the map, making it harder for first responders to prepare and deliver relief efforts.

Since the inception of Tasking Manager, the Humanitarian OpenStreetMap Team (HOT) community has mapped at an incredible rate with 11 million square kilometers mapped in Africa alone. However, large parts of Africa with populations prone to disasters still remain unmapped — 60% of the 30 million square kilometers.

Under Microsoft’s AI for Humanitarian Action program, Bing Maps together with Microsoft Philanthropies is partnering with HOT on an initiative to bring AI Assistance as a resource in open map building. The initiative focuses on incorporating design updates, integrating machine learning, and bringing new open building datasets into Tasking Manager.

The Bing Maps team has been harnessing the power of Computer Vision to identify map features at scale. Building upon their work in the United States and Canada, Bing Maps is now releasing country-wide open building footprints datasets in Uganda and Tanzania. This will be one of the first open building datasets in Africa and will be available for use within OpenStreetMap (OSM).

In Tasking Manager specifically, the dataset will be used to help in task creation with the goal of improving task completion rates. Tasking Manager relies on ‘ML enabler’ to connect with building datasets through an API. This API-based integration makes it convenient to access not just Africa building footprints, but all open building footprints datasets from Bing Maps through ML Enabler, and thus the OpenStreetMap ecosystem.

“Machine learning datasets for OSM need to be open. We need to go beyond identifying roads and buildings and open datasets allow us to experiment and uncover new opportunities. Open Building Dataset gives us the ability to not only explore quality and validation aspects, but also advance how ML data assists mapping.”
– Tyler Radford (Executive Director, Humanitarian OpenStreetMap Team)

Africa presented several challenges: stark difference in landscape from the United States or Canada, unique settlements such as Tukuls, dense urban areas with connected structures, imagery quality and vintage, and lack of training data in rural areas. The team identified areas with poor recall by leveraging population estimates from CIESIN. Subsequent targeted labeling efforts across Bing Maps and HOT improved model recall especially in rural areas. A two-step process with semantic segmentation followed by polygonization resulted in 18M building footprints — 7M in Uganda and 11M in Tanzania.

Extractions Musoma, TanzaniaExtractions in Musoma, Tanzania

Bing Maps is making this data open for download free of charge and usable for research, analysis and of course, OSM. In OpenStreetMap there are currently 14M building footprints in Uganda and Tanzania (the last time our team counted). We are working to determine overlaps.

We will be making the data available on Github to download. The CNTK toolkit developed by Microsoft is open source and available on GitHub as well. The ResNet3 model is also open source and available on GitHub. The Bing Maps computer vision team will be presenting the work in Africa at the annual International State of the Map conference in Heidelberg, Germany and at the HOT Summit.

– Bing Maps Team

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Author: Microsoft News Center

SuccessFactors customers to see big Qualtrics impact

LAS VEGAS — At the SAP SuccessFactors customer conference, SAP’s $8 billion Qualtrics acquisition seemed like the tail wagging the dog. Employee experience was such a central theme that SuccessFactors may rebrand HCM as HXM — Human Experience Management.

It may have been a lot for SuccessFactors customers to take in.

Some SuccessFactors customers are measuring employee experience with deeper analysis of employee behavior, such as time to complete certain tasks. But others, who were not Qualtrics users, were still assessing its capabilities.

What SAP made clear is that Qualtrics is important to the future of SuccessFactors.

Qualtrics “allows us now to really rethink almost every transaction in every application that we’re investing in,” Greg Tomb, president of SAP SuccessFactors, said at a meeting with press and analysts at SuccessConnect 2019.

Qualtrics sells an “experience management” or XM platform. It captures and measures employee experience (EX), product experience (PX), customer experience (CX) and brand experience (BX). The platform can combine experience data with a company’s operational data. 

The use of sophisticated employee experience measuring was illustrated by Hernan Garcia, vice president of talent and culture at Tecnológico de Monterrey, a university in Mexico. Garcia’s team studies employee experience as well as the efficiency of a process, including the time it takes to complete something.

“We measure both how they feel, how they interact, but also how much time, how many clicks, how many people they need to touch” to complete something, Garcia said during a press and analyst meeting. The school can improve the experience of employees by directly making changes to processes that affect it, he said.

The university was awarded SAP’s annual 2019 Klaus Tschira HR Innovation Award on Tuesday, which is named after an SAP co-founder. The university has about 31,000 employees and 160,000 students.

SuccessFactors is delivering some Qualtrics integrations, such as with employee records. It is also building capability to integrate with SAP Analytics Cloud so that companies can include both “X” or experience data and “O” or operational data in their analytics programs, said Amy Wilson, head of products and application engineering at SuccessFactors.

The SuccessFactors and Qualtrics integration work will continue into next year. For now, SuccessFactors and Qualtrics are separate applications, but “seamless,” Wilson said. SAP’s ultimate plan is to embed Qualtrics into SuccessFactors, she said.

But the employee experience discussion can’t just focus on X and O data. It must reconcile with the major workforce changes looming, said Vera Cuevas, a SuccessFactors user and HRIS senior manager at a technology firm she asked not be named.

“There’s probably going to be a lot of jobs across a number of different industries that might go away, that might be automated,” Cuevas said. “It will be interesting to see how you retain that employee engagement while at the same time you are moving employees in different jobs, or in some cases eliminating industries.”

Another attendee, Catrena Hairston, a senior learning professional at a U.S. government agency, said the ability to use both experience and operational data makes sense and may be useful. But she will have to see it in action. “I’m not into vaporware, so I’ll have to see if it works with our data,” Hairston said.

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U.S. spends more on AI as AI in China continues to grow

The Trump administration’s fiscal year 2020 budget includes nearly $1 billion in non-defense AI research and development as the adoption and funding of AI in China continues to grow rapidly.

The budget request is to fund the Network and Information Technology Research and Development Program, a federal program that coordinates the activities and budgeting for research and development of several technology agencies.

U.S. AI efforts

The fiscal year 2020 budget supplement, released in September, allocates $973.5 million for AI as a new spending category to support existing White House efforts to ramp up robotic process automation and AI innovation and adoption.

Millions of dollars will go toward funding research and development for a range of AI-related projects, including machine vision, cybersecurity challenges unique to AI, and chips optimized for neural nets.

While the funding should help U.S. government’s AI efforts, it’s unclear how it will match up with AI work in China.

Past efforts of the U.S. government, according to Rudina Seseri, founder and managing partner of venture-capital firm Glasswing Ventures, have lagged considerably to those of other countries.

“For all that is being done, it’s not even 1% of the spending that other countries have made,” Seseri said during a talk at the AI World Government 2019 conference in Washington, D.C. in June.

The U.S. government’s efforts in the global AI race are “far, far behind China,” a country that, in addition to spending more, also collects more data from its citizens, she noted.

In China, “the human rights of data (is) not a notion that exists,” she said. “The government has free control of everyone’s data.”

AI in China

That may be evident in China’s development of smart cities. The government is constructing, or plans to construct, more than 500 cities with smart city capabilities that include automatically monitoring and routing buses to optimize traffic flows, and prioritizing mobile payment systems. The urban strategy also leans heavily on the internationally controversial goal of expanding surveillance of citizens by setting up networks of security cameras with gait and facial recognition software.

Traditional industries are still lagging behind [in AI adoption in China].
Danny Muanalyst, Forrester

Given the Chinese government’s extensive involvement in city planning, and its propensity to spy on its own citizens, these kinds of smart cities have no real equivalent in the U.S. A number of U.S. cities, however, have begun using AI and analytics to better their transportation systems and some have started to install intelligent security cameras and intelligent street lights.

Other Western countries have begun creating smart cities as well, including the U.K. and Canada. Calgary, Alberta, for example, deployed sensors to collect data on noise levels to help with noise management and on soil conditions to create better care for gardens, among other things.

Development of AI in China has skyrocketed in past years, with the government spending heavily on research and development. In 2017, the State Council of China released a plan with China’s AI goals over the next decade.

The plan details China’s ambition to become level with other world players in AI theories and technologies by 2020, and become the world leader in AI by 2030, with a domestic industry worth almost $150 billion.

The plan includes efforts to promote and support domestic AI enterprises, and encourage partnerships between them and international AI schools and research teams.

Yet, at an enterprise-level, the adoption of AI in China is comparable to that in the U.S.

Chinese and U.S. enterprises

A 2018 Forrester study commissioned by Chinese tech-giant Huawei surveyed 200 large and medium-sized companies and found that the vast majority of respondents see AI as a driver of innovation in their industry. About 65% of respondents say AI will play an extremely important role in their digital transformation.

Meanwhile, a little over half of the respondents lacked professional AI talent, and 70% of respondents said a lack of technology skills is slowing the adoption of AI in the enterprise intelligence market.

According to Danny Mu, a Forrester analyst based in Beijing, AI has been widely adopted by digital-native enterprises in the internet industry, even as “other traditional industries are still lagging behind.”

That’s about on par with enterprises in the U.S. Reports regularly highlight that most business leaders see the importance of AI, even as many traditional companies have yet to start using it.

The U.S. trade war with China has hampered China’s push to develop AI technologies, however, and has begun to force China to become more independent of Western hardware and software.

Some of China’s largest technology companies, including Baidu, Alibaba, and Huawei have started developing their own hardware and AI platforms to rely less on Western-developed technology.

The “trade war is a good reminder to Chinese companies to evaluate the risk from dependence,” Mu said.

While the trade war may affect Chinese companies’ ability to purchase American-made technologies, Chinese scientists are still actively conducting AI research, something which “is hard to ban by trade wars,” Mu said.

“AI is changing industries,” he said. “Companies and governments can’t afford to lag behind when it comes to AI technology.”

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Splunk pricing worries users as SignalFx buy makes headlines

Splunk broke open its piggy bank and shelled out $1.05 billion for cloud monitoring vendor SignalFx this week, and its user base wonders if Splunk pricing means their IT budgets will be next.

Splunk, which began as a log analytics player, will gain expertise and software that collects metrics and distributed tracing data in cloud-native application environments with this acquisition, as it sets its sights on speedier data analytics features that support a broader swath of data sources.

The deal, valued at $1.05 billion, is the largest in recent memory in the IT monitoring space, analysts say. It also indicates future trends that will see cloud monitoring tools for increasingly complex applications and software frameworks such as container orchestration and service mesh take over enterprise IT. It’s the third merger between IT monitoring and automation firms in the past week — IT infrastructure monitoring firm Virtual Instruments also acquired cloud monitoring startup Metricly, and IT automation vendor Resolve Systems bought AIOps player FixStream.

“There’s a lot more interest in monitoring these days,” said Nancy Gohring, analyst at 451 Research in New York. “I would tie that to the growing interest in cloud and cloud-native technologies, and the maturity curve there, especially from the enterprise perspective.”

Splunk pricing a potential downside of cloud monitoring updates

[Enterprise IT] shops are learning the hard way that you have to change your approach to monitoring in these new environments, and, thus, there’s more demand for these types of tools.
Nancy GohringAnalyst, 451 Research

Splunk users are aware of emerging trends toward cloud-native application monitoring, streaming data analytics and machine learning, and see the need for fresh approaches to data collection and data analytics as they grow.

“It lowers the entry barrier for machine learning and gets people asking the right questions,” said Steve Koelpin, lead Splunk engineer for a Fortune 1000 company in the Midwest, of Splunk’s Machine Learning Toolkit. “People share their code, and then others use that as a starting point to innovate.”

But an emphasis on machine learning that includes metrics data will demand large data sets and large amounts of processing power, and that comes at a cost.

“It’s expensive to stream metric data as it’s metered at a fixed 150 bytes,” Koelpin said. “This could mean substantially [higher] license costs compared to streaming non-metric data.”

Splunk pricing starts at $150 per gigabyte, per day, with volume discounts for larger amounts of data. The costs for Splunk software licenses and data storage have already driven some users away from the vendor’s tools and toward open source cloud monitoring software such as the Elastic Stack.

Tim TullyTim Tully

“We’re always evaluating pricing options, but our focus is more on making sure we build the best products we can,” said Tully, senior vice president and CTO at Splunk, when asked about users’ Splunk pricing complaints.

Splunk offers the most extensive set of log analytics features on the market, as well as good data collection and analytics performance and stability, Gohring said. However, some users chafe at paying for that full set of features when they may not use them all.

“People want to collect more and more data, and there’s always a cost associated with that,” she said. “It’s something all vendors are struggling with and trying to address.”

Splunk prepares to gobble up massive data

As enterprises adopt cloud-native technologies, they will look to vendors such as Splunk, pricing notwithstanding, for cloud monitoring tools rather than build the cheaper homegrown systems early adopters favored, Gohring said.

“Those shops are learning the hard way that you have to change your approach to monitoring in these new environments, and, thus, there’s more demand for these types of tools,” she said.

In fact, 451 Research estimated that container monitoring tools will overtake the overall market revenue share held by container orchestration and management tools over the next five years. A June 2019 market monitor report on containers by the research group estimated total application containers market size at $1.59 billion in 2018, and projected growth to $5.54 billion in 2023. In 2018, management and orchestration software vendors generated 32% of that revenue, and monitoring and logging vendors did 24%. By 2023, however, 451 Research expects management and orchestration vendors to generate 25% of overall market revenue, and monitoring and logging vendors will do 31%.

In the meantime, Splunk plans to capture its slice of that pie, when beta products such as its Machine Learning Toolkit, Data Fabric Search and Data Stream Processor become generally available at its annual user conference this October. These products will boost the data collection and query performance of the Splunk Enterprise platform as it absorbs more data, and give users a framework to create their own machine learning algorithms against those data repositories under the Splunk UI. Splunk will also create a separate Kafka-like product for machine data processing based on open source software.

“We’re looking to add Apache Flink stream data processing under the Splunk UI for real-time monitoring and data enrichment, where Splunk acts as the query engine and storage layer for that data [under Data Fabric Search],” Tully said.

SignalFx has strong streaming analytics IP that will bolster those efforts in metrics and distributed tracing environments, Gohring said.

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Cisco’s acquisition of Acacia bolsters service provider offerings

Cisco plans to acquire Acacia Communications for $2.6 billion, a move that would make Cisco a direct supplier of packet-optical transport systems for carrier networks and organizations that connect data centers across hundreds of miles.

Cisco announced the pending purchase on Tuesday in a joint statement with Acacia, based in Maynard, Mass. The companies expect to close the Cisco acquisition in the first half of next year.

Cisco offers Acacia’s packet-optical transport systems (P-OTS) with networking gear it sells today to carriers, cloud service providers and the largest enterprises. Cisco rivals Juniper Networks and Huawei are also Acacia customers, and analysts expect them to eventually turn to other P-OTS suppliers, such as Ciena, Inphi and Nokia.

“If I’m a Juniper or a Huawei, why would I buy from Cisco?” said Rajesh Ghai, an analyst at IDC.

Bill Gartner, general manager of Cisco's optical systems groupBill Gartner

Nevertheless, Acacia customers can expect from Cisco the same level of support that they receive today and equal access to products, said Bill Gartner, general manager of the vendor’s optical systems group.

“If we’re going to make this successful, we have to make sure that we’re providing the technology to third parties that they want to consume at the time they want to consume it and at the right performance and price point,” Gartner said. “I don’t think we could make this successful more broadly if we give Cisco preference on any of those parameters.”

Reasoning behind Cisco acquisition

Cisco has agreed to acquire Acacia because the company’s optical interconnect technology will let Cisco help customers design networks that can keep pace with the projected increase in data traffic. Cisco has predicted that annual global IP traffic will increase from 1.5 zettabytes in 2017 to 4.8 zettabytes by 2022. Contributors to the traffic surge include internet growth, video content delivery and emerging next-generation wireless technology to support more demanding business applications.

Today, Cisco’s proprietary optical transport technology ends in the data center, where analysts expect port speeds of 100 Gbps and 400 Gbps to become commonplace over the next couple of years. To meet that emerging demand, Cisco this year completed the $660 million acquisition of silicon photonics company Luxtera.

With Acacia, Cisco will also own the optical technology for service providers that need high-speed connections for metropolitan area networks or data centers as far as 1,500 miles apart.

“Our optics business today is primarily addressing what’s happening inside the data center — short-reach optics,” Gartner said during a conference call with financial analysts. “We don’t have a portfolio today that addresses what happens outside the data center for pluggables.”

Acacia’s portfolio includes pluggables, which are optical modular transceivers that vendors can sell as a plugin for a router or switch. The pluggable architecture, which is in its infancy, promises to simplify upgrading and repairing transceivers in networking gear.

John Burke, an analyst at Nemertes Research, based in Mokena, Ill., said Acacia could help Cisco “stay dominant in large data center markets long term,” while also providing some technical advantages over Arista, Juniper and Huawei.

“I suspect it will also give a boost to some smaller optical companies and trigger at least one more acquisition — perhaps by Arista,” Burke said.

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Cisco bolsters cloud security with Duo acquisition

Cisco has announced the $2.35 billion acquisition of Duo Security, adding two-step authentication services to the networking company’s cloud-based security portfolio.

Cisco said this week it expects to close the cash deal by the end of October. Following the Duo acquisition, Cisco will make Duo part of its security business under its general manager and executive vice president, David Goeckeler. Duo, which has 700 employees, will remain at its Ann Arbor, Mich., headquarters, and CEO Dug Song will continue to lead the company.

Under Cisco, Duo could grow much faster than it could on its own by gaining access to Cisco’s 800,000 customers. Duo, which was founded in 2009, has 12,000 customers.

Cisco wants to buy Duo to strengthen its cloud-based security services. Duo offers two-factor authentication that companies can integrate into websites, VPNs and cloud services. Duo services can also determine whether the user device trying to access the corporate asset poses a security risk.

The Duo acquistion adds another set of capabilities to those provided by Cisco’s other cloud-based security products, including OpenDNS and Stealthwatch Cloud. OpenDNS blocks malware, phishing attacks and botnets at the domain name system layer. Stealthwatch Cloud searches for threats by aggregating and analyzing telemetry drawn from public cloud infrastructures, such as AWS, Microsoft Azure and Google Cloud Platform.

Cisco’s plans following Duo acquisition

During a conference call with reporters and analysts, Goeckeler said Cisco will sell Duo as a stand-alone product, while also integrating its services into some of Cisco’s other cloud-based services. He did not provide details or a timeline, but noted other cloud-based products that Cisco has combined with each other include OpenDNS, the Viptela SD-WAN and the cloud-managed Meraki wireless LAN.

“We think we can drive [more] integrations here,” Goeckeler said of Duo. He later added Duo could bring more value to Cisco Umbrella, a cloud-based service that searches for threats in internet activity.

“Duo is another asset we can combine together with Umbrella to just increase the value of that solution to our customers,” Goeckeler said.

Cisco has been growing its security business through acquisition since at least 2013, when it bought firewall provider Sourcefire for $2.7 billion. In 2015, Cisco acquired OpenDNS for $635 million, and it bought CloudLock a year later for $293 million. CloudLock provides secure access to cloud applications, including those running on platform-as-a-service and infrastructure-as-a-service providers.

“All of these pieces are part of the larger strategy to build that integrated networking, security and identity cloud-delivered platform,” Goeckeler said.

Cisco’s acquisitions have fueled much of the growth in its security business. In the quarter ended in April, Cisco reported an 11% increase in security revenue to $583 million.

Gaming the System | Gimlet Creative

Last year, the gaming industry made roughly $90 billion in sales worldwide. That’s more than double what movies made at the box office last year.

And here’s why that comparison to Hollywood is relevant. Because, like with films, the most popular video games are HUGE. They have great graphics, popular characters, and the franchises keep getting repeated over and over again. Unfortunately, blockbuster games and movies can be as thin on diversity as they are on plot.  

In this episode, we’re talking about the Moonlights and Napoleon Dynamites the indie games that are breaking out, changing paradigms, and making a case for independence in gaming.

 

This episode features:

Navid Khonsari — Co-Founder of iNK Stories

Larry Hyrb —  Xbox’s Major Nelson

Rik Eberhardt — Studio Manager at MIT Game Lab

Mia Consalvo —  The Canada Research Chair in Game Studies and Design at Concordia University

Sherida Halatoe —  Found of Tiger & Squid Game Studio

Karla Zimonja —  Co-Founder of The Fullbright Company

Katie Stone Perez —  Developer Experience Lead at Xbox

Transcript: 

CRISTINA QUINN: Navid Khonsari says most people think Iran looks like this.

NAVID KHONSARI: The deserts, and women covered up in veils and men covered up and looking like clerics.

CRISTINA QUINN: Navid knows that if most people think about Iran at all, the images that come to mind are probably from the hostage crisis in 1979 or the violence of the iranian revolution that led up to it.

During the revolution, Navid was ten years old and living in Tehran. He remembers the hostages, and the violence, but he also remembers how it all began…

NAVID KHONSARI: My grandfather took me out to the streets and as we walked the streets I saw that sense of joy. I saw that sense of possibility that sense of hope that this country could change — change for the for for good, for the better, for people who were on the streets.

CRISTINA QUINN The Iranian Revolution started as a popular uprising — people from all walks of life coming together to overthrow a corrupt, western-backed king.

But then it changed, it turned violent.

NAVID KHONSARI: That hope kind of became a little bit darker. And and violence was out on the streets in the fighting took place and my father who was a doctor would spend the night in the emergency ward tending to wounded civilians and soldiers.

CRISTINA QUINN: Eventually, Navid’s family left Iran, for Canada. But throughout his life, whenever he tried to explain what it was like living in Iran during the revolution, to offer a more nuanced understanding of the country, he felt like he wasn’t getting through.

He wanted to humanize this monumental moment. And he came up with a kind of counter-intuitive solution. A video game.

THEME ENTERS

CRISTINA QUINN: I’m Cristina Quinn and this is dot-future, a branded podcast from Microsoft and Gimlet Creative, about making the future happen.

Because the future doesn’t just HAPPEN. It’s the result of a series of choices that we’re making right now. You can wait for the future to come to you … or you can engage with it, and get ahead of the curve.  

Welcome to dot-future.

THEME OUT

CRISTINA QUINN: Today we’re talking about gaming. Four out of five American households have gaming devices — like a tablet, XBOX or a Playstation — and over half of adults in the US play games. Half!

Production-wise, we have come a long way since:

GAME SOUND – PAC MAN

CRISTINA QUINN: The top-selling games today are hyperrealistic. They immerse players in war zones, put them on the run from zombies, and take them to the thirty yard line with 12 seconds left in the game. Last year, the gaming industry made roughly $90 billion in sales worldwide.

That’s more than double what movies made at the box-office last year. And here’s why that comparison to Hollywood is relevant. Because, like with films, the most popular video games are huge. They have great graphics, popular characters, and the franchises keep getting repeated over and over again.

I mean, you know how it’s kind of crazy that we have, like, how many Fast and Furious movies are there? What are we up to, like eight? Well, guess what? There are eleven games in the Halo family. Eleven. Blockbuster games even follow a Hollywood style RELEASE calendar, according to Larry Hyrb. He’s kind of the public face of Xbox Live. If you’re a gamer, you know him as “Major Nelson.”

LARRY HYRB: Maybe we’ve got a summer blockbuster, but we always have these huge releases, you know in the holiday season at the end of the year, and it’s noisy because the new Call of Duty is going to compete with the new Star Wars movie.

CRISTINA QUINN: Games like Call of Duty are what you call AAA games.

SCORING IN

CRISTINA QUINN: AAA is an unofficial industry rating. But it doesn’t actually stand for anything. The running joke is it means the game took:

  • A lot of time.
  • A lot of resources…and…
  • A lot of money.

CRISTINA: Even if you’re not a gamer you probably recognize the names of AAA gaming companies and their games — Nintendo with Super Mario, Microsoft with Halo, and Activision with Call of Duty.

And just like blockbuster film, blockbuster games are plagued by some of the same problems. The storylines can be kind of stale and repetitive. There’s a hero. Some stuff blows up. You have to fight something, or survive some catastrophe.  

And what that hero looks like is also repetitive — AAA games are as thin on diversity as they are on plot. There’s a really popular gaming writer name Leigh Alexander. Last year she wrote all about this in a notorious blog post called “Gamers Are Over.”

She wrote about how the AAA gaming culture can be summed up like this, quote: “Have Money. Have women. Get a gun and then a bigger gun.”

She was done with it — and she argued that even DEVELOPERS want games to be made for and by a more diverse group of people — to reflect real stories and real human struggle.

And that’s what today’s episode is about: the part of the gaming industry that’s providing an alternative to AAA games. We’re talking about The Moonlights and Napoleon Dynamites — the indie games that are breaking out, changing paradigms, and making a case for independence in gaming.

And, in the process, changing that 90-billion dollar gaming industry from the INSIDE.

SCORING OUT

CRISTINA QUINN: So, back to the video game we mentioned at the beginning. Navid Khonsari wanted to create a game…to provide a more nuanced perspective…

NAVID KHONSARI: You know you take a look at a lot of the call of duties and a lot of the war games that are out there it’s always like while you’re on the beaches of Normandy but you’re playing a member of the you know the U.S. Army and you’re shooting at Germans. But that’s really where the history stops.  

Navid made 1979: Revolution Black Friday. It’s the story of the Iranian revolution, told with the nuance that he didn’t see portrayed elsewhere.  

GAME SOUND – 1979 REVOLUTION: BLACK FRIDAY

CRISTINA QUINN: And it’s an INDIE game. It’s heavy on story. 1979 puts you, the player, in the middle of Tehran during the Iranian Revolution and presents you with a series of options at every turn. Shots are fired. Where do you go? Who do you save?

POST SOUND

CRISTINA QUINN: Critics loved the game. It’s an unmistakeable indie darling. It racked up a bunch of awards, like Best PC and/or Console Game at the ‘16 Bit Awards.

This is a huge success for an indie game developer, but that’s not what Navid was, for much of his career. He started out as the cinematic director at Rockstar games, which makes Grand Theft Auto and Max Payne. He worked on some of the most profitable games in history.

But eventually all of the drug deals and shootouts and car crashes got old. He wanted to make something more real. To do that, Navid quit his job at Rockstar Games and set out on his own to make a game about his real life experience.

He and his wife, who’s a documentary filmmaker and anthropologist, founded a studio together. They called it iNK Stories. It’s based in Brooklyn. Their work is inspired by cinema verite — a raw, intimate style of documentary filmmaking.  So Navid calls what iNK Stories makes, “verite games.” 1979 blends real history and the game’s action, with real life photographs and archival footage.

NAVID KHONSARI: The game has got me splattered all over it. When you’re in the home looking at the home movies that’s actually super 8 footage that my grandfather shot from 1950 to 1979 and it includes my mother’s swimming at the Caspian Sea. My grandfather great grandfather and family had a big feast and myself attending my first day school.

CRISTINA QUINN: But Navid wanted to make sure that the game was not just just a glimpse into his own past. He wanted it to be accurate, more accurate, than the books he’d read or the films he’d seen about Iran’s revolution. So he and a small team conducted more than 40 interviews with people who were living in Iran during the revolution.

He also hired academics, and religious advisors, to ensure that the game was authentic.

The end result is a subtle portrayal of a critical moment in history.

GAME SOUND – 1979 REVOLUTION: BLACK FRIDAY

CRISTINA QUINN: Do you think there are some stories better told through the immersive, video game experience than through other mediums?

NAVID KHONSARI: Yeah. These are incredible tools to put you right in that space to put you in the head space or in that environment or in that particular instance where something is taking place. These are probably the most powerful way of creating empathy. So in a weird way if we want to actually understand a little bit more about humanity and really feel what it’s like we actually have to engage with some kind of technology that allows us to go there.

CRISTINA QUINN: Navid is part of a new class of game developers who are intent on making games that are both personal AND fun. It’s a mission that, in the hands of triple A gaming companies, often fails.

RIK EBERHARDT: You can see a game that’s made by, you know, people who look like me so middle aged white guys and those those games often don’t have anything to say

CRISTINA QUINN: Rik Eberhardt works at MIT’s Game Lab — which experiments with new game technology.

RIK EBERHARDT: And when they do try to say something they’re not they’re they’re trying to adopt somebody else’s language, and it feels wrong.

He says indie games are coming from a genuine place…and that comes across in the experience of playing the game…

RIK EBERHARDT: And with an indie game, yeah, you can absolutely see the person who made it where what where they came from what they brought to the game what culture they’re from.

CRISTINA QUINN: Culture and story haven’t necessarily been a major focal point of video games. From the very beginning of gaming, the focus has been on graphics and speed.

SCORING IN

CRISTINA QUINN: In 1977, Atari released what would become known as the Atari 2600. By 1980, millions of homes were introduced to the idea of playing games not at an arcade, but in your living room.

GAME SOUND – ATARI

CRISTINA QUINN: But Atari didn’t stay on top for long. In 1985, Nintendo released its “Entertainment System.”  The package came with a controller, and a gun for playing Duck Hunt.  

DUCK SOUND

CRISTINA QUINN: Then in 1989 Nintendo leveled up gaming, when it released a HANDHELD console, the Game Boy.  

For millions of people, being able to take your games with you was totally novel — and it changed the gaming industry — and family road trips — forever.

SCORING OUT

CRISTINA QUINN: In 2002, Microsoft introduced Xbox Live, allowing console players to play with other gamers throughout the world, something they still do today, of course.

LARRY HYRB: If I wake up at 3:00 in the morning because I can’t sleep. I can pop on my console and all of a sudden I’m playing with friends that may or may not be online or I’m going to discover new friends.

CRISTINA QUINN: This is Larry Hyrb — or Major Nelson — from Xbox again.  He’s been at the company for 14 years, and for a million Twitter followers he’s the go-to-guy for all-things Xbox.

Here’s the thing about Xbox Live, a player in Philadelphia can connect with a player in the Philippines. There’s always someone to play with.

LARRY HYRB: So if you have a young one, or maybe the baby is taking a nap, you can still go online and within 30 seconds to be connected with friends around the world… you’re playing an interactive game.

CRISTINA QUINN: Games are just everywhere. They’re on your phone, they’re in the back of your airplane seat — you can get virtual reality gear at Gamestop!

And everything looks and sounds flawless.

MIA CONSALVO: They’re stunning, right? They’re amazing to look at.

Mia Consalvo is the Canada Research Chair in game studies and design at Concordia University.

MIA CONSALVO: I think that expectations are being ratcheted up just kind of across the board. Even, for example let’s say with sports games like Madden or you know like a baseball game where you would think that the game is just about playing football but really in those games now. I mean they need photorealism. You know they need the actual images of the players the real players. They have role-playing system where you can create your own character, you can create you and be recruited and work your way up from the minors to the majors.

CRISTINA QUINN: That’s because games are in a fierce competition for our attention, according to Larry Hyrb.

LARRY HYRB: Our hours in the day that you and I and the listeners have for entertainment — how are you going to spend them? There’s just so much product out there right now, that people have trouble bursting through.

CRISTINA QUINN: And to compete at the blockbuster level, it takes a lot of money to stand out. Money that indie developers and publishers often don’t have. But what they do have — according to Mia — is nerve, and creativity.

In a way, the stakes for indie game developers are actually lower, because they don’t have to play ball with the big guys. They can take risks and experiment with visual style or even get… emotional with their games. That’s what Sherida Halatoe set out to do when, as a college student, she began working on the game Beyond Eyes.

GAME SOUND

CRISTINA QUINN: The game’s protagonist is a little girl, named Rae. Rae is blind, and at the beginning of the game, she loses her cat, Nani. Beyond Eyes is a quest, to help Rae find her missing pet. Sherida isn’t blind – but she wanted to make Beyond Eyes to help people understand what it’s like to feel adrift …

SHERIDA HALATOE: When I was 10 years old. My father died and it was a very horrible experience of course but it taught me a lot about life

CRISTINA QUINN: She wanted to help people who’ve felt lost see themselves in a videogame

CRISTINA QUINN: So, why..why is the character blind?

SHERIDA HALATOE: So for me it’s kind of a metaphor because my dad was the most important thing for me in my life like my whole world you know revolved around that…. so that being taken away was a huge loss. And that kind of kind of made it a visual translation there

CRISTINA QUINN: As Rae wanders through the game, the edges of the screen are white, but slowly, the path forward spreads out before her, like water colors rushing to the edge of a page.  Strokes of color swirl around the edges.

SHERIDA HALATOE: I really like watercolors and I like the idea of how things become..like when you, you know, put watercolor on paper it just kind of drifts out, you know, flows out. I like the idea of not being able to see and then touching something and everything flowing out like water.

CRISTINA QUINN: It’s so gentle, and so beautiful. The premise feels so different than other games. You’re just helping a little kid find her cat.

SHERIDA HALTOE: In essence this story of Beyond Eyes is about loss but also about overcoming

CRISTINA QUINN: Sherida’s definitely an outlier in the gaming industry. She didn’t grow up wanting to make games. In college, she took a game development course and realized that games gave her the ability tell stories in a new way. Even her way of measuring the impact of the game isn’t very gamer-y.

She keeps a glass bottle on her desk, in her office. And every time she gets an email from someone who says that the game moved them to tears, she pours a few drops of water into the bottle…

SHERIDA HALATOE:  In the first six months, the thing was half full or something. In the end, I think I got a half cup or something?

CRISTINA QUINN: Sherida’s not typical but she is successful. Beyond Eyes was featured at the E3 conference in 2015 — the world’s top gaming conference. She’s now working on a new series of short games called “Trails of Life.”

MUSIC

CRISTINA QUINN: It’s extremely rare for an indie developer to gain success on their first game. Usually, it takes years of releasing games and slowly building an audience. And lots of those developers cut their teeth at AAA studios before launching a game of their own.

MUSIC OUT

CRISTINA QUINN: Karla Zimonja knows that from personal experience. She spent 7 years working as an animator on lots of games, like the Bio-Shock series, and Zoo-Tycoon:

KARLA: I ended up working on a zoo game There were a lot of very repetitive tasks that I would have to do, like animate a sitting position to standing position for every single animal in the game. And a lot of like, you know, turns 30 degrees right turns 90 degrees or right turns you know turns 90 degrees right from standing turns or you know and from walking and from running and it very much turned it into a kind of feeling like a spreadsheet.

CRISTINA QUINN: Karla felt like a cog in the machine and decided to leave the triple A system. She and a friend got together to strike out on their own. They started a gaming studio called Fullbright.

They decided to make their debut game feel just like a first person shooter game. You know — the games where you see through the eyes of a character as they move through the world — but with one important distinction: no shooting. They called the game “Gone Home.”

GAME SOUND – GONE HOME

CRISTINA QUINN: Gone Home is set in a spooky Victorian house in the year 1995. It’s raining…the phones are down…and there aren’t any cell phones to call for help.

KARLA ZIMONJA: Gone Home is the story of a college student arriving home after being abroad to find that her family has moved into the new house and nobody is there when she gets there. And she explores the house and find out all about what her family has been doing in her absence.

CRISTINA QUINN: Although it seems like a ghost could pop out at any moment, the game isn’t scary. As a player, you search for clues — notes, and audio diaries — to help piece together what happened to this family.

KARLA ZIMONJA: An enormous part of the game is putting other pieces for yourself and learning about the characters in your own time and way.

CRISTINA QUINN: Characters that don’t appear on screen — but whose personalities, dreams, and entire lives are slowly revealed as you play the game. And perhaps the most remarkable reveal is what the New York Times called “the greatest video game love story ever told.”

GAME SOUND – GONE HOME

CRISTINA QUINN: It’s a love story about two young women. Although Fullbright didn’t set-out to be a voice for LGBTQ people in the game world, Gone Home wound up getting a lot of attention.

Because there aren’t that many queer characters in big video games. AAA publishers tend to be pretty risk averse when it comes to storytelling. Karla says when AAAs see a pitch that deviates from the norm…they’re not likely to go for it.

KARLA ZIMONJA: You know, the marketing guys at whatever publishing company would have been like “teen lesbians? No one’s going to buy that…are you on crack?”

By funding Gone Home themselves, Fullbright was able to make the game a reality, and a smashing success. The gaming website Polygon named it their Game of the Year, and it won the British Academy Games Award for best debut.

But more importantly to Karla, is the opportunity for her game to influence other, bigger gaming companies.

KARLA ZIMONJA: Indie games are often the source of new paths and new, like, approaches to things. We have, like, the low overhead where it’s like the really big companies don’t…they come in there like those big ocean liners they can’t turn.

Karla’s company sunk their savings and 18 months of work into Gone Home.

KARLA ZIMONJA: It’s nice to have people think your ideas are worth something. It’s essentially like the big guys being like, ‘oh yeah that little guy had a great idea.’

It kind of means they’ve arrived. But even more powerfully — it means that the stories — like the one in Gone Home — are worth telling.

Here’s Katie Stone Perez, who works for Xbox at Microsoft.

KATIE STONE-PEREZ: By giving all of these different people an opportunity to tell their story and to bring their voice to the table it really ends up creating those moments where people do feel like it is representative of their story and their lives and their passions.

Katie says it’s the responsibility of the gaming industry to make sure that the community feels seen and heard by having more diversity within games. That’s why Katie joined Microsoft’s [email protected] team and helped it grow.

[email protected] gives indie game developers the tools they need to bring their games to life on the Xbox platform, and they promote their favorites at major industry events.

KATIE STONE-PEREZ: Traditionally the industry has been more, ‘oh you know the right person to talk to..and you know you know do you know the right person to go get funding from and you know the right person to do this?’ And so we’ve really been about, you know, democratizing that process for everyone.

One of the developers who’s benefited from that democratization: Navid Khonsari, with his depiction of Iran in 1979 Revolution Black Friday.

The game’s success has helped rewrite how people see Iranians — and how Iranians see themselves.

NAVID KHONSARI: For the first time they see themselves portrayed as protagonists in a positive light, rather than terrorist number one two and three.

Navid says his game is helping people see one another. Like, really understand each other.

NAVID KHONSARI: This is powerful. For us that’s been really really really enriching and we’ve made look we made a lot of mistakes and it was our first game that we’ve made, but at least we know that we overcame the most difficult part which was connecting.

CRISTINA QUINN: And all it took to connect — to make a moment in history more human — was a video game.

CREDITS

THEME

CRISTINA QUINN: .future is a co-production of Microsoft Story Labs and Gimlet Creative.

We were produced this week by Katelyn Bogucki, with help from Victoria Barner, Garrett Crowe, Frances Harlow, Jorge Estrada, Nicole Wong, Abbie Ruzicka and Julia Botero. Creative direction from Nazanin Rafsanjani. Production assistance from Thom Cote.

We were edited by Rachel Ward and mixed by Zac Schmidt. Our theme song was composed by The Album Leaf. Additional music from Waltho, Eliot Lipp and Marmoset.

Special thanks to: Derek Johnson, Aleah Kiley and Lena Robinson.

PROMO

CRISTINA QUINN: Coming up next time on dot-future … stories of how people on 4 continents are using one of the most popular games in history to heal, grieve, rebuild, and reinvent.

LYDIA WINTERS: I can’t even really begin to describe how Minecraft has changed my trajectory, and where I was going. It’s hard to even see back to where I was going because I’m so far from my starting point.

CRISTINA QUINN: That’s next time on dot-future.

If you like dot-future, subscribe on Apple Podcasts, or wherever you get your podcasts!  Make sure to type period future to find us, like period as in a dot. Dot future.. And while you’re at it, leave us a review so we know how you feel about the show! Don’t get left in the past. Join us in the dot Future …   at dot future dot net. That’s D O T future dot net.

I’m Cristina Quinn. Thanks so much for dot listening!

THEME OUT

Microsoft Buys GitHub for $7.5 Billion, Going Back to Its Roots

Microsoft Corp. is buying GitHub Inc. for $7.5 billion in stock, bringing in house a community of 28 million programmers who publish code openly and extending a shift away from a strategy of shrouding its software in secrecy.

The move is both a return to Microsoft’s earliest software-development roots and a sharp turnaround from its stance on open-source software a decade ago. Chief Executive Officer Satya Nadella said the deal, expected to close by the end of this year, will speed moves into the cloud and artificial intelligence.

“Computing is becoming embedded in the world, with every part of our daily life and work and every aspect of our society and economy being transformed by digital technology,” Nadella wrote in a blog post Monday. “Developers are the builders of this new era, writing the world’s code. And GitHub is their home.”

GitHub, a 10-year old San Francisco-based startup, was founded as a way for software developers to share and collaborate on coding tools and is an essential platform for many open-source programmers.

Microsoft wasn’t always so welcoming to such coders, who were seen as a threat to the company’s business as a commercial software company. Co-founder Bill Gates and former Chief Executive Officer Steve Ballmer championed developers building proprietary software for Microsoft, not the kind of open-source projects found on GitHub.

In fact, in the early 2000s, Ballmer and his team were highly critical of that kind of a project, calling it a “cancer” and saying that it went against “the American Way.”

A lot has changed since then. Under Nadella, who took over four years ago, Microsoft has been increasingly relying on open-source software to add programming tools, and the purchase of GitHub lets it tie up with a company that has become a key part of the way Microsoft writes its own software. Microsoft is now supporting many flavors of Linux, an open-source operating system, and has used open models on some significant cloud and developer products itself. This deal will mark another dramatic step in that direction.

The acquisition reflects Microsoft’s “ongoing pivot to open-source software, seeking to further broaden its large and growing development community,” said Richard Lane, an analyst at Moody’s Investors Service.

Redmond, Washington-based Microsoft is now one of the biggest contributors to GitHub, and as Nadella moves the company away from complete dependence on the Windows operating system to more in-house development on Linux, the company needs new ways to connect with the broader developer community.

Not all the developers are happy about being controlled by the world’s biggest software company. “Anybody active in the open source community should be upset that Microsoft is going to be the steward of this large body of code,” said coder Jacques Mattheij. He said he deleted his GitHub account.

Nadella acknowledged that he’ll have to earn the trust of GitHub’s users, but also said that Microsoft is “all in on open source.”

Satya Nadella

Photographer: David Ryder/Bloomberg

“Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation,” Nadella said in the statement.

The deal will add to Microsoft’s operating income in its fiscal year 2020, the company said in a statement Monday. The shares were up 0.6 percent to $101.38 at 9:55 a.m. in New York.

For GitHub, which has been trying for nine months to find a new chief executive officer and has yet to make a profit, the acquisition provides a new way forward.

GitHub, which will operate independently, will be led by Nat Friedman, the former CEO of Xamarin and a current Microsoft developer-tools executive. It will continue to support the programming languages, tools and operating systems of the user’s choice.

GitHub preferred selling the company to going public and chose Microsoft partially because it was impressed by Nadella, a person familiar with the deal said on Sunday.

While GitHub is used by Alphabet Inc.’s Google and Microsoft to store corporate code and collaborate, the company’s losses have been significant — it lost $66 million over three quarters in 2016. It had revenue of $98 million in nine months of 2016.

Microsoft has talked to GitHub on and off for a few years. Recently they began talks about a partnership but progressed to discussing an acquisition, according to a person familiar with the situation.

The deal is the third of Nadella’s four-year tenure that’s valued at above $2 billion, following LinkedIn in 2016 for $26.2 billion and the maker of the Minecraft video game, Mojang AB, in 2014 for $2.5 billion.

“The company gained, we understand, confidence in their ability to make large successful acquisitions with first Minecraft and more recently LinkedIn,” said Mark Moerdler, an analyst with Sanford C. Bernstein & Co., in a note to clients. “Each acquisition has been defined by an asset that was unique in its own way and could be leveraged in multiple parts of Microsoft. We can understand why GitHub would show that same level of uniqueness as it is the primary repository and cloud service developers use to store and share their code.”

GitHub was last valued at $2 billion in 2015, making today’s deal a win for GitHub backers like Sequoia Capital and Andreessen Horowitz.

Morgan Stanley acted as GitHub’s banker, while Fenwick & West LLP served as legal adviser. Microsoft’s legal adviser was Simpson Thacher & Bartlett LLP.