Why did Microsoft give GitHub Copilot away for free?
AI-powered code completion tools like Github Copilot, Tabnine, Amazon Q, cursor and codeium have been all the rage over the past year or so. The promise of an all powerful AI that can augment or entirely replace a human software developer is partly behind this immense appeal and promise of these tools. On its most recent earnings call, Google, announced that 25% of its code was generated by AI tools like GitHub Copilot 🤔
“Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers." Sundar Pichai
Yet amidst all of this excitement and promise of an all-mighty AI that can write software products on its own, Microsoft dropped this bit of news:
Now automatically integrated into VS Code, all of you have access to 2,000 code completions and 50 chat messages per month, simply by signing in with your personal GitHub account. Or by creating a new one. And just last week, we passed the mark of 150M developers on GitHub. 🎉
Copilot Free gives you the choice between Anthropic’s Claude 3.5 Sonnet or OpenAI’s GPT-4o model. You can ask a coding question, explain existing code, or have it find a bug. You can execute edits across multiple files. And you can access Copilot’s third-party agents or build your own extension.
Source: GitHub
This decision raises a compelling question: why would Microsoft give away such a powerful tool for free?
GitHub monetization
GitHub's monetization relies fundamentally on its core function: storing source code. As the world’s leading source version control platform, GitHub underpins a variety of revenue-generating products and services designed to cater to individual developers, teams, and enterprises. Its pricing structure includes tiers like the free plan for basic users, GitHub Pro for enhanced personal productivity, GitHub Team for collaborative work with advanced features, and GitHub Enterprise for large-scale organizations needing enterprise-grade security, compliance, and scalability. These offerings are complemented by add-ons like GitHub Codespaces, a cloud-based development environment, and GitHub Advanced Security, which provides tools for vulnerability detection, code scanning, and secret management. Additionally, GitHub is not just a standalone platform; it is a gateway to Microsoft’s developer tools and other services available through Microsoft Azure.
To repeat, the foundation of Github’s monetization model is storing source code files. Said otherwise, if source code files start migrating away to other platforms, GitHub’s entire ecosystem of products and services—and their associated revenue streams—face potential erosion.
The strategic paradox: Why free?
Microsoft’s decision to offer GitHub Copilot for free can be explained by two seemingly contradictory rationales. On one end of the spectrum the decision was sparked because of Copilot’s immense value and on the opposite end for the exact opposite, its complete lack of value. Both perspectives ultimately align with a single goal: protecting and enhancing GitHub as a base platform.
Reason 1: Copilot is immeasurably valuable
Copilot’s ability to drastically improve developer productivity is its greatest strength—and, paradoxically, a potential threat to GitHub’s core business. As Copilot grows in popularity, the risk emerges that developers might value Copilot more than the platform it runs on. If AI code completion tools like Copilot become the primary driver of developer engagement, developers could shift allegiance to other ecosystems offering similar, or better code-completion capabilities capabilities. In this scenario, the platform (GitHub) risks becoming a secondary consideration.
In this scenario the primary motivation for storing source code is no longer the core of what GitHub offers: a source version control system, but instead it becomes AI code-completion. Products that offer better AI code-completion capabilities relative to GitHub Copilot can therefore erode all of Github’s business.
By offering Copilot for free, Microsoft is protecting itself from such a situation. It set the price of AI code-completion products to $0. All the emerging competitors, with far fewer resources than Microsoft will struggle to compete against a free product.
Reason 2: Copilot offers little value
On the flip side, Microsoft may have recognized that code completion tools - as a category - offer limited value to end software developers. By acknowledging this, Microsoft acted to protect against the potential defection of its developer base to try alternative platforms that might offer better AI-powered tools. This preemptive move reduces the incentive to try other AI code completion tools and migrate source code en masse. Why bother try if all products offer no to little value and developers already have one for free from GitHub?
I had earlier published empirical data from our (StrongDM’s) own usage of GitHub Copilot which showed little to no value. Perhaps this sentiment is felt broadly amongst other software developers, leading Microsoft to just offer it for free vs monetizing it at all.
Regardless of the motivations, in this scenario too, Microsoft is effectively commoditizing the market. In doing so, it reduces the incentive for developers to switch platforms in search of better AI tools. After all, if GitHub already offers an AI assistant at no cost, there’s little reason to explore alternatives. This strategy protects GitHub’s position as the dominant platform for developers and ensures that the value proposition of competitors remains limited.
In both scenarios, the underlying strategy is clear: Microsoft is commoditizing Copilot, and subsequently a very popular developer category to safeguard GitHub’s position as the world’s leading developer platform. By keeping developers firmly rooted in GitHub’s ecosystem, Microsoft strengthens its ability to cross-sell other offerings, from cloud hosting to advanced analytics, not to mention protecting GitHub’s own revenue streams. Masterstroke.