If Microsoft is not weighing a bid to buy hotshot container startup Docker, perhaps it should be.
The idea, talk of which cropped up late last week, is intriguing and a purchase would be a bold move by Microsoft CEO Satya Nadella, who is trying to position the company’s Azure cloud as the cloud-of-choice for businesses, but as part of that effort also a first-class home for containers and for open-source software.
Docker is an open-source container technology that lets companies package up applications in a lightweight way so that they can run on different sets of infrastructure with minimal tweaking. To confuse matters, Docker is also a venture-capital-backed startup, once known as DotCloud, that is commercializing this technology and is reportedly valued at over $1 billion.
Businesses are excited about containers, a type of virtualization technology, because it can make developing applications easier while streamlining data-center operations.
Neither company would comment, but a source close to the container ecosystem said a Microsoft(MSFT) acquisition of Docker, would give the software giant huge container credibility, provided it was handled right. An acquisition would also mean that Microsoft wouldn’t have to align itself too closely with Google, which is leading its own charge with a container-management services called Kubernetes.
“Google is broadly partnering but wants to be the best place to run containers. If Microsoft, however, can own Docker, keep it open source and build a quality orchestration layer, it could win on the PR front and look very good on the tech front,” said one source who keeps close tabs on the container ecosystem. Microsoft works with Kubernetes, he added but “I doubt it wants to bet its future on Google/open-source tech that it does not own.”
Microsoft and Google (GOOG)are rivals in public cloud computing where they’re challenging market leader Amazon (AMZN) Web Services, as well as in mobile operating systems and search.
Docker and Microsoft are already working together to make sure Docker containers will run well on Azure. But Docker, which as of this spring joined the $1 billion valuation club, has similar pacts with other tech vendors.
A source in the venture capital industry told Fortune that Docker could well be on the block, but said investors wouldn’t sell for less than $3.5 billion. Microsoft could easily afford to buy out Docker for that price, considering the tech giant has $95.3 billion in cash. Compared to the April rumors that Microsoft might buy Salesforce(CRM)—valued at nearly $50 billion—a Docker acquisition would be a whole lot cheaper to pull off.
For Docker, the company, a deal with Microsoft (MSFT) would make sense. Docker technology has been wildly popular among developers—its key code has been downloaded more than 300 million times. But its core product is open-source, in other words free, a fact which poses obvious business model issues.
Docker (again, the company) is working on a paid version that emphasizes security and other enterprise-focused features and functions. That version is in preview mode, but it’s likely be rolled out more broadly at the DockerCon conference, next week. The company is also formulating features to make Docker containers easier to deploy and manage on a large scale. These orchestration services allow companies to spin up and coordinate multiple containers and help cut the costs of running infrastructure.
Other emerging startups like CoreOS and Mesosphere are also working on capabilities that compete with what Docker’s cooking. And then there’s the aforementioned Google Kubernetes, which is also open source and free, and also promises similar capabilities. Some analysts have said that the product works better than Docker’s nascent orchestration features.
Competing with free stuff, as discussed, is hard, and Docker’s risks have been well known for some time. Back in April when the startup raised $95 million in funding, one investor acknowledged just that.
“Definitely it has got a bit more risk on the business model,” said Insight Venture Partners managing director Jeff Horing at that time.
There are those who say no deal is going to happen. Naysayers note that Microsoft can get what it needs from Docker via its existing partnership without parting with cash. Others say Microsoft has zero track record managing large open-source projects and has its own agenda to bring Windows containers on par with Docker.
“With Windows being the only alternative to Linux in the enterprise, Microsoft would want to push its Windows agenda by claiming interoperability with Docker [rather] than selling Linux.” said cloud analyst MSV Janakiram, founder of Janakiram & Associates.
Should a Microsoft deal bubble up, he also feels that IBM (IBM) or Red Hat(RHT) would jump in to short circuit it. Red Hat, he noted, “would do everything possible to add Docker to its kitty.”
Such a deal would lead to another scenario. Talk about a Docker sale may be a way to gin up a bidding war for a company that may have a very short runway given its competitive challenges.
For more on Microsoft and its push into the cloud, check out the following Fortune video:
Dan Primack contributed to this story.
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