Author | Li Dongmei, nuclear cola
IBM 斥资 64 亿美元收购 HashiCorp
On April 24, 2024 local time, IBM announced that it had acquired HashiCorp, the creator of Terraform, for $6.4 billion, or $35 per share, in hopes of further exploring the hybrid cloud capabilities provided by its Red Hat brand. HashiCorp has an extensive presence in the cloud ecosystem, and it has partnerships with many major cloud vendors.
IBM said the HashiCorp acquisition will boost its adjusted EBITDA in the first full year after closing and help increase free cash flow in the second full year. IBM expects the deal to close by the end of 2024, and Dave McJannet, the current CEO of HashiCorp, plans to stay with the company.
Founded in 2012, HashiCorp may not be as well-known as IBM, but HashiCorp's infrastructure-as-code tool, Terraform, is a staggering tool for allocating and aligning cloud and on-premises resources. In addition, HashiCorp offers a range of security tools such as Nomad, a workload orchestration product, Waypoint, a developer platform, and Vault, Boundary, and Consul. The acquisition comes just two days after HashiCorp launched The Infrastructure Cloud product, which combines its infrastructure and security products with the HashiCorp Cloud platform to provide a unified cloud management platform.
HashiCorp, a once-hot Silicon Valley start-up, rose to prominence after its first public offering (IPO) in 2021, with its share price reaching a high of nearly $100 in just one month. Today, IBM's purchase price is just $35, and it has shrunk by 65 percent after just over two years.
Despite its wide audience for its leading open source software, HashiCorp has been the subject of controversy and criticism over the past year for its decision to switch from the Mozilla Open Source License v2.0 to a Commercial Source Code License (BSL), which limits the free use of its products.
In August 2021, HashiCorp made a major change to its monetization strategy, a move that quickly sparked a backlash from the open source community. At that time, many developers posted on social media platform X to protest, "I'm more annoyed with HashiCorp than with IBM, and I'm actually glad that IBM admitted what we already knew, but HashiCorp ...... I'm just disappointed. I have a lot of respect for them and don't want to offend them, but I can't find a single positive point in this matter. ”。
"The impact of this event is much broader than initially thought – and this event is sending ripples across the tech industry!"
In December 2023, HashiCorp founder Mitchell Hashimoto left the company, and there are rumors that Hashimoto and current CEO McJannet are at odds with each other over business strategy.
What does this acquisition mean for both parties?
In addition to the licensing turmoil, HashiCorp has had a rough ride in recent years. Even before the acquisition, HashiCorp was already experiencing a slowdown in business growth.
Like many companies in the cloud-native space that IPO between 2019 and 2022, HashiCorp has never been profitable. In the era of low interest rates until mid-2022, growth is what counts. But since then, the focus has shifted from business growth to profitability. And the issue of profitability is the pain of HashiCorp.
HashiCorp is highly reliant on an ARR (Annual Recurring Revenue) customer base of more than $100,000. According to analysts:
89% of HashiCorp's revenue comes from customers who spend more than $100,000 per year on it, and these customers represent only 19% of its paying customer base (830 out of 4,392 customers as of Q1 FY2024). In addition to this, revenues are highly geographically concentrated, with 71% of sales coming from the United States.
Over the next three quarters, growth in this $100,000-plus segment slowed further, while revenue concentration remained at 89%.
At the same time, HashiCorp's net dollar retention rate (NDR) has continued to decline, falling significantly to 115 over the past two quarters. While the days of 130+ NDRs for many companies are a thing of the past given the broader macroeconomic environment, the decline here has been unusually fast.
In short, it's a fast-slowing business that can't support its current valuation, let alone at the time of its IPO. It's been an acquisition target for some time now, but even though the price has dropped since the IPO, the price is still relatively high.
No one doubts the usefulness and popularity of the products created by HashiCorp, especially Vault and Terraform, but utility alone does not translate into business revenue. IBM has enough corporate relationships to make the acquisition worthwhile.
William Blair research analyst Jason Ader said in a research note that the deal is highly strategic for both companies.
"We believe this transaction is of great strategic importance to both companies. IBM complements and underpins its growing infrastructure software portfolio with popular tools (Terraform, Vault), and HashiCorp will benefit from the experience and market reach of Big Blue. ”
IBM CEO Arvind Krishna noted on the call that HashiCorp's products are "widely adopted by the developer community," with more than 500 million total downloads and use by more than 85 percent of Fortune 500 companies.
It's worth mentioning that Sid Nag, corporate vice president at Gartner, said in an interview that the motivation for the deal was very clear from IBM's perspective. First, IBM is working hard to flesh out the capabilities of its Ansible platform, and the best way to do that is, of course, to "borrow flowers" directly from its main competitors.
Second, he said IBM is working to expand its market reach and revenue potential. By acquiring HashiCorp, it will not only be able to acquire its existing customers, but also sell HashiCorp's technology solutions to its own large corporate customer base.
On a deeper level, the deal is "another copy of IBM's successful acquisition and monetization of Red Hat." IBM seems to be aware of a flaw in Red Hat's Ansible Platform, which is already starting to hinder its ability to expand its market share. The acquisition of HashiCorp strengthens Ansible's ability to fill these gaps in a timely manner.
So why did HashiCorp accept the acquisition?
At first glance, many people find it difficult to understand why a publicly traded company with a well-received technology product would be willing to accept an acquisition, especially if it received an olive branch from IBM, the biggest competitor in the resource allocation market.
But in a note to investors, Wamsi Mohan, an analyst at BofA Securities, noted that HashiCorp's "business growth has been declining." He also added that IBM is on track to "drive cost synergies and return revenue growth with a larger customer base." ”
So the outside world can't help but speculate, HashiCorp is really in trouble?
Roy Chua, founder of AvidThink, said in an interview that HashiCorp was indeed "firmly established in the development and DevOps community — at least before the entire commercial source code license (BSL) farce and the Linux Foundation established the OpenTofu project." ”
In August 2023, HashiCorp decided to transition from the Mozilla Public License framework to the Commercial Source Code License framework. The company said at the time that the move was aimed at expanding its control over the commercialization of open source technology. However, users didn't buy the change, and two weeks later the Linux Foundation quickly set up a Terraform fork called OpenTofu.
"Considering that so many DevOps and software teams are free to use and rely heavily on Terraform, I don't think HashiCorp is fully aware of the value it creates," Chua said. If they succeed in their Docker-style transformation under the leadership of Scott Johnston and his team, they will definitely be able to capture more revenue and avoid the fate of being acquired now. ”
With IBM's takeover, "we'll all be watching to see if IBM reverses its decision to move to BSL." Chua also mentioned that IBM recently led another Linux Foundation incubation project called OpenBAO, which is a fork of the HashiCorp Vault, and is also an apparent expression of dissatisfaction with the license framework switch.
Now that IBM and Terraform control the asset, developers will push IBM to undo the BSL conversion and stop the fork. ”
There are many people who are worried that IBM will tighten restrictions on Terraform and Ansible after the acquisition, or "misbehave" with these two software, and even joke that if IBM were to merge Terraform and Ansible, wouldn't it be called "Terrible"?
Adam Jacob, co-founder & CEO of the System Initiative, congratulated the transaction in a post on X: "Congratulations to everyone on the Hashicorp team I know, it's an incredible achievement to build a company like this, some people think it's crazy to start a company worth more than $4 billion, but you did it, congratulations." ”
Who does the commercial license BBL hurt and who does it protect?
The change of license with Hashicorp sparked community discontent that led to the creation of an open source software branch last month.
On March 21, Rowan Trollope, CEO of Redis, the company behind Redis, announced that the license type of the project will be changed from the original BSD open source license to RSAL v2 and SSPL v1 dual licenses.
Redis said the license change is primarily to protect Redis' commercial interests and prevent cloud vendors from leveraging open source versions to support commercial Redis SaaS services. This kind of behavior is not uncommon in the market, and vendors such as Confluence, MongoDB, and Elastic have previously made similar license changes to their open source projects to protect their interests. However, Redis's move has sparked the anger of many developers, one of the main reasons being the large number of external contributors in the Redis community. This unilateral change to the license is seen as a betrayal of the community and, more importantly, of the contributors.
In fact, there has been a constant controversy over commercial licenses.
HashiCorp's adoption of BSL has confused many members of the open source community. BSL combines aspects of open source and proprietary licenses, requiring companies to make their software available as open source, but only for a specific duration. After the agreed period, the license of the software can be changed to an exclusive model. So, this begs the question: is this licensing structure consistent with the basic principles of open source software?
One of the cornerstones of successful open source projects is community engagement. Contributors from diverse backgrounds collaborate to build, enhance, and maintain software for the benefit of everyone. HashiCorp's move to BSL comes with a level of uncertainty that can hinder community participation. When the terms of the license suddenly change and affect their ability to freely use, modify, or distribute the software, contributors may be hesitant to invest time and effort into the project.
At the same time, changing the license will also dampen the enthusiasm of independent developers and independent contributors to contribute to the community. One of the features of open source is that it enables independent developers and independent contributors to create innovative solutions. The adoption of BSL can hinder these people's ability to use software as a foundation to build viable commercial products. This shift could lead to a reduction in the number of such products on the market, which inhibits competition and limits end-user choice.
Original link: The $6.4 billion deal is a mutual redemption between IBM and HashiCorp_Cloud Development_Li Dongmei_InfoQ Selected articles