IBM’s multi-billion dollar deal to buy HashiCorp has left the hybrid cloud industry guessing what the future holds in store for the most popular provider of tools for DevOps and infrastructure-as-code (IaC).
HashiCorp was rumored to have been looking for an acquirer for several months before the deal was announced. Despite enjoying top dog status in the IaC space thanks to its flagship Terraform app, the company had been struggling to translate its popularity into profitability, resulting in immense pressure from shareholders to do something drastic.
HashiCorp’s financial struggles were all too apparent when it published its fiscal 2023 financial results, revealing a $274 million loss on a total revenue of $583.1 million that year.
Its inability to drive a profit is thought to be what prompted the company to make the controversial decision of replacing Terraform’s open-source Mozilla license with a more restrictive Business Source License (BSL 1.1), which caused an uproar among developers and partners. Such was the Terraform community’s dismay that it quickly responded by creating a Terraform fork, eventually called OpenTofu, which rapidly accumulated a big following.
IBM’s challenge is to turn HashiCorp’s fortunes around, and there has been a lot of speculation over how the company intends to do that. It can go one of two ways — either it can make Terraform more restrictive, binding it more tightly with its own cloud products and services, or it can perform a rapid U-turn and embrace the open-source community once more.
Open Source is a Tough Business
HashiCorp is not alone in its struggles. The challenges of monetizing open-source software are well documented, and many of HashiCorp’s peers have opted to take a similar approach, making their products more restrictive in an effort to stop bleeding cash. Redis, for instance, recently mirrored HashiCorp’s move when the company announced it was dropping its Berkeley Software Distribution license in favor of a new Redis Source Available License and Server Side Public License model, placing restrictions on how its database software can be modified. Elasticsearch made a similar move in 2021.
The problem with open-source software is that its development is anything but free. While there are a handful of projects led by hobbyist developers, the reality is that most are under the control of big technology firms that employ armies of developers to maintain them. Google, for example, is the main contributor to the Kubernetes project, and it pays hundreds of developers to work on that initiative full-time. This is possible because the company makes money from selling cloud infrastructure services that support Kubernetes workloads.
However, other companies cannot do this, and HashiCorp is a prime example. For most users, the open-source version of Terraform had already provided everything DevOps teams needed to orchestrate their cloud environments, and they saw little reason to pay for the premium Terraform Cloud product, even if it was a little easier and had some nice add-ons.
HashiCorp said in October 2023 that it was hoping to become profitable by the second half of its fiscal 2025 year, but the growth metrics that the company has reported in recent quarters make this goal look like a longshot at best.
Open or Closed? That is the Question
One of the reasons why Terraform quickly became the most popular IaC offering was its cloud-agnostic nature. Most organizations these days are multi-cloud and Terraform gives them a common configuration language.
For IBM, maintaining this cloud-agnostic nature of Terraform might be perceived as a conflict of interest. With IBM Cloud having a tiny market share of just 1.8%, it seems to make little sense to keep supporting a tool that enables people to use its competitors.
This has led to concerns that IBM plans to bind Terraform more tightly with its own cloud offerings. The company may opt to prioritize integration with IBM Cloud at the expense of other cloud infrastructure platforms. It also seems likely that IBM will want to integrate Terraform with Red Hat, which is now its biggest revenue growth driver. Interoperability could be limited to IBM’s products, and access to its source code could be limited to paying users only, to maximize revenue.
The Terraform community is unlikely to appreciate such a move, given its reaction to HashiCorp’s licensing changes last year. In an op-ed in Forbes, Futuriom analyst Scott Raynovich highlighted the extremely negative response by many Terraform users, accusing the company of turning its back on its open-source roots.
“The open-source licensing had enabled thousands of partner companies to incorporate Terraform and other HashiCorp coding into products that are sold commercially,” Raynovich noted. “The announcement also lit a fire under the age-old debate of what’s cool and what’s not cool in the open-source community. As you can imagine, a lot of people thought it wasn’t very cool.”
However, there is plenty of optimism that IBM could be good for HashiCorp. In particular, there was a positive reaction from the Terraform community on Reddit, with many members expressing their hope that IBM would make Terraform open source again. While a more restrictive approach might make sense from a revenue perspective, IBM will also be well aware of the benefits of such a move.
Sebastian Stadil, a co-maintainer of the forked OpenTofu project, recently told The New Stack he would be open to reconciling with Terraform if ever HashiCorp decided to return to a more open licensing model. He also revealed that OpenTofu’s maintainers have held confidential talks with IBM, without providing any details.
It is clear that OpenTofu, with its less restrictive model, represents a significant threat to Terraform; so IBM might well be motivated to eliminate one of its biggest potential challengers by returning to the open-source path.
Terraform is Not the Only Show in Town
A decision by IBM to continue along the path laid out by HashiCorp’s management is unlikely to result in everyone abandoning Terraform. For many users, it will be far too inconvenient or challenging to swap it out for some other kind of cloud provisioning tool, especially if subsequent versions of OpenTofu are less compatible with Terraform over time.
Although Terraform is widely seen as the leading IaC tool, it is not so popular that it can influence the entire industry. DevOps practitioners are exemplified by their resourcefulness and their innovativeness, and they will always be able to find an alternative way forward.
In a recent panel discussion hosted by IaC management framework company Env0, Ohad Maislish, CEO, commented on the tool ecosystem around Terraform and how that might translate for companies that embrace alternatives. “OpenTofu is a unique example of something that from day one already has a very mature ecosystem of adjacent solutions and technologies,” he said. Today, many cloud providers already offer open-source modules to support deployment via OpenTofu.
OpenTofu isn’t the only alternative, either. Pulumi is another option, though it also has financial sustainability concerns, with a business model that seems similar to HashiCorp’s old, pre-license switch. Then there is Crossplane, which has a more Kubernetes-centric flavor and is backed by the Cloud Native Computing Foundation. A third option is for Terraform users to instead go with the dedicated offerings of the major cloud infrastructure providers, such as Cloud Formation for AWS, Config Controller in Google Cloud and Bicep on Microsoft Azure.
Striking the Right Balance
Whichever path IBM decides to take, the tech giant’s leadership will do well to remember that in the DevOps industry, there is a mindset that emphasizes principles over the tools required to do the job.
Should Terraform evolve in a direction that displeases the DevOps community, the industry will simply switch to a new standard. After all, one of the things that characterizes the DevOps movement is the ability of teams to quickly adapt and embrace new tools and systems that allow them to get things done faster and more efficiently.
For now, IBM is keeping its plans for Terraform under wraps. The challenge it faces is to keep the majority of Terraform’s users happy, while finding a way to turn a profit. Getting it right means performing an extremely delicate balancing act that has few precedents. It may not be impossible, but it will be an impressive feat if IBM can do it.
