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Experts: IBM buy could change HashiCorp open source equation

IBM will buy HashiCorp for $6.5 billion, prompting speculation that being brought under the same roof as Red Hat could alter Hashi's open source trajectory.

IBM will acquire HashiCorp for $6.5 billion, sparking debate among IT pros about how the parent company of Red Hat might approach a new subsidiary's open source issues.

HashiCorp was seeking buyers last month, according to a Bloomberg report; this week, The Wall Street Journal reported that IBM was nearing an acquisition of the cloud-native infrastructure software company. IBM confirmed those reports with a press release shortly after market close on Wednesday saying it will acquire HashiCorp for $35 per share, for a total of $6.5 billion.

IBM plans to integrate HashiCorp's products into Red Hat, watsonx, data security, IT automation and Consulting, according to the press release.

"For example, the powerful combination of Red Hat's Ansible Automation Platform's configuration management and Terraform's automation will simplify provisioning and configuration of applications across hybrid cloud environments," the release stated.

The Wall Street Journal had predicted that the deal would likely be worth more than HashiCorp's current market capitalization of $4.9 billion, calling it "a relatively small bite for IBM, which has a market capitalization of about $170 billion."

This news comes in the wake of a tumultuous nine months for HashiCorp. Founded in 2012, the company went public in late 2021, but has lost more than 50% of its stock value since then, according to Google Finance.  In a bid to fund its product development, in August 2023 HashiCorp shifted to a Business Source License (BSL) for all future releases of its products. This led to open source forks of its Terraform infrastructure-as-code tool and Vault security automation product, as well as a recent public dispute with the Linux Foundation's OpenTofu project that forked Terraform.

IBM's announcement of the deal did not mention whether it plans to return HashiCorp's products to an open source license. But IBM CFO James J. Kavanaugh said in the IBM earnings call Wednesday that there's plenty of room to grow HashiCorp's revenues -- 70% of which come from customers in the U.S. -- via IBM's global sales force.

"To put this in perspective, only about 20% of the Forbes Global 2000 are HashiCorp customers and just a quarter of HashiCorp customers results in more than $100,000 annual recurring revenue, underscoring the opportunity to better monetize and upsell their products," Kavanaugh said.

HashiCorp's Infrastructure Cloud, a repackaging of its SaaS services unveiled Monday, is intended to start capturing more revenue and expand its customer base, said Tim Crawford, CIO strategic adviser at Avoa, a research and advisory services firm in Rolling Hills Estates, Calif.

"HashiCorp is leaving a lot of money on the table and has significant potential beyond their existing success," he said. "They know it, but have struggled to capture it."

Acquisition reports prompted open source buzz

In the initial wake of reported talks this week, industry watchers predicted HashiCorp's open source stance might change following such a deal.

IBM historically was not a supporter of open source, but since its $34 billion acquisition of open source software bellwether Red Hat in 2019 has continued its subsidiary's open source commitments. IBM has also integrated OpenTofu with its IBM Cloud Pak for AIOps, and IBM engineers working on its Open Horizon edge computing product founded the OpenBao project to fork Vault.

IBM should combine HashiCorp with Red Hat and immediately remove copyright infringement claims.
Larry CarvalhoIndependent analyst, RobustCloud

"If IBM goes through with this deal, it will be a massive win for the open source community," said Larry Carvalho, an independent analyst at RobustCloud, before the acquisition was confirmed. "IBM should combine HashiCorp with Red Hat and immediately remove copyright infringement claims. The community's combined efforts will improve Terraform much better than HashiCorp's current direction."

HashiCorp's Terraform and Red Hat's Ansible IT automation software are already frequently associated in the infrastructure management market, said Rob Strechay, lead analyst at enterprise tech media company TheCube. Other HashiCorp products, such as Vault and Vagrant for portable developer environments, would be a natural fit with Red Hat's OpenShift portfolio, he said.

"I believe this is a lifeline for HashiCorp and Terraform that could bring it back together with OpenTofu, as the two are not that far apart code-wise yet," Strechay said. "Overall, this would be a win-win for both companies and probably the best outcome."

Other analysts, while seeing the potential for a beneficial combination of the companies, disagreed that IBM would change HashiCorp's open source course.

"The BSL thing is a red herring that needs to go away," Crawford said. "Nobody cares about it except for the companies that were building businesses on top of it to the detriment of HashiCorp."

Still, IBM would be among the most neutral possible acquirers of HashiCorp, which has staked its value on compatibility with multiple major cloud computing providers, according to Crawford.

"If IBM were to purchase HashiCorp, they could round out the offering, introduce it to a broader base and scale it in new ways," without returning it to open source, he said. "HashiCorp would be a solid complement to Red Hat and provide mutual value to both companies for different reasons. For IBM, it provides an alternative foundation for applications to Broadcom's VMware while complementing Red Hat's OpenShift Kubernetes platform."

One HashiCorp customer took a more pessimistic view of the potential acquisition.

"IBM being a second-tier cloud player buying HashiCorp would be worse than a software-only house buying them," said Rob Lazzurs, CTO at Amach Software, a digital transformation consultancy in Dublin. "This puts the future direction of a set of cross-platform tools in the hands of a single player."

Lazzurs was also not enthusiastic about the idea of HashiCorp's open source direction under IBM.

"What we have seen with Red Hat is [that] over time, IBM culture has taken over, and I expect the same to happen to HashiCorp," he said. "This is a great example of why foundational tools in our computing landscape should be managed by foundations rather than corporations."

Updated following initial publication.

Beth Pariseau, senior news writer for TechTarget Editorial, is an award-winning veteran of IT journalism covering DevOps. Have a tip? Email her or reach out @PariseauTT.

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