The OpenTofu project is showing all the signs of becoming a significant and viable alternative to HashiCorp’s own Terraform project.This could spell trouble for HashiCorp’s revenue growth.
At the Open Source Summit Europe last week, the OpenTF fork of HashiCorp Terraform announced it was now called OpenTofu and had been accepted as a Linux Foundation project.Global insurance brand Allianz announced its support for the project.
“While it’s still early days for our use of OpenTofu, its community-driven ethos aligns well with our long-term objectives and seamlessly integrates with our existing technology stack.For those pondering shifts in their enterprise infrastructure, OpenTofu is certainly worth your attention,” said Mike Sutton, Allianz CIO, in a written statement.
While hard forks have historically been risky endeavours, recent research by Zhou, Vasilescu and Kästner, ‘How Has Forking Changed in the Last 20 Years?: A Study of Hard Forks on GitHub’ indicates that most hard forks of active open source projects tend to survive (51%), though a large number (44%) also die out eventually.The level of support behind the project thus far, and the substantial progress it has already made, suggest that OpenTofu is likely to remain active for quite some time.
The OpenTofu project could represent a significant challenge to HashiCorp cloud revenues.In recent PivotNine research , we determined that HashiCorp’s shift to cloud has substantially increased its cost base.
HashiCorp’s costs of cloud, at 41.95% of cloud revenue in 2024H1, are substantially higher than license costs, which grew from 1.48% of license revenues in 2021 to 3.4% of license revenues in 2023H1.
As cloud services revenue (12.42% of revenues in 2024H1) has now overtaken licenses revenue (11.34% in 2024H1), this trend is likely to continue, further challenging HashiCorp’s ability to reach profitability and to fund research and development from earnings.I estimate that HashiCorp’s cloud revenues will grow at approximately 52% YoY for fiscal 2024 while all other revenue sources will grow at less than 21% YoY.
MORE FOR YOU ‘Alarm Bells For Crypto’—Leak Reveals Joe Biden Could Be About To Issue a Game-Changing Executive Order And Trigger Bitcoin Price Chaos Hollywood Writers Strike Ends Deal Finalized After 148 Days Of Work Stoppage How TikTok Has Exposed Celebrities And Politicians Closest Personal Contacts Our research also plotted a path for OpenTofu that could spell serious trouble for HashiCorp.Acceptance as a project into the Linux Foundation or CNCF was one of the first steps down that path.
When HashiCorp changed license to the Business Source License in early August, part of the justification was to combat competitors free riding on its own development efforts.HashiCorp also changed the terms of use for its Terraform registry seemingly to prevent Terraform-compatible projects from using it.
When contacted, HashiCorp did not wish to comment on the record about when or why the terms of use were changed.
It seems clear that HashiCorp was concerned about competitors’ impact on the growth of its cloud business, particularly for Terraform.HashiCorp acted to encourage more customers to use its own cloud offerings rather than those offered by competitors.
Somewhat ironically, HashiCorp may have triggered the creation of a viable competitor that could increase drag on the part of its business that is growing most strongly.
However, OpenTofu is not a cloud-hosted product all on its own.It remains, like Terraform itself, a self-hosted product that customers need to house and operate themselves.This is not a trivial task, particularly for a critical infrastructure service at enterprise scale.
Operations Is Where The Enterprise Money Is Much of the benefit of cloud services like HashiCorp Cloud Platform (HCP) comes from someone else shouldering this operational burden.HCP is, in many ways, the spiritual successor to HashiCorp’s first attempt at commercialization with Atlas , a system designed to unify all its other projects into a seamless whole.
While Atlas didn’t succeed as HashiCorp had hoped, customers have proved more receptive to the promise of HCP, and HashiCorp has referred to cloud as a “generational opportunity” with itself at the ‘epicenter’.
HashiCorp clearly felt threatened by competitors, or else it would not have changed product licenses, nor the terms of use for its Terraform registry to exclude anything that isn’t HashiCorp Terraform.A company assured of itself and its ability to compete would have seen no need to make such changes with such haste.This behaviour is out of character for HashiCorp, so I am forced to assume that it felt the threat was dire.
Meanwhile, OpenTofu plans to launch its own registry next week , containing all the providers that make Terraform what it is.Most Terraform providers are open source, and I see nothing to prevent providers being available from multiple registries.
There is also the intriguing possibility of a major cloud vendor launching its own OpenTofu-as-a-Service offering.
The OpenTofu project has indicated that its own registry will be AGPL licensed , but the public clouds all have people more than capable of creating and hosting a registry service.The clouds already provide as-a-Service version of other projects some of which are open source forks of commercial products that changed license .
It would be deeply ironic if HashiCorp’s license change made a public cloud competitor product more likely, rather than less.
Justin Warren.
