Interview Cloud infrastructure outfit HashiCorp has traditionally been all about the freemium model and sold plenty of self-managed subscriptions for its services to customers over the years. That is changing.
The Register spoke to co-founder and CTO Armon Dadgar about open source, multi-cloud, and the firm’s plans after the company raised $1.22bn in an IPO valuing it at approximately $14bn.
HashiCorp is probably best known for its Terraform product, which permits users to define infrastructure as code.
TerraForm Cloud was the first to turn up as a managed service, and the company has added other services (with more to follow in 2022).
93 percent services are ‘self-managed’
“What’s interesting,” says Dadgar, “is people always assume, and this is the funny thing about HashiCorp, it’s like, ‘Oh, you guys have been enabling cloud software for forever. So shouldn’t all your stuff be delivered as a cloud service?’
“But what’s funny is that it’s actually like 7 percent of our revenue, it’s not a huge part. Most of it is self-managed.
“Most of these enterprises are uncomfortable with the idea that their tier-one infrastructure is being provided as a service, right? If my Vault goes offline, my datacenter stops functioning, right?
“Most of these bigger enterprises would rather self-host it because then they feel a sense of control over it.”
“There’s four key categories that we play in,” says Dadgar. “Provisioning infrastructure as code layer: Terraform is sort of our flagship product there. In the security space, how to manage credentials, secrets and identity in the cloud, Vault is [our] flagship product for that. Then the networking – ‘how do I actually do multi-cloud networking?’ – that’s Consul. And then the top of most layers are the runtime – that’s our Nomad and Waypoint product.”
The initial rush to the cloud has at least partially been replaced by a multi-cloud approach by companies wary of betting on a single vendor. “I think that’s probably our key value,” claims Dadgar. “It’s like, ‘Hey, I adopt the TerraForm tool, I can use it across all my clouds.’ I think hybrid and multi is exactly where the opportunity sits.”
Most of these enterprises are uncomfortable with the idea that their tier-one infrastructure is being provided as a service
As for who is buying HashiCorp’s products, Dadgar highlights two main business types. “The enterprise business,” he says. “That’s the bulk of the company’s revenue. They’re all starting from private datacenters.
“They’re, by and large, all adopting multi-cloud because they realize they’re not going to have one vendor at scale. And so their challenge is, ‘How do I actually do that in kind of a consistent way across these ginormous estates? How do I do it in a sane way across 20,000 developers across four different cloud environments?'”
Hence the need for a consistent operating model regardless of where one is running.
The second business type is the longer-tail SMB customer. “Where they probably aren’t necessarily multi cloud,” says Dadgar, “they’re not necessarily coming from a private datacenter. They might be cloud native.”
Scaling faster and making developers productive is the name of the game, without having to worry about dealing with different approaches to infrastructure.
Growing the as-a-service segment
Dadgar says the company is “starting to see this shift increasing to consumption of a cloud service” as enterprises become more confident, particularly with the growing emergence of multi-cloud strategies.
Yet cloud adoption remains a challenge. There needs to be, says Dadgar, “a certain intentionality” about a move to the cloud. “I think what we’ve seen is the good, the bad, and the ugly of adoption.
“The ugly,” he said, “ends up being you step backward into cloud accidentally, without a real strategy of how you’re going to do it, and it just becomes chaos.
“You’re not having a central way that you’re defining your infrastructure, you’re not having a central way that you’re governing your cost or your security or your compliance. And so you wake up one day, you know, a year into your cloud journey, and you’re like: ‘It’s just a mess.’
“Basically, the developers have done whatever they want. You have security issues all over. Your costs have overrun massively. It’s just kind of chaos.”
An methodical approach is therefore essential. And while HashiCorp has a variety of tools on offer, there are always alternatives such as Pulumi, if Terraform doesn’t float your boat.
Profit: Still a challenge
HashiCorp closed out its Initial Public Offering of 15,300,000 shares of Class A common stock at a price of $80 per share as 2021 drew to a close. The price was up on expectations, which were between $68 and $72 per share, and the gross proceeds came to $1.22bn.
When you have a Log4j vulnerability, do you just call up Bob and Alice? It’s a fun pet project for them; they’re not providing you an SLA or an enterprise agreement
It has been somewhat of a rocky road since then. The stock price is currently hovering around the $50 mark and while revenues are up (fiscal 2022 revenue totaled $320.8m, up 51 percent year-over-year) profitability remains a challenge.
Dadgar says the flotation, in some ways, validated Hashicorp. “Internally, the culture really hasn’t changed much.” However, “being public has definitely changed the perception of the company and I think we’ve seen a shift, certainly, in the customer sentiment in a positive way: ‘You guys are gonna be here for a while.'”
Regardless of IPO and the gaze of investors, HashiCorp has continued to make use of open source in its products.
“I’m a huge open-source proponent,” says Dadgar, going on to point out that recent security whoopsies have helped companies realize that “not all open source is created equal.”
“There’s a big difference between Armon’s pet project that he works on two hours a weekend versus a HashiCorp-supported open-source project.”
Indeed there is. “I think for a long time, people just kind of brushed everything with the ‘It’s all open source’, and you’re like, ‘But that’s just not true, right?’
“Like, when you have a Log4j vulnerability… do you just call up Bob and Alice? It’s a fun pet project for them; they’re not providing you an SLA or an enterprise agreement.
“I think people often think ‘It’s just a panacea’ and ‘everything’s magical with open-sourcing.’ No. There are trade-offs. There are costs. You have to pay people’s payroll…
“But I do think fundamentally the value of open source [is that] when our customers need to scratch their itch, they can. They can take our open source, fork it, fix a bug, add a feature, improve the documentation…
“So I think you get the best of both worlds, which is the customers don’t have to develop the software, they can take it off the shelf and run with it. And when they need something fixed, yeah, they can file a ticket if they’re a customer, and we’ll get to it eventually.
“Or they can scratch their own itch and unblock whatever their business problem is.
“So I think there’s a lot of that kind of… ‘positive synergies’ – I hate the word, but I don’t know how to describe it. It’s like the customers are getting the best of both worlds and you as the vendor [are] getting the best of both worlds.” ®