Interview Cloud infrastructure outfit HashiCorp has historically been all about the freemium model and has sold many self-managed subscriptions for its services to clients over the years. That is changing.
The register spoke with co-founder and CTO Armon Dadgar about open source, multi-cloud and the company’s plans after the company raised $1.22 billion in an IPO valued at approximately $14 billion.
HashiCorp is probably best known for its Terraform product, which allows users to define infrastructure as code.
TerraForm Cloud was the first to emerge as a managed service, and the company has added other services (more in 2022).
93 percent services are ‘self-managed’
“What’s interesting,” Dadgar says, “is that people always assume it, and this is the funny thing about HashiCorp, it’s like, ‘Oh, you guys have been enabling cloud software forever. So wouldn’t all your stuff be like a cloud? service?’
“But what’s funny is that it’s actually 7 percent of our revenue, it’s not a big part. Most of it is in-house.
“Most of these enterprises are uncomfortable with the idea of their premium infrastructure being offered as a service, right? If my Vault goes offline, my data center will stop working, right?
“Most of these larger companies prefer to host it themselves, because then they have a sense of control over it.”
“There are four main categories that we play in,” Dadgar says. “Provision infrastructure as a code layer: Terraform is sort of a flagship product there. In terms of security, managing 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 is the runtime – that’s our Nomad and Waypoint product.”
The initial rush to the cloud has been at least partially replaced by a multi-cloud approach by companies wary of betting on a single supplier. “I think that’s probably our most important value,” Dadgar claims. “It’s like, ‘Hey, I’m using the TerraForm tool, I can use it in all my clouds.’ I think hybrid and multi are exactly where the opportunity lies.”
Most of these companies are uncomfortable with the idea of their premium infrastructure being offered as a service
As for who buys HashiCorp’s products, Dadgar highlights two major business types. ‘The business market’, he says. “That’s the bulk of the company’s revenue. They all start from private data centers.
Multi cloud push
“They’re generally all adopting multi-cloud because they realize they’re not going to have one vendor on a large scale. And so their challenge is, ‘How do I actually do that in a kind of consistent way across these giant estates? How do I do that?’ sensibly for 20,000 developers in four different cloud environments?'”
Hence the need for a consistent business model no matter where one operates.
The second business type is the SME customer with a longer tail. “Where they probably aren’t necessarily multi-cloud,” Dadgar says, “they don’t necessarily come from a private data center. They can be cloud-native.”
Scaling faster and making developers productive is the name of the game, without having to worry about different approaches to infrastructure.
Growing the as-a-service segment
Dadgar says the company is “starting to see this shift to cloud service adoption” as enterprises gain confidence, especially with the growing emergence of multi-cloud strategies.
Still, cloud adoption remains a challenge. There has to be, Dadgar says, “some intent” about moving to the cloud. “I think we’ve seen the good, the bad, and the ugly of adoption.
“The ugly thing,” he said, “ultimately is when you accidentally step backwards into the cloud, with no real strategy of how you’re going to do it, and it just becomes chaos.
“You don’t have a central way to define your infrastructure, you don’t have a central way to manage your costs or your security or your compliance. And so you wake up one day, you know, a year into your cloud journey, and you think : ‘It’s just a mess.’
“Basically, the developers have done what they wanted. You have security vulnerabilities everywhere. Your costs have been greatly exceeded. It’s just kind of chaos.”
A methodical approach is therefore essential. And while HashiCorp has a variety of tools, there are always alternatives like Pulumi, if Terraform won’t float your boat.
Win: still a challenge
HashiCorp closed its first public offering of 15.3 million Class A common stock at a price of $80 per share as 2021 drew to a close. The price exceeded expectations, which were between $68 and $72 per share, and gross revenue came in at $1.22 billion.
If you have a Log4j vulnerability, do you just call Bob and Alice? It’s a fun pet project for them; they don’t offer you an SLA or a corporate agreement
It’s been a bit of a rocky road since then. The stock price is currently hovering around $50 and while revenues are on the rise (2022 tax revenues were $320.8 million, up 51 percent year-over-year), profitability remains a challenge.
Dadgar says the IPO has validated Hashicorp in a sense. “Internally, the culture hasn’t really changed much.” “However, going public has definitely changed the perception of the company and I think we’ve definitely seen a shift in customer sentiment in a positive way: ‘You’re going to be here for a while.'”
Regardless of the IPO and investor outlook, HashiCorp has continued to use open source in its products.
“I’m a big believer in open source,” said Dadgar, pointing out that recent security vulnerabilities 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 for two hours a weekend, versus a HashiCorp-supported open source project.”
There is indeed. “I think for a long time people just brushed everything off with the ‘It’s all open source,’ and you think, ‘But that’s just not true, is it?’
“Like, if you have a Log4j vulnerability…do you just call Bob and Alice? It’s a fun pet project for them; they don’t offer you an SLA or an enterprise agreement.
“I think people often think ‘it’s just a panacea’ and ‘everything is magical with open sourcing.’ No. There are trade-offs. There are costs. You have to pay people’s payroll…
“But I 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 that the customers don’t have to develop the software, they can take it off the shelf and run with it. And if they want something fixed, yes, they can a ticket if they’re a customer, and we’ll get there 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 get the best of both worlds and you as the supplier [are] get the best of both worlds.” ®