The Infrastructure as Code market is at a crossroads, with market leader HashiCorp soon to be being acquired by IBM. Some new startups believe this presents an opportunity, as Hashicorp’s exit from open source and the wait for the IBM deal (which hasn’t closed yet) could provide openings for fresh blood.
Now, next-generation IaC companies such as Pulumi, System Initiative, and others are emerging to challenge the status quo. This month, Pulumi announced a major upgrade and the introduction of new security products, while System Initiative officially announced its first product.
“IaC is hot and getting hotter,” Adam Jacob, cofounder and CEO of System Initiative, told me in an interview. “It’s because people need it. The problem is real. We need an answer to this problem, especially in the large enterprise.”
Why HashiCorp’s Dominance Could End
IaC consists of software tools and platforms that help IT and DevOps teams automate the creation and management of cloud infrastructure. In the cloud world, engineers want to connect software code managed by continuous integration and continuous deployment to automated infrastructure creation. IaC tools are widely adopted among DevOps teams, but they are still evolving—and some people say they have a way to go before they reach full potential.
Early scripting and automation tools such as Puppet and Chef helped set the stage for IaC. Then came Terraform, a previously open-source tool produced by HashiCorp that became popular with engineers seeking to embed cloud infrastructure instructions into applications. On the back of Terraform as well as Hashi’s security product, Vault, HashiCorp grew fast and went public in 2021.
But the party ended quickly. After going public, HashiCorp had trouble growing to keep up with Wall Street’s expectations and the stock lost more than half its value after going public. Last year, it responded by switching its licensing from open source to commercial licensing. After its shares fell further, IBM made an offer to buy HashiCorp for $6.4 billion. The deal is expected to close by year-end.
Further complicating the situation, HashiCorp’s licensing switch resulted in the creation of a fork in the code, a new open-source platform known as OpenTofu, which is controlled by the Linux Foundation.
Is Open Source Still the Way?
Startups such as Pulumi and System Initiative have launched products to take advantage of this market chaos. Both these companies are advocating different approaches to IaC, as well as sticking to open-source strategies.
This month, Seattle-based Pulumi announced two new products, Pulumi ESC and Pulumi Insights, designed to automate, secure, and manage cloud infrastructure. Pulumi is intent on building a large and powerful platform to go right at HashiCorp and take advantage of its competitor’s tumultuous past couple of years.
By launching a security and secrets management product, ESC, Pulumi is targeting HashiCorp’s Vault, which is known as a cash cow. Pulumi says it will continue to strongly support open-source versions of its product. Pulumi has pointed out that its open-source community is growing fast, with more than 100 million downloads and 20,000 “stars,” the developer equivalent of likes. It also now claims 5,300 contributors to its open-source code. The company raised a $41 million C round in October of 2023.
“Pulumi is real open source,” Pulumi CEO Joe Duffy told me in an interview this month. “We still see confusion with HashiCorp. What’s going to happen when the IBM deal closes? It’s causing people to be nervous.”
Likewise, System Initiative also sees opportunity. This month, System Initiative launched a new platform to help DevOps engineers build cloud infrastructure using an intuitive interface (see diagram below). The company’s software-as-a-service platform, called System Initiative, aims to rival Pulumi and HashiCorp by allowing engineers to design cloud infrastructure using a collaborative “multiplayer” approach. Like Pulumi and unlike HashiCorp, the company will also adhere to an open-source model with a free tier and usage-based pricing for premium.
System Initiative was founded in 2019 by Adam Jacob, Alex Ethier, and Mahir Lupinacci. Jacob, the CEO and chairman, is well known in the developer community as the original coauthor of the Chef automation tool as well as the cofounder of Chef Software. System Initiative has raised a total of $18 million in funding. The company has announced that it has 2,900 people signed up for the platform.
Setting Up for an IBM Showdown
The IaC market doesn’t stop with HashiCorp, Pulumi, and System Initiative. There is also a group of startups aligning behind OpenTofu as the open-source successor to Terraform. Two of the more prominent companies here include Env0 and Spacelift.
All of this activity sets up some big anticipation for what IBM will do with HashiCorp. With an annual revenue run rate at just over $600 million, HashiCorp is still the largest company in the IaC world, and IBM has considerable heft and opportunities for integration with its influential Red Hat cloud software division. While some in the industry expect that IBM might reverse HashiCorp’s open-source decision and come back to the open-source community, the clock is ticking and the process could be slow with the deal still in limbo.
Most of the startups in the market see this as an opportunity more than a threat. HashiCorp’s licensing decision drove deep divisions in the IaC world and provided opportunities for others to step up, including projects such as Pulumi, OpenTofu, and System Initiative.
“I’d rather compete with IBM than HashiCorp,” says System Initiative’s Jacob.
Either way, it’s going to be interesting to watch. The next 12 months will be big for IaC, with continued investment, new products, and an expanding competitive landscape.
(Disclosure: Futuriom Principal R. Scott Raynovich executes market research for companies in this market, including Pulumi. At the time of writing, Raynovich had no position in IBM or HashiCorp stock.)
