The startup that’s challenging Amazon’s cloud with a controversial new software license is now worth $2.5 billion (AMZN)

Confluent Jay Kreps

On Wednesday, the streaming data analytics startup Confluent announced it had closed $125 million in new funding — a deal valuing the company at $2.5 billion.
Late last year, Confluent introduced a new software license to take a stand against cloud giants like Amazon taking free software and offering it from their cloud for profit.
That announcement came shortly after Amazon Web Services said it would go head-to-head with Confluent by offering a service based on Apache Kafka — the popular open source software that was created by the founders of Confluent itself.
This funding round proves that despite the threat of cloud providers eating their lunch, investors still see promise in businesses built around open source software.

In November, Amazon Web Services announced a new service, based on the popular open source Apache Kafka software — a move taken by many industry insiders as a slap in the face to Confluent, a startup that's synonymous with Kafka, given that its founders literally created it.

For its part, though Confluent didn't back down. It introduced a new license to prevent cloud providers — like Amazon — from taking its open source software and reselling it for a profit. The move has proved controversial, with skeptics wondering if Confluent is doing more harm to the open source community than good.

Still, all of this hasn't scared off investors, it seems, as Confluent announced on Wednesday a $125 million funding round led by legendary venture firm Sequoia Capital. The deal values the startup at $2.5 billion.

It's a promising sign that investors still see upside in open source startups like Confluent, in an age when some in the industry view cloud titans as a threat.

What is Confluent?

Confluent is known for its namesake event streaming software, based on the open source Kafka, which processes events like orders, sales and customer experiences in real time, meaning that systems can make faster decisions. Kafka was started when Confluent's founders were still working at LinkedIn, and left to start the company after seeing lots of enthusiasm around it from the open source community.

“With Confluent, companies can connect all of their applications and data sources, enabling them to react and engage their customers in a faster, more personalized and more efficient manner," Jay Kreps, co-founder and CEO at Confluent, said in a statement around the funding.

In November, Amazon Web Services announced it would start offering Kafka on its cloud. It's completely legal to sell open source software — by its nature, open source software is free for just about anybody to use, for any purpose. Cloud companies like Amazon and Alibaba have taken advantage of this fact to use open source software as the foundation of their paid services for customers.

In turn, some companies, Confluent included, have responded by changing their licensing to prevent those cloud providers from using their software for commercial purposes.

"We think this is a positive change and one that can help ensure small open source communities aren't acting as free and unsustainable R&D for tech giants that put sustaining resources only into their own differentiated proprietary offerings," Kreps wrote in a blog post at the time of the licensing change.

It's proven to be a controversial move that's split the community: The companies say that it's a necessary move to protect their businesses and make sure that the cloud providers play fairly, but skeptics worry that placing limitations on open source software undermines the community's core principles.

Open source is big business

Still, despite the risk that the big cloud providers will eat their lunch, open source software companies like Confluent have thrived in recent times. Companies like Elastic and MongoDB that built their businesses around open source software have gone public in successful recent IPOs.

For its part, Confluent, which has been used by companies like AUDI and Capital One, has now raised $206 million in total, and says that in the past year, its subscription bookings grew by a factor of 3.5. Kreps says in a blog post that Confluent is still dedicated to Kafka, and that the rising interest in the software is only benefetting the company in the long run.

"Apache Kafka has a massive community of contributors of which we’re just one part," Kreps wrote in a blog post about the funding. "And the larger idea of building around events is a topic with interest and participation from hundreds of thousands of developers. We’re proud to be a part of this growing movement and to do our part to make it a reality."

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