Elastic Is Being Forked by Amazon After Breaking Promise
Technology firm reclassified $11.6 million to correct balance sheet error.
March 24, 2021
Elastic (ESTC), a technology firm that enables companies to search structured and unstructured data for actionable insights, is at war with Amazon. In its third quarter FY21 10-Q ending January 31, 2021, Elastic disclosed the newest release of its core offering— the combination of Elasticsearch and Kibana— is no longer being offered under an open source license:

“In February 2021, with the release of version 7.11 of the Elastic Stack, we moved the source code that had historically been licensed under Apache 2.0, to be dual licensed under ELv2 and SSPL, at the user’s election. Neither the Elastic License nor the SSPL has been approved by the Open Source Initiative or is included in the Free Software Foundation’s list of free software licenses. Further, neither has been interpreted by any court.”

Requiring an Elastic or SSPL license, according to Amazon, limits how the software is used or makes it unacceptable to some in the open source community. In response, Amazon is forking Elastic, meaning it will provide everything users need to continue using Elastic on Amazon Web Services (AWS) seamlessly. Amazon says:

“When AWS decides to offer a service based on an open source project, we ensure that we are equipped and prepared to maintain it ourselves if necessary.”

The decision to no longer offer open source licenses could harm adoption of Elastic’s new release and developers who have relied on the open source licensing for years:

“While the vast majority of downloads of Elasticsearch and Kibana from mid-2018 through early 2021 were licensed under the Elastic License, the removal of the Apache 2.0 alternative could negatively impact certain developers for whom the availability of an open source license was important. In addition, some developers and the companies for whom they work may be hesitant to download or upgrade to new versions of Elasticsearch or Kibana under the Elastic License or SSPL because of uncertainty around how these licenses may be interpreted and enforced.”

The two companies have been on a collision course for some time. In the past, Elastic has argued Amazon’s Elasticsearch service offers only a subset of the functionality of Elastic’s offering. Only by purchasing directly from Elastic— rather than Elasticsearch on AWS— would users get the full benefit of Elastic’s capabilities.

Requiring an SSPL licence, which Amazon says is not open source, and breaks a promise Amazon says Elastic made to users in 2018. In response, Amazon is planning to deliver new features, enhancements, and fixes so current users don’t need to update their code. In pledging a better performing service, Amazon also takes a few shots at Elastic:

“Last week, after reneging on this promise, Elastic updated that same page with a footnote that says “circumstances have changed.””

“Elastic knows what they’re doing is fishy.”

“Elastic’s assertions that the SSPL is “free and open” are misleading and wrong. They’re trying to claim the benefits of open source, while chipping away at the very definition of open source itself.”

The competition from Amazon’s forked product, Elastic acknowledges, may result in Elastic’s customers switching to Amazon:

“Other developers, including competitors of Elastic such as Amazon, have announced that they will “fork” Elasticsearch and Kibana. In doing so, they will develop a new product based on the software, which they claim will continue to be licensed under Apache 2.0. The combination of uncertainty around our dual license model and the potential competition from the forked versions of our software may negatively impact adoption of Elasticsearch and Kibana, which in turn could lead to reduced brand and product awareness, ultimately leading to a decline in paying customers, which could harm our ability to grow our business or achieve profitability.”

Separately, Elastic has reclassified deferred revenue it improperly classified on the balance sheet a year earlier. In its latest quarterly report, Elastic disclosed the misclassification:

“...the Company identified an immaterial misclassification in the prior year balance sheet, which understated short term deferred revenue and overstated long term deferred revenue by $11.6 million as of April 30, 2020.”

Elastic revised the deferred revenue balances and has corrected the prior year’s financial statements:

“This change in classification has no effect on previously reported cash flows in the condensed consolidated statement of cash flows and has no effect on previously reported condensed consolidated statements of operations for any period.”
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