IBM on Monday confirmed an $11 billion deal to buy Kafka shop Confluent, after news of an imminent deal broke on Sunday.

IBM had been widely considered a likely buyer ever since Confluent put out the "possibly for sale" sign in October. The companies have been in a strategic partnership for five years, during which IBM punted Confluent as an integrated component of IBM Cloud Pak while, insiders said, deprecating its internal Kafka offerings in favour of selling Confluent.

At $31 per share, the acquisition is at a premium of about 30% over the pre-deal price, though Confluent's troubles have made it highly volatile, with prices as low as $15.64 and as high as $37.90 in the last 52 weeks.

At that price, IBM will have spent more than $50 billion buying open source companies including Red Hat ($34 billion in 2018) and HashiCorp ($6.4 billion in 2024), not counting deals without disclosed prices.

When IBM bought HashiCorp, it promised to follow the same pattern as it did with the 2019 Red Hat acquisition: using its global reach to get Terraform into more enterprises while investing in R&D and innovation to keep it competitive.

See also: Oracle goes vegan: Dumps Terraform for OpenTofu

Analysts have suggested that Confluent presents a similar opportunity for IBM. At the end of November Confluent put its customer number at "more than 6,000", suggesting there are a lot of IBM customers who could still be persuaded to adopt it.

Red Hat is also the example some in the community are looking to, with the hope that IBM will give Confluent a similar level of autonomy and, arguably, freedom.

Confluent was under pressure to make money, said German solutions engineer Wladi Mitzel, while IBM can treat Kafka as fuel for its consulting and hybrid cloud business.

"Historically, IBM had a reputation for 'squeezing' acquisitions: integrating them so tightly that the innovation died (SoftLayer being the prime example, where a cloud player lost its edge after being absorbed)," Mitzel told The Stack.

"However, Red Hat marked a strategic shift. IBM realized that to win with open-source, they had to be a patron, not a micro-manager. To my knowledge they kept the culture distinct."

Apache, but Confluent

Kafka is a flagship Apache Software Foundation project, having graduated from incubation in 2012, and it has a list of contributors that runs to some 1,500 individuals. But according to a recent analysis of commits since 2010 by former Confluent staff engineer Stanislav Kozlovski, the company is hugely central to Kafka's ongoing development. Among the top 100 contributors, 61 are or were at Confluent, he found, and for the top 10 contributors that number is nine. 

Other than Confluent, LinkedIn is by far the biggest contributing organisation, and most of the developers who helped build Kafka at that now-Microsoft-owned company joined Confluent, Kozlovski found.

Kozlovski is among those who worries about what happens now.

"Maybe they divert all of that effort into proprietary tech and starve the OSS off," he said of Confluent's dominance of Kafka commits before the acquisition was formally announced. 

"It's not an exciting acquisition in any case. It's probably one of the saddest ways to end Confluent's journey."

Liming AWS and co

Confluent's open core licensing strategy seeks to limit competing managed cloud services, with its Confluent Community License allowing self-hosting but explicitly treating hosted or SaaS an "excluded purpose". 

That covers components such as Confluent ksqlDB, Confluent Schema Registry, and the Confluent REST Proxy, which were open source until 2018 – not long after Amazon launched managed Kafka streaming.

"This is a move to let us continue investing heavily in code that we distribute for free, while sustaining a healthy business that funds our investment," said Kafka and Confluent co-creator Neha Narkhede at the time.

EBITDA-positive

IBM said the deal "represents further commitment to IBM’s 25-year history of open-source innovation and investment, building on the acquisitions of open-source leaders like Red Hat and HashiCorp."

It simultaneously said the acquisition will "result in significant operational efficiencies through IBM’s scale and best-in-class productivity actions."

In a presentation on the deal, IBM put "operational spend efficiencies" at an estimated $500 million.

IBM told investors its $11 billion, funded from cash on hand, will be contributing to free cash flow by year two after close (expected to be during 2026), and will be accretive to adjusted EBITDA within year one.

Confluent issued the same press release to its investors.

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