What happened

Shares of database disrupter MongoDB (NASDAQ:MDB) slumped on Thursday after e-commerce and cloud computing giant Amazon.com (NASDAQ:AMZN) announced a new database offering that's compatible with MongoDB applications. MongoDB stock was down about 14.6% at 3:35 p.m. EST.

So what

Amazon DocumentDB is a fully managed document database service that supports MongoDB workloads. DocumentDB implements the same application programming interface (API) used by the open-source MongoDB 3.6 by emulating the responses from a MongoDB server. This allows existing tools built on MongoDB to be used with DocumentDB.

The MongoDB logo.

Image source: MongoDB.

MongoDB's database software is open-source, so the company makes money by selling subscriptions and services. MongoDB Atlas, which now accounts for more than 20% of total revenue, is the company's managed database offering. MongoDB Stitch is its serverless platform that allows developers to build MongoDB-backed applications without dealing with virtual servers.

In October last year, MongoDB changed its license to include a clause that requires any company offering MongoDB as a service to make the software used to provide the service open-source. Amazon's move to launch a MongoDB competitor may be related to that license change. DocumentDB emulates a version of MongoDB's API that was released before the licensing change.

Now what

MongoDB Atlas has been growing fast, with revenue more than quadrupling year over year in the third quarter. But Amazon's DocumentDB is a direct competitor, and it makes it easy for developers using MongoDB on Amazon Web Services to make the switch. That's not good news for the database upstart.

With MongoDB stock trading for nearly 18 times trailing-12-month sales, it's not surprising that the market reacted so strongly to this news.

Check out the latest MongoDB and Amazon earnings call transcripts.