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Rackspace cloud to carve a niche with hand-holding services

Rackspace introduced a two-tiered pricing model that will move all future customers into managed services and provide greater pricing transparency as the hosting provider attempts to carve a niche in the IaaS space.

Rackspace made its name as a hosting company with managed support. Now it's trying to strengthen its place in the cloud market by bringing the same "fanatical support" to its public infrastructure as a service.

In the midst of speculation about its future, Rackspace Hosting, Inc., this week began selling its public cloud with new managed service models and more transparent pricing.

This new level of day-to-day service provides support all the way up the stack and helps solve problems reactively and proactively, according to John Engates, Rackspace CTO. He said there will be additional moves to highlight the company's focus on cloud management.

"We're really signaling to the market that we're going all in with managed cloud," Engates said.

The San Antonio, Texas-based company will provide two levels of service to all future customers: a managed infrastructure package that includes all-hours support, guidance with security, development and launching applications; and a managed operations option with additional constant monitoring and management of operating systems and applications.

Rackspace can't compete with the hyper-scale cloud vendors, so it had to add some value on top of its infrastructure to compete in a different space, according to Melanie Posey, an analyst with Framingham, Massachusetts-based IDC.

"It's a smart move because they need to differentiate, and this is what they've been saying all along -- that unlike these other guys who just throw you in the deep end and say have at it and if you have a problem, tough, they're trying to carve out a different niche in the market," Posey said.

DigitalFilm Tree, a Los Angeles-based company that provides pre- and post-production for television and film, has increased its managed services through Rackspace in the past six months as it does more video streaming and uses hybrid cloud.

Unlike these other guys who just throw you in the deep end and say have at it and if you have a problem, tough, they're trying to carve out a different niche.
Melanie Poseyanalyst, IDC

The company uses other hosting services as well, but for several years it has partnered exclusively with Rackspace for its production efforts. DigitalFilm Tree knew Rackspace wasn't the cheapest offering, but managed services offsets the staffing expense of having an in-house DevOps team, according to Guillaume Aubuchon,  DigitalFilm Tree's CTO.

"It's all about support, that was it from the beginning," Aubuchon said. "We need to be able to get a hold of someone 24/7 that knows the application. Rackspace was the only hosting company that I felt comfortable with in that regard."

Rackspace has dramatically improved its support services and staffing in the past 18 months, Aubuchon said, but if there's an area that's lacking, it's that Rackspace's tiered services aren't broken down to a more granular level.

"We need to be able to tune those services at a very small level," Aubuchon said. "All hosting companies are struggling to offer services that are highly customizable, but I think Rackspace is trying to work toward that to really give you a package of services that works for your individual needs."

This week, Gartner Inc. ranked Rackspace a leader in the cloud-enabled managed hosting space. The extension of its so-called "fanatical support" to the public cloud is more about sending a message about Rackspace's place in the market than about changes to its product offerings, according to Carl Brooks, an analyst with New York-based 451 Research, LLC.

Rackspace doesn't have the infrastructure of the biggest cloud providers and isn't exactly a technology inventor like some of the legacy IT vendors in the space, despite its background with OpenStack, Brooks said. It also doesn't have the manpower or desire to compete against telecommunications companies in managed hosting. This is Rackspace saying it doesn't want to compete against those vendors any more.

"It tells you more about how they plan to go to market with this than any part technologic innovation," Brooks said.

Rackspace cloud pricing transparency

Part of this new model involves a cost calculator, now in beta, on the company website and a breakdown of the associated services. It's a significant shift for Rackspace, which had previously not discussed pricing publicly and struggled to explain why its cloud cost more than some of its larger competitors.

"We want customers to make that choice with eyes wide open -- that it has value and there is a price tag association and you very likely can't recreate that on your own," Engates said.

The managed infrastructure level sells an hourly rate of $0.005 per gigabyte of RAM, with a $50 monthly minimum. The managed operations level sells at an hourly rate of $0.02 per gigabyte of RAM, with a $500 monthly minimum. Both offerings charge standard infrastructure rates, too, and Rackspace Performance Cloud Servers start at $0.032 per hour for a 1 GB server. The company also offers volume discounts up to 24%.

Previously, most of Rackspace's support service was baked into the price, and the one separately offered managed service cost around $100 per month, per server. That model didn't work because it didn't have the same support levels customers of its other services were accustomed to, Posey said.

"It was this bits and pieces sort of stuff and it was almost an ad hoc sort of managed service," Posey said. "Now what they've done is essentially taken the whole cloud portfolio and added the fanatical support to it."

Paybacks under service level agreements in the new plan have been doubled to up to 100% of monthly fees for managed operations service, and if customers give 72 hour notice for peak events, the payback would be up to 10 times the downtime, up to 200% of monthly invoice, Rackspace said.

The company has no plans to change its pricing models for its existing customers or to push them out of their current service levels, but they will be able to opt into the new services, Rackspace said.

Rackspace started with managed hosting, and the company sees similarities in the IT landscape 14 years later. The early adopters of that technology were developers and programmers, but the second wave of enterprise customers wanted more than just the basic implementation tools – a pattern Rackspace bets will happen again.

"We're in the same point of evolution for cloud in respect to providers focusing more on outcomes rather than just the input," Engates said. "They want someone to stand behind what they build and deliver and they want someone in it with them and to be there along the way."

Rackspace acknowledges companies that view their in-house IT team as a competitive advantage or are building a strong DevOps team probably wouldn't benefit from this service.

Potential suitors for Rackspace

The move to clarify its place in the market could also make Rackspace more attractive to potential suitors, analysts said.

Rackspace hired Morgan Stanley in May to evaluate potential acquisition offers or partnerships. There has been heavy speculation about Rackspace possibly going private, and about what other companies would be interested in Rackspace, but that hasn't impacted  how the company operates, Engates said.

"We have plenty of opportunity to really set our own course," Engates said. "I don't have anything to say to customers other than, 'We're kicking butt, we're doing the right things and we're doubling down on fanatical support.'"

Public cloud only makes up a small fraction of total IT spending, despite its hype and potential growth. The fluctuating market can still be confusing for customers, and if Rackspace wants to show it offers more than a commodity product, now is the time, according to James Breen, a financial analyst with Boston-based William Blair and Co.

"The time to do it is now, before that huge transition happens," Breen said.

Engates didn't rule out eventually expanding to managing other clouds, saying companies won't rely on a single provider. For starters, Rackspace launched support for Microsoft Private Cloud this month.

In addition to the new pricing models, Rackspace introduced a developer+ program that provides limited-time infrastructure credits for developers who want to test the company's services.

About the author:
Trevor Jones is the news writer for SearchCloudComputing. You can reach him at

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Are Rackspace's cloud managed services worth the price?