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Rackspace goes all in with managed cloud

Rackspace rebuffed its suitors and opted to stay independent. What that means for the long-term stability of a company pushing managed cloud remains unclear.

NEW YORK ­­– Now that Rackspace has taken itself off the block, the future of the managed hosting company will depend on whether it can keep pace in a field crowded with well-heeled competitors.

The San Antonio-based company this week chose to focus its efforts on managed cloud services. At the same time it promoted Taylor Rhodes from president to CEO.

The decision not to sell or partner was the right one, according to James Staten, an analyst at Forrester Research, Inc., based in Cambridge, Mass., who spoke at the conference. Staten afterward said suitors were rumored to have come from companies as diverse as telcos and infrastructure manufacturers, which might not have been the best fit.

"None really understood the value of Rackspace, nor showed an ability or a strategic alignment to advance and find the [Rackspace] strategy," Staten said.

What's good is that now Rackspace's board can focus on executing and funding its strategy, and customers and investors can reevaluate the company knowing its foundation and future are solid, Staten said.

But Rackspace may have walked away from some deep pockets it needs to compete with the hyper-scale cloud leaders, Staten added.

Rhodes was not in attendance at Rackspace's event held here this week, but CTO John Engates was and he said managed cloud is the company's highest priority.

"The purest infrastructure clouds don't manage themselves," Engates said. "What you need is the capability, the support, the management -- all the capabilities you need to solve problems."

Engates discussed several new products released this year that support those efforts, including OnMetal Cloud Servers, Managed Infrastructure and Managed Operations and managed cloud. He also discussed increased outreach to developers and plans to do more around mobile and big data.

Rackspace customers unfazed

In response to interest from outside parties, Rackspace hired Morgan Stanley in May to consider potential buyers or partners. This fired up the rumor mill which churned out regular reports of this suitor or that suitor, or the potential to go private.

Rackspace's stock fell 16% this week, continuing an unsettling trend for a company once seen as a potential rival to Amazon Web Services (AWS), with its stock worth roughly 40% of what it was at its peak in January 2013.

But customers are largely unconcerned by the news, saying they would expect the same culture and level of service -- at least in the near-term -- whether the company changed hands or not.

Real Capital Analytics, a New York-based commercial real estate information services company, uses Rackspace for managed hosting, and it may add cloud services through Rackspace because of the existing relationship, according to Bashar Abuelaynein, senior software engineer.

"Their support is phenomenal," Abuelaynein said, citing Rackspace's ability to help manage products and pick up the phone at any hour.

SumAll, a New York-based social media and ecommerce analytics startup, was initially an AWS customer, but switched to Rackspace because of ObjectRocket, a MongoDB and Redis service that allowed the company to keep pace with exponential growth in customers and data.

"We felt pretty safe no matter what the transaction turned out to be," CEO Dane Atkinson said.

SumAll was lured in via speed and scalability, but it's the so-called fanatical support that will keep them with Rackspace, Atkinson said. And while the startup would have reviewed its options long-term had the company sold, there would have been no need for an immediate exit.

"There's too much of their DNA in there that we didn't feel like we would get churned in a minute," Atkinson said.

The 500-pound Amazon gorilla

Rackspace has been ahead of the curve on open source, hybrid cloud and managed support, said Jillian Mirandi, an analyst at Technology Business Research, in Hampton, N.H. And while this episode of ownership uncertainty is over, Rackspace is still getting squeezed at both ends of the cloud spectrum.

AWS, Google and Microsoft offer cheaper prices, Mirandi noted. And while Rackspace says it doesn't want to compete in the race to the bottom of what it describes as commodity infrastructure, it's also facing competition in the hybrid space from deep-pocket legacy vendors such as IBM.

"They've been trying to find where they fit in, where they can be successful," Mirandi said. "They've placed their bets in the right areas, but unfortunately the competition is moving so much faster."

Rackspace must get over the hump with large enterprises, but it has added a good mix of new products and continues to make money selling infrastructure, said Carl Brooks, an analyst for 451 Research in New York.

It competes with network providers that have acquired their way into the managed hosting business, which puts it in a unique position, Brooks said. Rackspace hasn't grown as fast as the rest of the managed hosting market, but it is close behind, Brooks said.

"That's why they are notable," Brooks said. "They're independent of those guys, and aren't part of a consolidated provider play."

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

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