Analysis

Why Rackspace is betting on managed cloud amid doubts over future

Archana Venkatraman

Rackspace has relaunched its public cloud services as managed cloud in a bid to differentiate its more expensive services from heavyweights Amazon, Microsoft and Google. The move comes amid speculation that publicly listed Rackspace may be going private or be bought up. So will the rebrand ease its struggles in the fiercely competitive enterprise cloud segment?

“Cloud as a commodity, or just a raw infrastructure, is just not suitable for everyone,” Rackspace CTO John Engates told Computer Weekly. Not all enterprises have the skills and expertise to deploy and manage their cloud infrastructures.

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Enterprises understand cloud computing conceptually but very few have hands-on experience of using it in production, he said. While some businesses have enjoyed flexibility, scalability and agility with commodity cloud services, most businesses are, he said, “still struggling with the complexity of managing their own cloud projects. There is an entirely new segment of enterprises that are demanding managed services around the cloud.”

Under its managed cloud umbrella, Rackspace will provide more transparent SLAs, support and charging models.

“Competition in the public cloud market has accelerated in the past year,” said Melanie Posey, research vice president at IDC. “But Rackspace’s managed cloud approach provides an opportunity for significant differentiation from the rest of the pack.”

Cloud as a commodity, or just a raw infrastructure, is just not suitable for everyone

John Engates

Rackspace managed cloud includes three options – a basic managed infrastructure service, a mid-level managed operations service and full end-to-end managed operations with DevOps automation.

Optional to existing users, a minimal level of managed cloud services will be supplied as default to all new customers. Rackspace will offer 24/7 access to service engineers, security evaluation, code development assistance and architecture advisory services.

“Rackspace’s business has always been about service, while Amazon and GCE [Google Compute Engine] are about automation, commodity and scale,” said Daniel Beazer, analyst at infrastructure analysis firm Cloudrfp.com. 

“Google and Amazon don’t want to talk to you! It’s not their business model. They are very different businesses; the customers can be the same but buying for different projects and reasons – John Lewis vs Aldi if you like.”

Engates said Rackgate’s public cloud had been more expensive because it was including support costs and managed services in the bill. Some Rackspace customers were not exploiting the support services available to them, leading to invidious comparisons with commodity providers. “But that is like comparing apples to apple pies,” Engates said.

While the rebrand does not change much at the technology level, the OpenStack cloud provider is aiming to make it clearer about what support level customers are eligible for. “We are now separating the pricing for the servers [basic infrastructure usage] and the prices for the different levels of managed services,” Engates said. 

Under the new managed cloud umbrella, Rackspace will charge 2.4p per GB/hr for infrastructure usage alone and 0.35p per GB/hr for managed infrastructure or 1.5p per GB/hr for managed operations.

“The price of the server is coming down a bit,” Engates said. “It will be in the ballpark of other commodity cloud suppliers. But we will still be slightly more expensive at the server level than AWS because our infrastructure is more reliable.” 

According to Engates, commodity cloud providers such as AWS treat their servers as “disposable items” to be replaced when something goes wrong and leaving customers to deal with their issues alone. “Whereas inside our servers, we have built in RAID capabilities and more redundancy features,” he said.

Rackspace’s long track record in delivering superior support will create sustainable competitive advantage in an increasingly crowded market

Melanie Posey

Rackspace will also provide volume pricing discounts, so the price of additional servers falls for growing customers.

Previously, Engates had warned users of the dangers of buying cheap raw infrastructure for their cloud strategies. A “real cloud” is much more than the infrastructure, he said, it’s also the service, support and expertise that makes it all work.

“Rackspace’s new managed cloud strategy features enhanced SLAs, and its long track record in delivering superior support will create sustainable competitive advantage in an increasingly crowded market,” Posey said.

One Rackspace managed cloud customer is Bafta, whose small IT team benefited from the cloud provider’s support.

“We had previously experienced under-performance from our site during peaks in website traffic such as during the awards night, and in trying to compensate for this we were paying for more capacity than we needed throughout the rest of the year,” said Bafta COO Kevin Price. “Now, Bafta has a dedicated Rackspace team manually monitoring web traffic, so capacity is scaled up and then back down again in real time, and we also have a Rackspace ‘cloud mentor’ to help build and deploy the product setup.” 

New strategy amid a shaky future

In May, a Rackspace filing with the US Securities and Exchange Commission (SEC) revealed it had been approached by multiple parties – HP, IBM, CenturyLink, Cisco – interested in partnering with or acquiring it. At that time, Rackspace had hired Morgan Stanley to evaluate the proposals and other options.

month after the SEC filing, it was reported that Rackspace might be planning to go private rather than be taken over.

“Take a look at Rackspace’s financials – it generates impressive amounts of cash. Amazon? We don’t know,” said Beazer. “The public markets sent Rackspace stock so low it became a takeover target – that’s almost a self-fulfilling prophecy.

“The markets were horrified when Rackspace didn’t lower its pricing to match Google and Amazon, but Rackspace has always operated at the more expensive end of the market, and that has been a highly successful strategy for the last decade and a half, so why go chasing after a commodity market?” 

The exits of senior executives from Rackspace such as Mark Interrante and Anand Bhadouria, who both joined HP Cloud, have raised questions about the company’s future in the competitive public cloud space.

Rackspace trails AWS, Microsoft, CenturyLink and CSC for cloud infrastructure as a service, according to Gartner’s latest Magic Quadrant report, which positions the company in the challengers quadrant – a slip after being named a leader in 2013.

But Gartner placed Rackspace in the leader quadrant in cloud-enabled managed hosting, alongside US-based telecoms company CenturyLink. “Cloud-enabled managed hosting is just another term for managed cloud,” Engates said.

CIOs need to think and act differently. To truly leverage the cloud, they need to leverage DevOps

Tim Crawford

Gartner described the leaders in the Magic Quadrant report as those companies that “... have staying power in this market, can frequently innovate on their existing products and can be relied on for enterprise-class needs. They have proved their technical competence and ability to deliver services to a wide range of customers.”

Engates declined to comment on whether Rackspace will delist from the stock exchange or whether it is looking for buyers. “But I would say that we don’t feel we are at risk. We are not standing still or innovating in slow motion.”

For instance, Rackspace is introducing a free developer+ programme for those who need to build scale-out cloud applications. It is also focusing on DevOps at a time when experts argue that DevOps is reshaping IT in the cloud era. 

“In the age of cloud, IT is all about value creation,” Tim Crawford, a CIO consultant at US-based form Avoa had previously told Computer Weekly. “CIOs need to think and act differently. To truly leverage the cloud, they need to leverage DevOps.” 

DevOps is niche for now but it is where e-commerce and IT are headed, and Rackspace has a big slice of the e-commerce market, according to Beazer. 

“I expect there are quite a few mid-size companies that weren’t thinking of running DevOps but might give it a go now with Rackspace’s help,” he added. 

“We are doing fine and we are confident that our new managed cloud approach will define a new segment in the cloud market," Engates said.

“Differentiating yourself against commodity cloud players is important," said Beazer. "To go back to food, look what’s happening in the UK: the discounters (Aldi) are taking market share, the differentiated quality offering is doing fine (Waitrose) and the middle is being squeezed (Tesco). You will see the same thing in the hosting and cloud market.

“It’s not so much that Rackspace has woken up and said ‘we need to differentiate ourselves against Amazon’, more that it is building on its long-term strategy.”


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