Rackspace has been purchased by Apollo Global Management LLC, a private equity firm, for $4.3 billion or $32/share. The purchase of Rackspace, a public Infrastructure as a Service company headquartered in San Antonio, TX famous for its fanatical customer support and managed hosting capabilities, reflects Rackspace’s inability to compete with the likes of Amazon Web Services, Microsoft Azure and the Google Cloud Platform. In response to increased competition within the IaaS space, Rackspace transformed its business model to ensure its services were supported Amazon Web Services, Microsoft Azure and the Google Cloud Platform but it nevertheless found itself unable to carve out an anointed place for itself within the landscape of IaaS players despite its early entrance into the IaaS market. Rackspace’s acquisition by Apollo Global Management LLC represents a milestone in the history of cloud computing by affirming the dominance of IaaS cloud market share by Amazon Web Services and the concomitant challenge of carving out a niche within the IaaS space. The industry should expect greater consolidation within the IaaS space over the next 24 months as the ascendancy of Amazon, Microsoft and Google with respect to infrastructure-related cloud services soars and renders it increasingly difficult for smaller players to compete, particularly given their ability to drop prices and enrich their infrastructure as a service offerings with big data, data analytics, cloud monitoring and security solutions.
On April 7, Rackspace announced details of OpenStack everywhere, a fully managed OpenStack cloud offering that allows customers to run an OpenStack-based private cloud in any data center in the world. OpenStack everywhere features an integrated hardware, software and professional services solution that absolves customers of the complexity of provisioning a private cloud or tapping into the scarce market of OpenStack technical resources in order to configure and manage an OpenStack deployment. In addition to taking responsibility for deployment of a modular, integrated hardware and software solution, Rackspace will manage the OpenStack-based private cloud in conjunction with delivery of its renowned fanatical support. The new offering from Rackspace accelerates the ability of customers to deploy OpenStack-based private clouds in data centers of their choosing while enjoying all of the benefits specific to Rackspace’s monitoring capabilities, professional support services and its 99.99% uptime SLA as elaborated in the video clip below featuring Rackspace’s CTO John Engates and Ryan Yard, Director of Solution Engineering:
On July 13, Rackspace and Microsoft announced a partnership whereby Rackspace will include Microsoft Azure within the purview of its legendary fanatical support qua professional services. Rackspace will help Azure customers optimize their Azure deployments by minimizing costs, optimizing performance and providing consultative support regarding infrastructure and application architecture, deployment and ongoing configuration and monitoring. In addition to delivering its professional services arm to Azure customers, Rackspace will offer hybrid cloud solutions that combine the Rackspace private cloud, hosted on the Microsoft Cloud Platform, featuring Azure. The availability of Rackspace’s professional services for the Azure cloud represents a huge coup for both Rackspace and Microsoft. Having struggled to keep pace with the likes of Amazon, Microsoft and Google Cloud Platform, Rackspace’s partnership with Microsoft positions it strongly to command a leadership position in the market for professional services for cloud products and services. Meanwhile, Microsoft stands to gain from Rackspace’s reputation for impeccable support and managed services that builds on Rackspace’s deep expertise with Microsoft technologies.
Within the larger context of the industry, the Rackspace-Microsoft partnership promises to tilt the momentum for IaaS-focused cloud services toward Microsoft and away from Amazon Web Services because of Rackspace’s venerable reputation for cloud-related professional services. By tapping into Rackspace’s sweet spot for fanatical support, Microsoft gives its customers the option of leveraging a professional services partner with impeccable IaaS, private cloud and managed cloud solutions credentials. All this means that Azure enterprise customers need no longer depend on internal cloud resources for their deployments but can rather reap the benefits of Rackspace consultants to accelerate the timeline for their deployments while expanding scope and complexity as needed. The deal between Rackspace and Microsoft illustrates one of the ways in which CEO Satya Nadella’s cloud experience is bearing fruit for Microsoft given its success in implementing an array of impressive partnerships that render the Azure platform open to an increasingly impressive roster of technologies and vendors. As such, the collaboration with Rackspace adds a notable feather to Microsoft’s cap that further distinguishes Azure not only from Amazon Web Services but also from the Google Cloud Platform.
According to a 451 Research Vendor Window assessment, the battle for IaaS leadership has intensified even though Amazon Web Services (AWS) remains the clear front-runner. Respondents to the 451 vendor evaluations revealed that 57% of enterprise customers use AWS whereas Microsoft Azure is used by 42% of customers. AWS was cited as the most important customer in 35% of all cases, ahead of Microsoft Azure, which garnered 20% of votes in the same category. Rackspace earned the highest ratings for the IaaS vendor capable of fulfilling Guaranteed SLAs and was tied with AWS for its ability to fulfill customer needs. While AWS received high ratings with respect to Experience and Technical Innovation, Microsoft Azure, in contrast, was rated lower than most of its competitors with respect to Experience and Support for Open-Source Software. Meanwhile, in the private cloud market, the 451 Research Vendor Window Assessment found that VMware claims a presence in 70% of enterprises with its ESX and vCloud virtualization platforms. Nevertheless, the survey also found that more than 70% of VMware customers have deployed other solutions for private clouds such as OpenStack or Microsoft Cloud OS, for example.
Michelle Bailey, Senior Vice President, Digital Infrastructure and Data Strategy at the 451 Research Group, remarked on the significance of the findings as follows:
While the 2015 Vendor Window for IaaS shows Amazon Web Services as the clear leader based on multiple metrics, Microsoft Azure, Rackspace and VMware’s vCloud Air are becoming competitive challengers. As more mainstream customers move business-critical workloads to cloud environments, the decision criteria for evaluating potential vendors change relative to early cloud adopters, and in turn so do the vendors under consideration.
Here, Bailey notes how the IaaS assessment reveals the emergence of “competitive challengers” to the leadership role of Amazon Web Services as the criteria for IaaS vendor selection evolves in relation to the evolving maturity of cloud adoption within the enterprise. The bottom line here is that, even though Amazon Web Services remains the most widely used and, in many ways, respected vendor within the IaaS space, enterprises are increasingly reviewing alternative options to AWS, particularly as the space features an increasing number of robust options that can variously go toe to toe with AWS regarding attributes such as customer service and ability to support SLAs. More importantly, the battle for IaaS market share is likely to become even more competitive as the progressive maturity of Big Data technologies and analytics means that enterprises are likely to seek cloud platforms that can not only support, but also streamline and simplify the adoption of Hadoop and NoSQL. Regardless, exciting times are ahead for the cloud industry as IaaS vendors mature their product and service offerings in ways that give customers the confidence to select multiple vendors to minimize risks of vendor lock-in while concomitantly enriching their knowledge of the IaaS space by sampling the heterogeneity of offerings available on the market today.
Rumors continue to abound that Rackspace is on the verge of acquisition, but we’ve heard little in the way of definitive news about a prospective vendor just yet. On September 7, Bloomberg reported that CenturyLink is interested in acquiring the San Antonio-based IaaS vendor turned managed cloud hosting provider. A CenturyLink acquisition of Rackspace would make sense given its cash on hand and previous acquisitions of Savvis and Tier 3. That said, Rackspace’s market value of $5.6B based on share prices renders it an extremely expensive purchase that may not easily yield the return on investment sought by its acquirer. Moreover, Rackspace’s recent decision to pivot on its core IaaS offering by delivering managed cloud hosting services fails, at a glance at least, to deliver reusable intellectual property to the degree required of a $5.6B purchase. In any case, Rackspace’s decision to transition toward managed cloud hosting represented a strategic maneuver that materialized far too late for it to remain even remotely competitive in a market landscape featuring the likes of Amazon Web Services, Microsoft Azure and Google Compute Engine. The only hope for the San Antonio-based company, now, is that a buyer emerges with the cash and strategic vision to subsume Rackspace’s technology, people and processes into a larger enterprise infrastructure on the scale of a telecommunications provider such as CenturyLink. The more that rumors proliferate about Rackspace’s acquisition with no ensuing result, however, the more deleterious the result will be for Rackspace in its attempt to find its footing, let alone a buyer.
Rackspace has partnered with San Jose-based Vormetric to deliver encryption solutions for the Rackspace cloud via Vormetric’s Transparent Encryption Solution. Vormetric’s Transparent Encryption provides encryption at rest solutions for Rackspace’s managed cloud offerings without compromising the performance of the encrypted infrastructure. Rackspace joins the Vormetric Cloud Partner Program and offers its customers encryption and key management services that not only bolster cloud data security, but also facilitate the achievement of compliance regulations that require encryption. With Vormetric, Rackspace customers can maintain control of the encryption keys, implement advanced role based access and receive notifications that suggest whether a security breach is in progress. Rackspace’s inclusion in the Vormetric Cloud Partner Program further consolidates the positioning of Vormetric as a leader in the cloud data security space. Other participants in Vormetric’s Cloud Partner Program include Amazon Web Services, Google Cloud Platform, Microsoft Azure and Virtustream.