Rackspace Says It's Not for Sale, Despite Obstacles

By Sean Michael Kerner  |  Posted 2014-09-17 Print this article Print

No doubt other vendors that have not been publicly disclosed also considered acquiring Rackspace but declined to do so. The race to the bottom in pricing against Amazon and Google apparently isn't an attractive target on the public cloud side of the equation.

Rackspace isn't just competing against Google and Amazon though; there are other cloud providers, including Verizon, Hewlett-Packard, IBM SoftLayer and DigitalOcean among a growing parade of vendors, all providing services that on the surface may seem somewhat similar.

The challenge is that in any acquisition consideration, management needs to make a "buy versus build" decision. That is, should the company buy the technology and services it needs to grow or attempt to build them on its own?

Rackspace is one of the founders of the open-source OpenStack cloud platform and uses OpenStack as the basis for its cloud offering. As an open-source effort, any vendor can choose to also take OpenStack and deploy it to build their own cloud. Certainly, Rackspace has an unmatched level of expertise when it comes to OpenStack, but perhaps that's not enough to warrant a potential acquisition.

When Red Hat first got into OpenStack in 2012, I asked then CTO Brian Stevens why he didn't just buy a company. He explained that it made more sense at the time for Red Hat to build out its own development team. I suppose that for some organizations in 2014 the same sentiment holds true, but not always (case in point is Cisco's acquisition of Metacloud today).

Although Rackspace is the one of the founders of OpenStack (along with NASA), the OpenStack stack itself does not necessarily represent a competitive advantage in the market today, with multiple OpenStack-based solutions for customers to choose from. What differentiates Rackspace is its services and support for OpenStack. Putting a price on that is a difficult proposition.

Personally, I would have expected that Rackspace would have been taken private, and I have no doubt that was one of the considerations. As a private company, Rackspace would not have had the same demand to deliver strong quarterly growth as it does today. That said, when companies go private, there is often aggressive operational cost cutting and technology component sell-offs, as private investors seek to derive value.

In the final analysis, Rackspace has chosen to stay the course, remaining independent from another big IT vendor and staying publicly traded.

If Rackspace's management continues its disciplined approach to not follow in the race to the bottom, to emphasize its OpenStack roots and to differentiate on support, I strongly suspect that the company has made the right decision.

Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.


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