Rackspace bows out commodity IaaS market in favor of ‘managed cloud’

In face of stiff price competition from Amazon and Google, Rackspace embraces its managed heritage. Is this a sign of things to come?

Rackspace is discontinuing its pure Infrastructure as a Service (IaaS) offering in favor of a new category of cloud services named “managed cloud” in which the company will support customers building and managing their cloud services.

During the past couple of years Rackspace has been attempting to compete with low-price competitors such as Amazon Web Services, Microsoft with its Azure Service and Google in the IaaS market. John Engates, CTO of Rackspace, says that’s not the market Rackspace wanted to be in. “We realized in some regards that we needed to play our own game instead of chasing a competitor,” Engates said, acknowledging that Amazon basically created the IaaS market with its Web Services division launch in 2007. “We want to make it clear that we’re a managed cloud company and not a copy-cat of Amazon.”

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Rackspace’s offering now comes as a bundle: Customers buy not only the infrastructure as a service compute, storage, databases and a variety of other products as a service, but they also purchase a support package to go along with it. Prices range from 1/2 a cent per GB hour of compute capacity for a basic package, to $0.02 cents per GB hour for a broader package, with a $50 minimum. Rackspace engineers and dedicated account managers work with customers to set up, run, troubleshoot, update and optimize customers’ cloud deployments. Rackspace made it’s hay in the early days of the company as a managed services provider, and then it pivoted into being a cloud IaaS provider.

John Engates, CTO of Rackspace

The model of a managed cloud provider is in contrast to the approach taken by AWS and Google, which offer a pay-as-you-go, IaaS on-demand service. AWS has built up its support services in the past year including recently adding new free features to its Trusted Advisor program. Many AWS customers work with third party system integrators like BMC, Accenture and others to deploy and manage their IaaS clouds. Still, Engates says that AWS is very much a do-it-yourself cloud, whereas Rackspace comes with a managed support team for all customers. That support also comes with a premium price however. Current Rackspace customers of the company’s pure IaaS model will be grandfathered into the new offering, so only new customers will be forced to purchase support packaged on top of the company’s cloud offerings.

Rackspace has been shrouded in uncertainty during the past year. The company’s CEO Lanham Napier left in the beginning of the year and then media reports indicated that the company hired Morgan Stanley to explore possible options for the publicly-traded company such as a buyout or being acquired. Engates says the move to discontinue pure IaaS products and providing support through a managed cloud offering had nothing to do with the Morgan Stanley process; plans for this pivot had been in place before bringing on the strategic adviser.

Some cloud pundits believe Rackspace’s move is a sign of broader changes in the market. The pure IaaS market is a race between Amazon, Google, Microsoft and IBM, says Mike Kavis of Cloud Technology Partners. Each of those companies has very deep pockets they’re able to invest in research and development, new data centers and do so without the need to offer high-margin support services on top of it all. “Companies like Rackspace simply cannot compete in the never ending price reduction game and maintain the margins required to run a profitable business.” Kavis says he “chuckles” at newcomers to the IaaS market who want to compete with those four behemoths of the industry.

Editor's note: The original headline of this article was changed to reflect that Rackspace is getting out of the commodity IaaS market. The company said that it still offers IaaS, but only with a support package being purchased as well now. See the blog post linked to this story for more information.

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