How Rackspace will stay alive in cloud: Stop competing with Amazon, start partnering

A behind-the-scenes look at how the managed services company went private and its new managed cloud offerings

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Rackspace started off as a managed service company. The company has talked a lot about OpenStack cloud in recent years and now you’re helping customers use public clouds. What’s been behind these big pivots for the company?

We set out to be the greatest specialist in managing infrastructure and technology for our customers. In the early days that meant that we didn’t invent the Red Hat Enterprise Linux distribution; we didn’t invent the Windows operating system; we didn’t invent Oracle databases. What we did is we gave customers their choice of those technologies and then we ran them better and at a better cost than they could themselves.

Starting in 2008, we were early days in the public cloud. In fact, we launched our first public cloud in 2007, the same year that AWS did and then we made an acquisition of a company called SliceHost in 2008 and we began for the first time really becoming an OEM ourselves. We had to build a lot of the software that went into the early days of running public cloud and our own OpenStack public cloud IaaS became one of the world’s leading clouds.

The pivot for us fundamentally is realizing that being an OEM in a hyperscale business like public cloud infrastructure is just not a place that Rackspace ought to invest and compete. We are very, very happy now to be able to look at AWS and Azure and Google, who have an amazing ability to invest in public cloud IaaS and revert back to our original value proposition. If those clouds are the right solution for our customers, we will bring them into our portfolio of solutions.

We’ll operate and add value and connect those public clouds to customer environments running in their own data center or running on private clouds in our data centers. In a nutshell, we have been able to pivot away from being an IaaS competitor to AWS and Azure to being one of their largest and best at-scale MSPs (Managed Service Providers), which makes us a channel to market for them the way we’ve always been a channel to market for Microsoft or Red Hat or Oracle, etc.

What’s the breakdown of your business between traditional managed services and managed cloud?

Let’s clarify terms here: We think about our core value add as delivering services on top of infrastructure, whether that’s a dedicated bare metal environment, running VMware in a single tenant private cloud or we are managing AWS for you. Managed services is an umbrella term across any of those infrastructure options. Just over a year ago we launched our fanatical support for AWS offer. Every quarter we’re winning hundreds of new customers and today that is our fastest growing business. We’ve got our core business around private cloud and single tenant environments, and the bulk of the business today is clearly in our core. That’s been around a lot longer, but our fastest growing businesses are in managing third-party public clouds and cybersecurity.

If you were to talk to somebody a couple years ago about Rackspace’s competitors they would have said one answer, but given the company’s pivot who do you view as your primary competitors today?

We are in two Gartner Magic Quadrants, which is important for understanding our shift. In the Magic Quadrant for IaaS, AWS is far and away the leader and you see Azure moving up and Google as an emerging player. We sit right in the middle of that quadrant, which recognizes the fact that we are one of the few companies that has built an at-scale public cloud. But our focus here is not to compete with the hyperscale cloud provider, but rather complete their offer for customers who like that technology but don’t want to run it themselves.

When you then flip to the Managed Cloud Services Magic Quadrant, that includes teleco hosting providers like Verizon, CenturyLink or Colt, then you see technology conglomerates like IBM and HP and then there are specialists like us. In that quadrant we are top right by far as the recognized managed services leader. The only other specialist of consequence on there is really Datapipe. They offer a similar portfolio of services although at a much smaller scale. We believe we are very, very well competitively positioned versus Datapipe based on our scale and heritage. Having to build a public cloud at scale has given us a lot of very valuable skills and technology, whether those are DevOps skills or CI/CD (continuous integration/continuous delivery), really understanding how to advise customers, how to think about architecting and running cloud applications at scale.

When you think about our position versus telcos, we feel great; they’re not known for service or really known for being terribly cloud-relevant. When you think about specialists, we really are the largest global specialist in this space, and we have the experience in running a cloud to prove it.

Now that you’re a private company you can invest differently than a public company might. How will you take advantage of that in your future direction?

Because of our strong conviction that it’s a multi-cloud world and we don’t have to build all of the services inside the public clouds any longer, we get to focus on higher value-add software and tools. Recently, for instance, we announced a major improvement to our Compass product which we use to run AWS and Azure workloads for our customers. We announced a catalog of software-driven best practice architectures that allow our customers to consume AWS in line with best practices that drive down cost and improve security. Being able to do this on top of one cloud is a great advantage but we can do it across AWS, Azure and private clouds. We’ll focus our efforts on value-add on top of and around multiple clouds and continue to invest in the hard to find skills in the market that we can build at scale and sell those as a fractional service to our customers.

The state of OpenStack clouds

OpenStack is near and dear to Rackspace’s heart. The company co-founded the open-source cloud project in 2010. What is OpenStack’s role at Rackspace now? Is it less important now that you’ve become a consultant that helps companies use non-OpenStack based clouds like Amazon and Microsoft?

We believe the future of OpenStack is really enterprise private cloud. When we invented OpenStack and founded it our thought was that the world would want and need and value an open-source public cloud alternative to AWS at the time. That was the foundation and the root of OpenStack and it grew to be an early leading public cloud option.

As the market evolved, what we’re seeing is that the world is going to be perfectly happy with the three hyperscale public cloud options and it doesn’t need another one nor is there capital to invest and compete at scale with those three. There are many companies out there who are running current enterprise stacks, whether that’s VMware or Hyper-V as their “private cloud” and they’re looking and exploring lower cost and more flexible options for their private IaaS. OpenStack enters stage left as an alternative for companies who say: ‘Yes, I want private IaaS and yes, I’m looking for a lower cost, more cloud-like solution than my enterprise software stack running in the data center.’

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