Ed Byrne

How Rackspace NAILED strategy by enabling the competition

Posted on 19. Aug, 2011 by Ed Byrne in Cloud Computing

I’ve long been an admirer of Rackspace – the quality of service delivery, focus on the customer, and seemingly great organisation culture; even when I was in competition, Rackspace was a company you WANTED to be compared to – they were the gold standard for managed hosting.

Then AWS (Amazon’s Web Services division) came along, and from a standing start only a few years ago, have created what is likely a billion dollar run-rate business, and ripped the carpet from underneath Rackspace as well as the big hardware manufacturers HP, IBM and Dell – all who are now chasing AWS – and lagging far behind.

Rackspace launched their own Cloud platform a couple of years ago (and a couple of years AFTER Amazon entered the market – hard to believe the industry leader could be caught so unawares) after acquiring JungleDisk (storage/backup) and Slicehost (VPS hosting). To me Rackspace’s Cloud offering is entry level  – easy to use, well priced, but not a true competitor to AWS – and why would it be – a true competitor would also be a substitute for Rackspace’s core Managed Hosting business.

But with OpenStack, Rackspace have shown the ‘third leg’ of their new strategy and I think they have absolutely nailed it. I can imagine the board room discussion … marketing guy says this Cloud explosion means every IT company in the world – large, local, value added resellers and systems integrators, are going to get into the business – so Rackspace will have literally tens of thousands of competitors – all who already own the customer relationship – in direct competition with them. So strategically, Rackspace decided to now only encourage these companies, but actually enable them.

Rackspace bought OpenStack, gave it to the community and let all the wannabe Cloud entrants use it to power their platform and compete. But how will they install OpenStack and get their environment ready to sell? Engage a consultancy to do it. So Rackspace bought Cloud Builders – now anyone that wants to use the free OpenStack software (and why wouldn’t they!) can call Rackspace to deploy it for them. What about support? Cloud Builders can provide ongoing platform support – but these new Cloud Platforms also bring new end-user support challenges that most IT companies are not geared up for. Rackspace is famous for their Fanatical Support – so why not extend that into the OpenStack community and charge for it? So Rackspace technicans will support the IT companies end-user. Rackspace haven’t announced this (that I’m aware of) but I would be surprised if we don’t see something like this happen.

The result? A large percentage of the thousands of new Cloud entrants will use free software for their platform (OpenStack), pay Rackspace to build it out for them, and pay Rackspace for the end-user support. Now it looks like the more competitors the better – Rackspace could grow revenue faster in this ‘channel’ space than they ever did direct in the market.

Genius.

OpenStack is flying, and I’m personally excited about the potential – it has an incredible partner network already. For my part – in Digital Mines we’ve integrated OpenStack so any providers that want a white-labelled end-user interface for managing deployments, and a utility billing engine, can now use our control panel on their OpenStack deployment.