Rethinking Rackspace as a Cloud Partner

Cloud provider backs off M&A plans, which seems unfortunate for both Rackspace and its potential partner

September 17, 2014

2 Min Read
Rethinking Rackspace as a Cloud Partner

When Rackspace was rumored to be an acquisition target, the cloud provider's stock soared. With yesterday's news that an acquisition isn't happening, Wall Street reacted predictably, knocking 18% off the stock price.

But it's not just investors who are disappointed that this cloud services pioneer isn't teaming up with an networking/cloud provider such as CenturyLink Inc. (NYSE: CTL). I think this is a missed opportunity. (See Rackspace Could Help CenturyLink's Cloud, NFV Efforts – Analyst.)

In the very competitive cloud services world, Rackspace has carved out its own niche as a managed cloud provider, known for its exceptional customer service and the way it helps companies move to the cloud. One of the reasons the company backed off its M&A plans was its second-quarter growth, its best to date, with $20 million in new revenue.

Rackspace is also known for its internal smarts, particularly its deep base of OpenStack expertise, which is going to become more important as the telecom industry accepts an open-source approach to its next generation of networking. (See Is Open Source the New De Facto Standard?.)

The combination of those things made Rackspace an attractive partner for a telecom cloud provider looking to increase its scale in the cloud market -- and they all are.

On its own, Rackspace will continue to battle in a cloud market increasingly dominated by giants such as Amazon Web Services Inc. , IBM Corp. (NYSE: IBM) and Microsoft Corp. (Nasdaq: MSFT), and increasingly vulnerable to price competition, which isn't the Rackspace sweet spot. Certainly the cloud company's newly reorganized management team knows the challenge ahead. (See Rackspace Could Help CenturyLink's Cloud, NFV Efforts – Analyst.)

Is there space in the market for a Rackspace? Oh, sure. But the more powerful play would have been the combination of Rackspace and telecom cloud looking to expand beyond its network footprint.

— Carol Wilson, Editor-at-Large, Light Reading

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