Is Rackspace the Best Next Move for CenturyLink?
It's hard to find anyone these days who hasn't bought into the idea that cloud services will -- and already do, in many Tier 1 cases -- play a critical role in telco service strategies.
For a telco to acquire mature and trusted cloud services assets makes sense, in general. But does CenturyLink buying RackSpace, which now commands a market valuation of $5.7 billion following Monday's 6.85% share price hike to $39.79, make sense?
For Rackspace it does, reckons my colleague Carol Wilson, who follows the US telco cloud services sector closely. She has noted previously that industry analysts say Rackspace, which specializes in cloud computing and hosting services, is thought to be falling behind the other big cloud players such as Amazon Web Services Inc. , IBM Corp. (NYSE: IBM), Microsoft Corp. (Nasdaq: MSFT) and Google (Nasdaq: GOOG), "especially when it comes to delivering applications-as-a-service, which is the next cloud wave." (See Are Telcos Still Playing Cloud Catch-Up?)
So hooking up with a major telco makes sense for Rackspace, which "has a reputation for excellent customer service and support, but wasn't keeping up with the big boys," says Wilson.
How about CenturyLink? It has already made a number of M&A commitments to the cloud services market, most notably acquiring Savvis in 2011 and Tier 3 in 2013. (See CenturyLink Buys Cloud Leader Tier 3, CenturyLink Shows Cloud Is Still Critical, CenturyLink's Rise to Tier 1 and CenturyLink Clouds Up With Savvis Buy.)
As Carol has previously noted, CenturyLink Cloud Solutions is already a player, combining the Tier 3 enterprise cloud with the Savvis strength in managed IT services into a new strategic offer. (See CenturyLink Cuts Cloud Prices, Touts Power.)
"Adding a respected public cloud service like Rackspace would give CenturyLink another major element in terms of commodity cloud on which to build," she notes.
But as has been pointed out by Caroline Chappell, Principal Analyst, Cloud and NFV, at Heavy Reading , the next wave of cloud services is in apps and services, not raw compute power. So, if CenturyLink acquired Rackspace, it would then have to integrate yet another acquisition while at the same time "trying to push forward with its strategy of helping enterprises manage the complex process of moving apps to the cloud," notes Carol.
So should such a deal actually come to pass, it might solidify CenturyLink's position in the cloud services market, but it might not move it on too far.
— Ray Le Maistre, , Editor-in-Chief, Light Reading