Rackspace is managing the cloud and managing to grow, despite competition and price cuts from the mobile Internet’s heaviest hitters. Google slashed prices of its cloud services this spring, but despite that the much smaller Rackspace sold $441 million worth of cloud services, a 17% increase from last year’s sales for the same period. Investors were not impressed, however, sending the company’s shares down about 7% following the report.
Amazon Web Services and Microsoft Azure also compete with Rackspace to host cloud-based services for corporate clients. Rackspace claims its offering is distinct because it complements its basic cloud infrastructure with a managed cloud service, which includes support for the applications that Rackspace hosts for its customers. Last month, Rackspace unveiled a tiered pricing strategy for its cloud services, pricing its highest level of service four times above its basic managed infrastructure.
Rackspace’s managed cloud strategy is clearly getting some attention from customers and apparently from competitors as well. In May Rackspace said it had received expressions of interest from possible buyers and hired Morgan Stanley to advise it in this area. The company did not comment on possible suitors during its earnings call. Rackspace (RAX) has been public since 2011.
Rackspace is the founder of OpenStack, an open-source operating system for cloud computing. Wireless infrastructure manufacturers have shown significant interest in OpenStack. HP recently announced plans to invest a billion dollars in OpenStack-related software initiatives.
HP’s commitment to OpenStack is notable not only because of the company’s financial commitment, but also because of its position in the wireless infrastructure industry. As carriers move more network software from dedicated appliances to “off-the-shelf” hardware, they often choose HP servers. Likewise, many software providers will configure their offerings first for HP servers. When Rackspace said in May that it is working with Morgan Stanley, the news sparked speculation that HP might make a bid for Rackspace.
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