Rackspace: We’re Not After Amazon’s, Google’s, Microsoft’s Cloud Customers

While acknowledging that recent dramatic price cuts by public-cloud giants were a reality Rackspace could not ignore, the company’s executives said they were going after a set of end users that was distinctly different from those contenders in the race to ‘zero’ are targeting.

Reporting results for an unsurprisingly slow first quarter, Rackspace CEO Graham Weston said the recent announcements of massive reductions in rates for Infrastructure-as-a-Service offerings by Amazon, Microsoft and Google were just the latest example of long-standing strategies providers of raw compute capacity had.

“Our business has always been about more than just renting out access to infrastructure,” he said on a conference call with investors Monday. While the big players add value in the form of low infrastructure cost through economy of scale, Rackspace’s strategy has always been to add value through infrastructure-management expertise.

Rackspace President Taylor Rhodes said the company was not focused on serving developers that can deploy and manage IaaS resources they need themselves. Many businesses want an expert service provider that can help them pick the best infrastructure for their specific applications, as well as deploy and manage that infrastructure.

“The ability to help customers really run a hybrid cloud system … is an important differentiator for us in the market,” Rhodes said. “None of our larger competitors offer the selection of hybrid solutions we include in our portfolio.”

Depending on the service, the IaaS price cuts Google announced in March ranged between 30 and 85 percent. Amazon followed almost immediately by slashing prices by 10 to 61 percent, and Microsoft quickly responded with a plan to lower cloud rates by up to 65 percent for some services.

As giants for whom IaaS is only one area where they do business leveraged the size of their infrastructure to undercut the rest the cloud market on price, the big question became, ‘Where does that leave companies like Rackspace, for whom infrastructure services are a core business?’

Rackspace executives spent most of their first-quarter earnings call on addressing this question. Their core message was that services and expertise offered enough differentiation to address a different market need than the demand for cheap raw compute power.

“The price cuts really affect the unmanaged infrastructure portion of the market,” Taylor said.

As cloud is becoming commonplace, few enterprises will want to hire people who can set up and manage their own hybrid cloud environments. These are the customers Rackspace is after.

In Taylor’s view, nearly all cloud infrastructure services customers will eventually fall into one of those two buckets: the cloud-savvy customers that make up the bulk of Amazon’s customer base and the companies that choose to outsource cloud expertise to a provider like Rackspace.

He said the company was competing for customers in the latter category with the likes of IBM SoftLayer, Verizon Terremark and CenturyLink Technology Services.

Rackspace reported $421 million in revenue for the first quarter – up 16 percent year over year. Profit on that revenue was $25 million – down from $27 million the company reported for the first quarter of 2013.