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Rackspace Puts Its Chips on the Hybrid Cloud

February 11th, 2014 by · 4 Comments

Yesterday Rackspace posted nice earnings, saw its longtime CEO retire, and announced a shift in focus toward the hybrid cloud. Shares were trading rather lower after hours and in the premarket as the uncertainty of the last two overwhelmed the promise of the first.

Revenue of $408M and earnings per share of $0.21 were ahead of expectations. CEO Lanham Napier is retiring, and the company’s chairman Graham Weston is stepping into the breech. But the longer-lasting news is that the company’s primary target is now the hybrid cloud and the software and services to empower enterprises with them.

In other words, Rackspace plans to become more and more of a service provider and less of what we used to call a webhosting company.  And while they’re still operating that public cloud and posting pretty good growth and earnings doing it, it is clear that they are looking hard for places to differentiate from their larger neighbor at Amazon AWS and move up-market.

The cloud marketplace is a complex place where a lot of previously very different business models are starting to converge on overlapping territory. It seems that CLECs, systems integrators, global telecommunications providers, and webhosting providers that have dived into the cloud are increasingly singing the same tune: the technologies underlying the public, private, and hybrid clouds out there must start to mature into more manageable services that enterprises not at the bleeding edge can consume, and everyone is uniquely positioned to help them do it.  They’re not all aiming at the same targets of course, but those targets do seem to be getting closer together every quarter.

As for Rackspace, they are indeed well positioned to take on the hybrid cloud challenge.  But for investors, if we have learned anything in the world of IT it is that transitions to new targets tend to be harder than the marketing guys make it look.  Hence the stock price.

Categories: Cloud Computing · Financials

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4 Comments So Far


  • Anonymous says:

    I welcome the move by Rackspace, as I really like their model and strategy.

    But I cannot tell you how many times that, as an incumbent telco, we’ve tried to espouse to them the benefits of direct connect like private line bolt-on features; how they bring credibility to enterprise-grade hybrids, and how much more customers will consume the cloud once that solution is in place. Seems so simple – but their eyes glaze over as they prattle on about how the internet is good enough and we’re just injecting legacy complexity that no one wants.

    They have a rude awakening if they plan to be successful in the space without it. Or it could just be our bias here on telecomramblings.

  • vpg999 says:

    RAX looks like it is doomed, legacy dedicated hosting business will crumble as cloud overtakes, and cloud under pressure from AMZN GOOG IBM, the company is squeezed from all sides, thus the CEO CFO shuffle and insider dumpathon. Stock is not worth more than 6x EBITDA or $25/share

    • beetlejuice says:

      Doomed is probably overstating it, since they do have some growing cloud offers, and they’ve been pretty successful. Being the lead dog in Openstack does not hurt, either.

      But they do have a lot of work to do to get acceptance of them as something other than rack and stack, and the industry really needs a standard like openstack – but no one is buying into it yet.

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