What Rackspace’s cloud moves mean

Last week, Rackspace made a bunch of announcements about its cloud strategy. I wrote previously about its deal with Limelight; now I want to contemplate its two acquisitions, Jungle Disk and Slicehost. (I have been focused on writing research notes in the last week, or I would have done this sooner…)

Jungle Disk provides online storage, via Amazon S3. Its real strength is in its easy-to-use interface; you can make your Jungle Disk storage look like a network drive, it has automated backup into the cloud, and there are premium features like Web-based (WebDAV) access. Files are store encrypted. You pay for their software, then pay the S3 charges; there’s only a monthly recurring from them if you get their “plus” service. The S3 account is yours, so if you decide to dump Jungle Disk, you can keep using your storage.

The Jungle Disk acquisition looks like a straightforward feature addition — it’s a value-add for Rackspace’s Cloud Files offering, and Rackspace has said that Jungle Disk will be offering storage on both platforms. It’s a popular brand in the S3 backup space, and it’s a scrappy little self-funded start-up.

I suspect Rackspace likes scrappy little self-funded start-ups. The other acquisition, Slicehost, is also one. At this point, outright buying smart and ambitious entrepreneurial engineers with cloud experience is not a bad plan for Rackspace, whose growth has already resulted in plenty of hiring challenges.

Slicehost is a cloud hosting company. They offer unmanaged Linux instances on a Xen-based platform; their intellectual property comes in the form of their toolset. What’s interesting about this acquisition is that this kind of “server rental” — for $X per month, you can get server hardware (except this time it’s virtual rather than physical) — is actually akin to Rackspace’s old ServerBeach business (sold to Peer 1 back in 2004), not to Rackspace’s current managed hosting business.

Rackspace got out of the ServerBeach model because it was fundamentally different from their “fanatical support” desires, and because it has much less attractive returns on invested capital. The rental business offers a commodity at low prices, where you hope that nobody calls you because that’s going to eat your margin on the deal; you are ultimately just shoving hardware at the customer. What Rackspace’s managed hosting customers pay for is to have their hands held. The Slicehost model is the opposite of that.

Cloud infrastructure providers, hope, of course, that they’ll be able to offer enough integrated value-adds on top of the raw compute to earn higher margins, and gain greater stickiness. It’s clear that Rackspace wants to be a direct competitor to Amazon (and companies like Joyent). Now the question is exactly how they’re going to reconcile that model with the fanatical support model, not to mention their ROIC model.

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Posted on October 30, 2008, in Infrastructure and tagged , , , . Bookmark the permalink. Leave a comment.

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