Rackspace Claims Hybrid Cloud Beats Amazon on Value

Written by Christopher Tozzi
July 16, 2013

Rackspace CTO John Engates says his company offers better cloud-computing value than Amazon Web Services (AWS). But can private and hybrid platforms be compared to public clouds at all?

Cloud computing costs on Amazon (AMZN) have been in a steady decline for a while now, with the biggest drop coming last week when Amazon EC2 dedicated instances became up to 80 percent cheaper. Now, Rackspace (RAX), one of the biggest competitors of Amazon Web Services (AWS), is firing back with efforts to convince enterprises that Amazon public clouds may not be as great a value as they appear. Will Rackspace succeed?

In a blog post on Tuesday, Rackspace CTO John Engates took on the AWS price drop directly by arguing that his company can provide better service and lower TCO. “We at Rackspace don’t aspire to offer the lowest unit prices. We strive instead to offer the best value,” he wrote. Of course, talking up overall value is not a surprising line of argument, since Rackspace can’t currently claim to beat Amazon’s rates on a pure level.

But although neither Amazon nor Rackspace may be quick to admit it, pricing is not actually what’s at issue. The real stakes are the differences between public and hybrid clouds, which Engates made clear by claiming that his company’s hybrid cloud services provide features that Amazon’s public cloud is fundamentally unable to offer. “Many of our customers,” he wrote, “come to us from a one-size-fits-all public cloud, and they tell us that the hybrid cloud approach has improved the performance, reliability and overall cost of their infrastructure.”

Under these circumstances, it’s not really feasible to make an “apples-to-apples” comparison (to quote Engates) between Rackspace and Amazon. Cloud pricing and cloud type are different issues. The two companies may compete for the same customers, but they don’t offer the same products. Amazon’s vision of the best type of cloud for the enterprise diverges significantly from Rackspace’s.

So the real issue that customers will have to decide is not whether AWS’s pricing makes for a better overall value. Instead, it’s whether the type of public clouds enterprises can build on Amazon meet their needs better than Rackspace’s hybrid services. From this perspective, TCO and customer support become secondary issues.

Whether the channel will recognize which factors are really at play remains to be seen. Cloud pricing may seem to dominate the current conversation, but that’s merely a mirage obscuring the deeper battle between public, hybrid and private infrastructure.

Reality Check

Meanwhile, there are two other Rackspace angles worth a look.

First, we’ve been wondering if/when Rackspace will announce a new channel leader after the departure of Chris Rajiah to ViaWest. So far we haven’t heard much on that front.
Second, Rackspace is trying to accelerate growth but its own OpenStack revenues will be slow to materialize.

So far, Wal Street seems to be leaning toward Amazon and away from Rackspace. Indeed, Rackspace shares fell 8 percent on the Amazon price cut news.