Rackspace aims to grow with a Microsoft partnership

July 13, 2015 01:29 PM

(Bloomberg)—Rackspace Hosting Inc. will sell support services to customers running on Microsoft Corp.’s Internet-based Windows Azure service in a major shift of emphasis for the cloud-computing company.

The partnership announced Monday means people can pay the San Antonio, Texas-based company to set up, manage and support technology rented from Windows Azure, or for support services on top of their existing Microsoft cloud deployments. Rackspace will continue to operate its own web-hosting and cloud services supported by its data centers and will let customers mix and match their IT between the two companies’ facilities.

Among the Internet Retailer 2015 Top 1000 retailers in North America by sales, 145 use Rackspace as their web hosting service, including Staples (No. 4), Sears Holdings (No. 5) and CDW Corp. (No. 9), according to

“There are customers that walk in the door every day that want Microsoft technologies,” said Rackspace’s Chief Technology Officer John Engates. “We recognized there was opportunity for our expertise to be applied and delivered as a service.”

The shift is part of a broader one for Rackspace as it seeks to make more money out of its support organization. Revenue growth slowed the past two years to about 17% annually and the company’s stock fell the most in eight months in May after it released a second-quarter sales forecast that was below analysts’ estimates.

Rackspace support services will start at $1,500 per month, Engates said, and customers should save from 40-70% by using the company’s services rather than doing the same support tasks in-house.

“The real opportunity for us is to make customer’s businesses work on top of these clouds rather than spend a lot of time on the plumbing and underlying infrastructure,” Engates said.

Tied to partners

Wedding a strategically important initiative to the actions of other companies poses risks.

“There’s also much less influence on the road map that you have, obviously, if you’re running on somebody else’s stack,” Karl Pichler, Rackspace’s chief financial officer, said in May. These concerns will be dealt with by carefully structuring the business relationships, he said.

Microsoft is the first of multiple partners. Providing support services on top of Inc.’s market-leading Amazon Web Services cloud is “the headline” of the strategy, Pichler said. While Engates declined to discuss other potential partnerships, he said Rackspace will limit the number of clouds it services to keep from spreading too thin.

Larger cloud companies have outspent Rackspace on infrastructure for the best part of a decade. Microsoft spent $5.5 billion on capital expenditures in the fiscal year ended June 2014, compared with $435 million for Rackspace. The three companies each deploy millions of servers, versus the estimated 100,000 that Rackspace has under management.

While Rackspace generated $1.79 billion in 2014 revenue, Amazon’s cloud subsidiary, for example, brought in $1.57 billion in its most recent quarter, up 49% from a year earlier.

Rackspace also has created templates to make it easy for online retailers to use its hosting services in conjunction with popular e-commerce software, such as Magento.




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