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Rackspace refuses to enlist in cloud's latest price cutting war

When 100,000 servers isn't large enough

Internet Security Threat Report 2014

+Analysis Cloud provider Rackspace will stand on the sidelines as Amazon, Google, and Microsoft slash prices in an attempt to destroy each other's profit margins.

The web hoster's chief technology officer, John Engates, told El Reg's cloud bureau by email that "Rackspace is not a commodity cloud provider," when we asked if it would match Amazon, Google, and Microsoft's latest price cuts.

"We pay close attention to market conditions and make periodic adjustments to ensure that our prices are competitive on a total-cost-of-performance basis," Engates told us via email. "We do not base our prices on competitors' rental rates for raw infrastructure. Rackspace has for 15 years charged premium prices for premium service, expertise, performance and reliability."

That commitment to "premium prices for premium service" may be tested in the coming months, given the large price differences that have appeared between Rackspace and rivals following recent price cuts.

A 15GB "Performance" cloud server on Rackspace with four virtual CPUs, 40GB of SSD system disk, and 150GB of SSD data disk now costs $0.68 per hour, for example, versus $0.280 for a (roughly equivalent, albeit lacking SSD storage) Google "n1-standard-4" server, or $0.280 for Amazon's (SSD included) "m3.xlarge".

Rackspace's public cloud division made $116m in revenue during the company's most recent financial quarter, compared with $291m in its traditional hosting business. As of February 2014 it had 103,886 servers deployed.

Given the rude health of its traditional business and the margin pressure brought about by moving to the less lucrative but strategically important public cloud model, Rackspace is in a tough position. It is not quite large enough to compete on price with the huge providers, but it is not small enough to completely ignore these price changes.

"Commodity providers of cloud infrastructure frequently cut their unit prices, and we expect that trend to continue. That's good for end users and also for Rackspace, which is itself a big buyer of cloud hardware and software, and regularly passes savings along to customers," Engates explained.

"We don't just rent out access to raw infrastructure. We provide specialist expertise to manage that infrastructure, as well as the complex applications and tools that run on top of it, so that customers can focus on their core business."

In other words: although Google, Microsoft, and Amazon are pummeling each other's prices into the ground, Rackspace plans to drift its costs down in a less drastic fashion. ®

Internet Security Threat Report 2014

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