Is Rising Competition in Cloud Space Slowing Rackspace's Growth?
Rackspace’s partnership with Amazon’s AWS and Microsoft Azure deepens
Previously in the series, we discussed Rackspace’s (RAX) new strategies to capture growth in the cloud space. In its recent 1Q16 earnings release, Rackspace reported that 187 Amazon (AMZN) AWS (Amazon Web Services) customers have signed up for Rackspace services. Among these AWS customers who signed up for the company’s services, 70% chose Aviator, which is Rackspace’s highest service level.
Commenting on the increase in AWS customers, Taylor Rhodes, CEO of Rackspace, stated, “This indicates we are adding significant value on top of the AWS infrastructure.” In October 2015, Rackspace launched its “Fanatical Support” customer service for AWS. Similarly, 178 Microsoft (MSFT) customers had signed up for the company’s services at the end of April.
Managed cloud services expected to see huge growth
Rackspace shared 451 research report findings of the growth expected in the managed cloud space. The reports showed that the managed services at cloud service providers are expected to grow at a CAGR (compound annual growth rate) of 25.6% to $43 billion in 2018 from $17 billion in 2014. Managed Services accounted for 29.1% of the total cloud space revenue in 2014, and its contribution is expected to grow to 36.3% of the total cloud space revenue in 2018.
According to Jennifer Mazzanti, president of eMazzanti Technologies, “Managed cloud services put enhanced competitiveness, agility and scalability within reach of businesses of all sizes.” eMazzanti Technologies is a network solutions company whose specialization lies in security, firewalls, and VPN (virtual private networks).
Rackspace’s increased customer signings from AWS and Microsoft are an encouraging sign. As a managed service provider, Rackspace has to get its cloud interface from players like Amazon, Microsoft, or Google (GOOG) (GOOGL). Rackspace and other managed service providers resell the capabilities offered by Amazon’s AWS, Microsoft Azure, and Google Cloud Platform.
Later in the series, we’ll discuss Rackspace’s stock performance in 2016. For diversified exposure to select software companies in the United States, you may want to consider investing in the SPDR S&P 500 ETF (SPY). This ETF invests 8% of its holdings in the application software industry.
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