Rackspace is the latest to yield to the mounting competition in cloud space
Rackspace (RAX), which is scheduled to report its fiscal 2Q16 earnings on August 8, 2016, made news when the Wall Street Journal reported that the company is in the advanced stage of its sale to a PE (private equity) firm.
Prior to this, in 2014, Rackspace considered various alternatives ranging from partnerships to acquisition. However, after considering the alternatives, Rackspace chose to end the sale process.
Rackspace and other smaller players are losing share to large players in the cloud space
Amid growing competition and concentration in the cloud space, Rackspace is finding it difficult to grow. Amazon (AMZN) rules the cloud space with a 31% market share. It’s followed by Microsoft (MSFT), IBM (IBM), and Google (GOOG) (GOOGL), which collectively accounted for 22% of the cloud space.
Apart from the four players mentioned above, the next 20 players include Rackspace, Oracle (ORCL), Salesforce (CRM), and VMware (VMW), which grew 41% on average on a yearly basis. These 20 players collectively held 27% of the cloud space.
On the surface, the growth posted by the 20 players mentioned earlier in the series looks promising. However, when we compare their growth figures with the growth of the overall cloud space, the growth doesn’t appear to be very satisfactory. Synergy Research estimates show that the cloud space is growing at more than 50% while these 20 players that include Rackspace reported average yearly growth of 41%, indicating that they are losing market share.
Increasing competition in the cloud space made Rackspace twist its business model. Rackspace as a managed service provider now resells the capabilities offered by Amazon’s AWS, Microsoft Azure, and Google Cloud Platform.
Though Rackspace has increased customer signings from Amazon’s AWS and Microsoft’s Azure, it seems they were not enough to keep the company floating, which is why Rackspace is considering a sale.