With New Partner, Rackspace Builds Out Support for Rivals’ Clouds

San Antonio — [Updated 4/27/16, 3:32 p.m. See below.] Cloud-computing giant Rackspace has made a deal to work with a Boston company that helps large businesses transfer their IT services to cloud-based infrastructures like Amazon Web Services. It’s a move that comes as Rackspace is increasingly finding ways to make money along with the public cloud services it competes with.

Rackspace (NYSE: RAX), which builds and manages public and private cloud IT environments for some 300,000 business customers worldwide, wrote in regulatory filings as recent as March 2014 about the competition it faces from “substantial investments” being made in cloud computing by “large, diversified companies such as Amazon, Google, HP, IBM and Microsoft.”

How quickly things change—or appear to, anyway. By October 2014, the company had announced an agreement to work with customers of Google Cloud, specifically its workplace productivity suite Google Apps for Work, which was followed in 2015 by deals with Amazon Web Services (AWS) and Azure, and others this year. [Wording added to clarify that Rackspace provides support for Google’s workplace productivity suite, not to be confused with Google Compute Engine.]

Based in the San Antonio suburb of Windcrest, TX, Rackspace has done well with its traditional means of making money, reporting $2 billion in 2015 revenue. It builds cloud-based IT infrastructures—public, private, or dedicated—for customers that are hosted by its 11 data centers worldwide, and manages the cloud infrastructures with customer service that it brands as “fanatical” support. The work with companies like Google and Amazon allows Rackspace to make money on its customer support side, even if isn’t on the hosting.

Founded in 1998, Rackspace’s mission is no different now than when the company was started, says Tom Bressie, director of marketing for the Rackspace division focused on Amazon Web Services. Even though Rackspace has its own storage offerings, it wants to provide IT expertise to customers regardless of the technology infrastructure they choose, Bressie says.

“What we want to do is basically serve as an expert for the market, where if they want help in choosing an infrastructure, we can help. If they’ve already made an infrastructure decision and want services and support, we can provide that as well,” he says. “Our customers pull for a variety of different infrastructure options, and that’s why you see the variety [of services] at Rackspace.”

Rackspace’s new deal with Boston-based Cloud Technology Partners is furthering the company’s expansion into supporting customers even if they have chosen other cloud providers. Cloud Technology Partners has built its business on helping large companies migrate their IT services to the cloud environments of AWS, Azure, and Google Cloud. The company targets larger, Fortune 500-sized businesses that not only need help building the architecture for their IT system in the cloud environment, but also want assistance transferring and optimizing various applications and technology, according to Brian Ott, a vice president at Cloud Technology Partners.

“We go through a logical set of steps looking at their application portfolio, their security, their architecture, and help them build their target architecture, helping with the migration of the applications, the automation of applications that help support and sustain the cloud,” Ott says.

In the deal, both companies will work with the client throughout the process, making sure they can help the client to manage and work in the new cloud system, Ott says. How the revenues will be shared will depend on the agreement with the client, Ott says.

“Enterprises are making that transformation from that current set of technologies into the cloud because they see value in what the cloud offers for their business,” Bressie says. “Once you get them there, you’re not done. You still need experts to run things on a day by day basis, if you don’t want to be distracted from your business’s core mission.”

Rackspace’s shift to building out the business for managing sales and support for cloud services like AWS and Google has had an impact. It moderately slowed revenue growth, which was 11.5 percent in 2015, down from 16.8 percent a year earlier, the company wrote in a regulatory filing.

“These represent large and rapidly growing target markets in which Rackspace is well positioned, but as with any new businesses we project that they will take time to reach the scale required to re-accelerate our revenue growth,” the company wrote in a filing.

Along with the deal, Rackspace made an investment in Cloud Technology Partners, Ott says. He declined to specify the amount.

Cloud Technology Partners was founded in 2011 and has raised $17.4 million (before the Rackspace investment) from investors that include Pritzker Group Venture Capital, Oak Investment Partners, State Street Bank, and Greylock Partners. Started by Chris Greendale, one of the founders of Cambridge Technology Partners, Cloud Technology Partners said in 2015 that its revenues had increased 100 percent year over year.

A plethora of companies, from Accenture to IBM, offer services to help large enterprises transfer their applications, servers, and other IT tools to the cloud. Ott contends that Cloud Technology is appealing because users can choose between multiple cloud providers, rather than being confined to one vendor, and that working with Rackspace provides an “end-to-end” service, from transfer to management.

For Rackspace, which already provides similar transfer services, its new partner is attractive because Cloud Technology Partners already has the trust of large enterprises and is better able to deal with the scale and “drastically complex IT portfolios” of those larger businesses, Bressie says.

Rackspace typically acts as a reseller of services such as AWS. If a user pays Rackspace for managing AWS, it typically also pays Rackspace for the AWS consumption, which Rackspace in turn pays to Amazon, Bressie says.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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