Rackspace's latest service welcomes users' legacy gear into Rackspace data centers and once in place, gives the vendor a golden opportunity to sell these customers additional services.
The Rackspace Colocation program primarily targets midsize and larger IT shops that want to launch their first cloud initiative, or sidestep the rising costs to operate their own internal data centers. Many of these IT shops have just begun to grapple with the realities of their first digital transformation projects. They must choose where to position key applications from private clouds to microservices that run on Azure and Google Cloud.
Some Rackspace users run applications on customized hardware and operating systems that are not supported by public clouds, while others have heavily invested in hardware and want to hold onto those systems for another five years to get the full value out of those systems, said Henry Tran, general manager of Rackspace's managed hosting and colocation business.
Customers that move existing servers into Rackspace's data centers gain better system performance from closer proximity to Rackspace's infrastructure. This gives Rackspace a chance to upsell those customers add-on interconnectivity and other higher-margin services.
"[The Rackspace Colocation services program] is a way to get you in the door by handling all the mundane stuff, but longer term they are trying to get you to migrate to their cloud," said Cassandra Mooshian, senior analyst at Technology Business Research Inc. in Hampton, N.H.
Green light for greenfield colocation services
There are still many enterprise workloads that run in corporate data centers, so there are a lot of greenfield opportunities to pursue in colocation services. Roughly 60% of enterprises don't use colos today, and the colocation market should grow around 8% annually through 2021, said Dan Thompson, a senior analyst at 451 Research. "There is still a lot of headroom for companies to migrate to colocation and/or cloud," he said.
Dan Thompsonanalyst, 451 Research
Other colocation service providers have expanded with various higher-margin cloud and other managed services, but Rackspace has chosen a different path.
"They've had hosting and cloud services for a while but are now moving in the direction of colocation," 451 Research's Thompson said. "This speaks loudly to the multi-cloud and hybrid cloud world we are living in."
Rackspace's acquisition of Datapipe in late 2017 initiated its march into colocation, with the ability to offer capabilities and services to Datapipe customers through Microsoft's Azure Stack, VMware's Cloud on AWS and managed services on Google's Cloud platform. In return, Rackspace gained access to Datapipe's colocation services and data centers to gain a market presence in the U.S. West Coast, Brazil, China and Russia.
Rackspace itself was acquired in late 2016 by private equity firm Apollo Global Management LLC, which gave the company some financial backing and freedom to expand its business.