The Cloud Price War Versus The True Value Of Cloud

There’s been a lot of talk lately about cloud pricing. The perception seems to be that to tap the power of the cloud you need only acquire some low-cost infrastructure and you’re good to go.

This is a false premise.

For businesses that run on the cloud, the infrastructure is just one component required for success. And it’s often one of the smallest components in terms of the total costs that customers must pay. They also must have a team of specialists on hand to manage and operate that cloud at scale. That’s where the true cost of cloud comes in — and the true value. As a business, you’re faced with a crucial decision: do you spend the time, money and energy hiring and training that team, and expanding it every time an attractive new cloud technology comes along? Or do you partner with a managed cloud provider who gives you 24×7 access to specialized engineers with decades of accumulated expertise?

To really understand this choice, let’s break it down. We’ll start with infrastructure because it’s where most cloud providers tend to focus. Commodity infrastructure is cheap and getting cheaper. It’s taking a path similar to the one we saw when servers became a commodity in the last era of computing. You could buy pretty much the same server from any number of vendors and — because of competition, advances in technology, and low-cost manufacturing — prices continually fell over time.

The difference is that cloud infrastructure only works when it’s delivered as a service. It’s not a physical product that you put in a box and ship. This difference has confused many cloud customers. They need to compare commodities wrapped in services rather than just the commodity infrastructure components themselves. Otherwise, they’re comparing apples to apple pies.

The vendors leading the race to the bottom on the price of raw infrastructure would love for you to believe all cloud services are identical. The very definition of commodity is that the “importance of factors other than price are diminished.” These providers believe the lowest infrastructure price will win the most market share and that customers will choose a provider based solely on that price. Their actions implicitly acknowledge that they’re selling an undifferentiated commodity and that its price is their best lever to win business.

This is a dangerous and expensive way for developers and businesses to make critical cloud buying decisions. Success with the cloud requires much more than just renting access to cheap infrastructure. The real differences among clouds are the services wrapped around them and how those services solve your business’s IT needs.

Seriously consider this. Renting commodity infrastructure from the lowest cost provider requires tradeoffs. To operate that infrastructure, you’ll have to assemble a team — systems administrators, database administrators, DevOps engineers, security engineers, architects, application specialists — that can build and run your cloud as your app or website scales. That could cost you upwards of $500,000 a year to get the right people for the job — and that’s a conservative estimate that may increase dramatically based on your company’s size, location and industry. These experts are in high demand and are hard to find, even if you can afford them. Once you hire them, it takes time to integrate them onto your team. And given the speed with which cloud technology is changing, you will need to constantly add new and different technical expertise. You will have to hire more staff or spend time retraining the team you have. All of this time, money and effort will be spent on undifferentiated infrastructure and application management that your customers will never see, appreciate or value.

At Rackspace, we and our customers look at the cloud differently. A real cloud is so much more than the infrastructure; it’s also the service, support and expertise that makes it all work. Sure, rock-solid infrastructure plays a key role, and we rank among the best in the industry at 99.999% uptime. We build in redundancy that the commodity providers do not, with RAID storage protecting your servers, and redundant power supplies. But infrastructure is not our sole focus. We see the commoditization of infrastructure as a good thing. It makes our cloud cheaper, faster, and more powerful over time. Economies of scale enable us (like the rest of the market) to reduce the cost of infrastructure and we pass that savings on to customers. But what distinguishes Rackspace is our economies of expertise. It’s our management services, advice, and expertise put together in a service model we call Fanatical Support. We don’t sell unmanaged infrastructure. We are in the managed cloud business, and we are the world’s No. 1 managed cloud specialist.

With a managed cloud you get human beings — experienced cloud engineers — to work with 24×7. These engineers become an extension of your team and can help you with everything from planning and architecting to building and operating. We’re with you every step of the way to make your business a success. And if you need expertise in a specific area like DevOps, MongoDB, MySQL or ecommerce, we have that expertise, too. With our managed cloud you get data backup, patching and security, proactive monitoring, incident response and more. These aren’t line items that we add up to nickel-and-dime you the way some competitors do. These features are standard — built into our managed cloud. And you’re not adding a half a million dollars or much more a year in headcount to get it. Our managed cloud price covers not only the infrastructure but also its management and operation. We take an active role in operating your app so your teams can focus on application development and on serving your customers.

Hear from Rackspace customer SumAll about the value of a managed cloud:

Our mission since the beginning has been “to be recognized as one of the world’s greatest service companies.” We’re rooted in outstanding service. Our technical expertise — your 24×7 access to engineers and specialists who can help you with anything when you need them — represents the real value of a managed cloud. We do the heavy lifting for you to make sure your application works.

Have you tried running MongoDB at scale?

Have you tried adopting DevOps to automate your infrastructure?

It’s hard, time-consuming, and costly without the right team of experts to help you. And it requires 24×7 coverage if you choose to do it yourself.

We’re that team of experts. Think about it: where else can you get this level of service built in to your cloud infrastructure by default? Nowhere else.

There will always be cloud users who will seek the lowest price for access to raw infrastructure. But more and more are choosing managed cloud because they want to spend their time focusing on their core business. They value 24×7 access to a team of proactive, well-trained specialists to help with all of the activities required to be successful on the cloud.

Our team of specialists is here to serve you with our cloud expertise and Fanatical Support promise. That can’t ever be commoditized.

John Engates joined Rackspace in August 2000, just a year after the company was founded, as Vice President of Operations, managing the datacenter operations and customer-service teams. Two years later, when Rackspace decided to add new services for larger enterprise customers, John created and helped develop the Intensive Hosting business unit. John played an active role in the evolution and evangelism of Rackspace’s cloud-computing strategy and cloud products. John met frequently with customers to hear about their needs and concerns, and to discuss Rackspace’s vision for the future of cloud computing. John's final positions was as the company’s Chief Evangelist. John is also an internationally recognized cloud computing expert and a sought-after speaker at technology conferences, including CA World, the Goldman Sachs Techtonics Conference and Cloud Expo. He speaks on the future of cloud computing, enterprise cloud adoption, data center efficiency, green data center best practices, and more. Prior to joining Rackspace, John was a founder and General Manager at Internet Direct, one of the original Internet service providers in Texas. John is a graduate of the University of Texas at San Antonio and holds a B.B.A. in Accounting.


  1. You make a compelling case for Rackspace as a professional services business, not for Rackspace as a purveyor of overpriced, under-featured, rebadged hosted servers with some professional services dust sprinkled on them.

    When are you accepting reality and selling off your datacenters while they are still worth something?

  2. As a former employee and shareholder I think this is a mistake. Rackspace has an amazing track record of uptime and service. Why not lower the price so potential users can not only hear about the difference but actually experience it…

    • What I gather from the post is managed cloud hosting pricing is not going to go down which is expected because you are paying for support. They should be lowering the base cost per server based on this quote “…Economies of scale enable us (like the rest of the market) to reduce the cost of infrastructure and we pass that savings on to customers….”

      I expect them to lower the cost per server as time goes on because of competition but the support premium I expect is going to stay because no other company that I am aware of is trying to compete on support.

  3. If attempting to avoid hardware costs is your business, then yes, Rackspace is defending service costs that have little value to the thrift oriented. For those of us that have an interest in leveraging the technical intellectual property of large organizations to augment business objectives, then the extra costs are worth it. My company is going to reach out to Rackspace to see if the service they boast is a reality. One other point not addressed here is vulnerability to buyouts. I have been noticing that folks who are not dealing with the service end are better positioned to inflate company balance sheets. This is because they are using companies like AWS to do the heavy lifting while they play man in the middle as a Cloud reseller. For me, when I sign up with someone, I want to know if they are trying grow a crop of servers to fill a farm or are they really in the Cloud Services business. You don’t get on Gartner’s list of heavy hitters by doing this-


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