Tuesday, November 17, 2009

IBM changes it view on cloud computing: Is Rackspace an acquisition target?

IBM had no plans to provide storage or providing cloud computing services as they were perceived to be low margin. However, this view is believed to have changed and IBM now believes that providing basic infrastructure as a service could be lucrative.

The ambivalent opinion towards cloud computing has led to a situation where IBM is perceived by analysts to be lagged behind in cloud services, but still has the opportunity to take advantage of the cloud computing.

On the other hand Racksapce, which competes with Amazon.com, Joyent and GoGrid in the cloud market, has been faring well against rivals, and has increased it competitiveness in 2009 and is gaining share. Rackspace has been able to close the gap with Amazon.com which used to be  far ahead.


Rackspace is second to Amazon.com in the Infrastructure-as-a-service market. It has about 130K applications supported on its Platform as-a-service offering. It has about 1.2M  enterprise users for its hosted e-mail service, which puts it ahead of Google.

Additionally  Rackspace is well entrenched in the SMB market and is growing fast in the enterprise market.

IBM could definitely leverage Racksapce's strength to shed the laggard tag in the storage and cloud computing services market.

Carrying out such a transaction could be relatively simpler as Rackspace is a closely held company with more than half of the share be held by company insiders. While Sequoia Capital has distributed its 10% stake in Rackspace, venture capitals also control a reasonable stake in the company

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