RackSpace’s Stock Quote vs. Cloud Pricing Wars

RackSpace’s stock price has taken a sizable hit since February. According to investing analysts, RackSpace’s stock price has dropped 29% in the past three months. This seems to be in direct correlation to the ongoing pricing war currently happening in the public cloud computing sector. With Google, Amazon and Microsoft all cutting public cloud prices, many industry experts wondered when RackSpace would follow suit. About a month ago, RackSpace CTO John Engates mentioned, “We do not base our prices on competitors’ rental rates for raw infrastructure. Rackspace has for 15 years charged premium prices for premium service, expertise, performance and reliability.”

This has many skeptics wondering, what premium services is Engates talking about? Not to disrespect RackSpace, but you must look at Engates quote in context. He asserts that RackSpace has been charging consumers the correct amount of money for its services for the past 15 years. This type of thinking is backwards and will only hurt RackSpace going forward. How so you might ask? What if other vendors used that mentality? Could Microsoft justify using a stagnant business model and its decades of software and support experience in order to charge a premium? Yes, simply because Microsoft operates Azure and if anyone could justify the premium, it’s Microsoft, not RackSpace.

The San Antonio, Texas based company must reinvent itself and not fall victim to backwards thinking. What worked for your company 15 years ago or even last year may not work today. As more consumers are becoming cloud conscious coupled with the fact that there is a cloud startup spouting up every day in efforts to tackle new problems, RackSpace can’t realistically dub itself as a premium cloud provider with all of the answers even if they helped out with the development of the OpenStack platform with NASA.

RackSpace must reinvent itself and do something that sets itself apart from the big three in order to charge a premium price. Perhaps RackSpace has their pricing model wrong? DigitalOcean rose to prominence by changing the pricing model and making cloud easy to use and understand. Compare DigitalOcean’s rise to RackSpace’s decline and you’ll understand why forward thinking is essential to cloud survival.