Gathering clouds brew up a storm

With all kinds of cloud announcements promised at Microsoft PDC next week, rival vendors Amazon and Rackspace have tried to steal a little early thunder with some announcements of their own. This is the beginning of a titanic struggle to establish the top cloud providers, and this week's announcements have each been significant enough. It's quite a landmark to see the beta label drop off Amazon's EC2 service, which also (very sensibly) added an SLA. It's another landmark to see Rackspace, a leader in the managed server hosting industry, embrace the cloud as thoroughly as it did this week. We'll see next week what Microsoft has up its sleeve.

What I found interesting about Rackspace, who briefed me ahead of the announcement, is that it seems to be under no illusions about where the hosting industry is headed: "For us, cloud is the next iteration of hosting," said Lew Moorman, the company's SVP of strategy [disclosure: Rackspace comps me a cloud hosting account].

Rather than have upstart cloud competitors start stealing its customers away, Rackspace has decided to embrace the cloud and make it an option for any of its hosting customers. "We have traditional managed hosting that can be logically connected to the cloud," Moorman explained. The thinking is that most customers will want to keep some managed servers while moving other workloads to the cloud. "The move to the cloud is a breakthrough for IT departments to match capacity to demand, get increased reliability and redundancy," said Moorman. Having both within the same network infrastructure will save customers from suffering extra bandwidth costs or time lags when connecting the two.

From that point of view it's a smart decision, but it's not without financial risks, as ComputerWorld's Patrick Thibodeau spelt out:

"On the face of it, making it easier for customers to switch from a dedicated server to a cloud service may seem dumb for a company that rents dedicated servers. A typical dedicated server at Rackspace can cost US$375 a month. However, those same resources, delivered in a virtualized physical server, can start at $20 a month, said John Engate, Rackspace's CTO."

That's why I think this is such a significant step. Rackspace could have chosen to just bury its head in the sand and pretend cloud would just go away. Instead, it's decided to get in the cloud game itself, even if that undermines and takes revenue away from its core managed hosting business.

The company's chiefs must be relieved to have got its IPO out when it did. Its stock price may not look too good at present but the company has cash in the bank to fund this transformation to a cloud provider. Some of that cash has funded the acquisitions that form the backbone of the new cloud services. I won't discuss the announcements in detail, as they've been well covered elsewhere: from fellow Enterprise Irregulars, Redmonk's Michael Coté was at the launch in person (accompanied by Charlie Wood) and riffed at length, while Bob Warfield ponders the meaning of both Rackspace and Amazon's announcements. One thing that I haven't seen picked up much in other coverage is that Rackspace is opening its cloud out to third-party management providers — Rightscale, CohesiveFT, Vertica, rPath, Soasta and Sonian — most or all of which already work with Amazon, thus giving their customers an alternative platform they can tap.

My big takeaway is that Rackspace becoming a cloud provider represents a huge step towards the mainstreaming of cloud. Not only because a major managed hosting provider has embraced cloud — and declared it the future — but also because Rackspace is the kind of company that will add GUIs and application interfaces to make its cloud resources more accessible than Amazon's more geek-targeted service. "We really think this is going to open up the cloud to a bigger market," said Moorman. I agree.