There are two stories I’d like to reference in regards to Rackspace and IaaS. The reason I’m referencing these stories is that predictions I made earlier in the year (and in fact for many years now) have proven to be true.
First, earlier this year I wrote an article on the topic of Infrastructure as a Service becoming a commodity. The article states that if you have too many players in the service delivery channel can actually drive down value and margin; this is what is happening with IaaS. IaaS is fast becoming a commodity service. The second article, written in August, discusses Rackspace’s move away from IaaS and its re-adoption of higher value managed services offerings.
Now, I would still stand by these two articles and their respective positions no matter what I read in the press. My opinions about commodity solutions and managed services are well known for anyone who wants to read them. These are positions developed over a long period of time in this industry and having watched and analyzed MSPs as they mature and evolve. It is, however, nice to see external proof of my position being validated by none other than the stock market.
If you read Forbes.com’s article on Rackspace you will see that the company’s stock prices, which have been suffering in recent years (in my opinion, due to their focus on IaaS) are now in a turnaround mode. The article goes on to state that the company’s renewed focus on higher value managed services is part of the reason investors are beginning to buy Rackspace stock again.
Because we have too few public MSPs, it is sometimes challenging to make predictions and develop policies regarding MSPs. After all, one of the best indicators of an idea is the value an investor will place in it. In this scenario, Rackspace clearly is doing something which resonates with its investors. Moving away from commodity services and towards managed services is what I deduce as the reason for Rackspace’s stock turnaround. Can this strategy work for privately held MSPs? I believe they can.
There is nothing magical about what I wrote in those articles. It’s just common sense. The evolution of MSPs has been one of transitioning away from commodity towards higher value managed services. When a particular set of managed services becomes less valuable (like antivirus or SPAM) the MSP shifts those services into commodity pricing and replaces them with higher value solutions. This is how MSPs have remained relevant for so long in an industry which is known to change quickly.
If you are an MSP and are concerned with the direction of your company, take a page from Rackspace’s strategy. Rackspace did the opposite of what the rest of the bigger vendors were doing and focused on core managed services. Their investors and customers have rewarded this decision. So could yours!