Why IBM Might Be Interested in Rackspace -- or Not

Just two weeks after IBM committed to build its cloud computing infrastructure software and services around OpenStack, the company may be looking to acquire a major Infrastructure as a Service (IaaS) provider, according to published reports.

Citing a former IBM exec, GigaOM said in addition to its interest in rapidly growing IaaS provider SoftLayer (reported by Reuters last week), IBM has also been eying Rackspace. Earlier reports that EMC was also interested in SoftLayer have been dismissed. It's unclear to what extent IBM pursued Rackspace or whether the company is going to make an imminent move to acquire any cloud provider. An IBM spokeswoman said the company "does not comment on rumors or speculation."

Acquiring either company would boost IBM's IaaS footprint. While IBM has its own public cloud service, if it was looking to quickly expand on that, Rackspace would be the hugest fish it could reel in as its portfolio would fit nicely with the IaaS strategy Big Blue articulated this month at its Pulse conference in Las Vegas.

Rackspace is arguably the largest independent IaaS cloud provider besides Amazon Web Services. Rackspace is also the founding cloud provider in the OpenStack Project and, along with its partner NASA, spun off stewardship of it to an independent foundation last year.

Having attended Pulse, it was very clear that IBM is putting major resources behind OpenStack. Though Rackspace didn't have a presence at Pulse, Jonathan Bryce, a former Rackspace exec and now executive director of the OpenStack Foundation, was there. Despite the fact that IBM's involvement in OpenStack was largely invisible for the first two years of its evolution, Bryce said the company has participated from almost the beginning.

"They were involved in every way," Bryce told me at Pulse. "Honestly, I think the way they did it is really the right way to get involved. It was almost exactly a year ago that they started to ramp up the contribution. They started participating by contributing."

And now IBM is the third largest contributor of code to OpenStack behind Rackspace and Red Hat. Company officials proclaimed they want to be become first. One way to quickly get there would be to acquire Rackspace, of course, though it would be foolish to think that would be the driver for such a large deal.

Rackspace would bring more than just a huge number of OpenStack-compatible datacenters. The company has an evolving private cloud portfolio aimed at helping enterprises build their own OpenStack infrastructures. The company earlier this month released OpenCenter, which provides a graphical user interface and API to automate the deployment and management of private cloud. It is designed to work in high-availability environments and, in addition to supporting Ubuntu Linux, the new release adds support for Red Hat Linux and CentOS.

Scott Sanchez, Rackspace director of cloud strategy, said the goal with OpenCenter is to let customers build cloud services within their datacenters that run the same as Rackspace's cloud or others based on OpenStack. Ultimately, OpenCenter will evolve to let customers effectively add capacity to their private clouds through the public cloud.

"We are going to have real advances this year towards workload portability between public and private clouds, including full integration of the network," Sanchez said in an interview earlier this month. "That will probably come in phases over time using software-defined networking and we're going to take the continuous-deployment and continuous-delivery model we have in the public cloud and bring that to enterprise customers in their datacenters, as well."

Speaking to that continuous deployment model, Sanchez said the company has pushed out 1,500 code updates since converting its compute infrastructure to OpenStack back in October. "We're doing that at scale in our public cloud and our goal is to bring that as quickly as possible to our enterprise datacenters as well with private clouds," he said.

Jim Curry, senior VP and general manager of Rackspace Private Cloud, was a key player in the company's OpenStack strategy and had his eyes on getting IBM to commit early on. "I wanted to get on their radar," Curry said in an interview last week. "IBM was a critical member to get involved because of their success supporting Linux, Apache and Eclipse. These guys understand OpenSource and were good people to have involved. We had had ongoing conversation with groups inside IBM for some time."

All that said, don't bet on this deal happening. With a market cap of $7 billion, Rackspace would fetch more than IBM typically likes to shell out when it does acquisitions. It wouldn't surprise me if IBM leaked the Rackspace tidbit to give it leverage with SoftLayer, which is also operating an OpenStack cloud and more likely to fetch a more palatable $2 billion. Also, SoftLayer, through its investment banker Morgan Stanley, appears to be entertaining offers, while Rackspace CEO Lanham Napier has long said his company is not for sale. Of course we all know, any company is for sale for the right price.

Posted by Jeffrey Schwartz on 03/19/2013 at 12:48 PM