Gartner’s Magic Quadrant 2014 for cloud computing makes it clear that Amazon has maintained its leadership position and Microsoft has moved up the ranks. But what happened to Rackspace, Dimension Data, and others that were in last year’s Challenger quadrant and became this year’s Niche Players?
Perhaps most puzzling is the awkward position of Rackspace, which has been a thought leader in cloud computing, co-founder of the OpenStack cloud open-source project, and one of the first major implementers of an OpenStack public cloud. However, management changes, a sinking stock price, and an announcement that a buyer might be sought through Morgan Stanley all combined to signal a retreat from the spotlight.
Some observers have noted that Rackspace is a company in transition. Managed hosting still comprises the bulk of its business, but its customer base is transitioning to cloud computing. Rackspace also has expertise in supplying Microsoft Exchange and other applications as software-as-a-service to enterprise customers.
The team of Gartner analysts who compiled the Cloud Computing Magic Quadrant report said Rackspace has had a "developer-centric offering" that has appealed primarily to small businesses that seek to replace their low-cost hosting service. Rackspace delivers a solid set of basic features, they explained, but it has not been able to keep up with the pace of innovation of the market leaders. Severe price cuts by Google, Amazon Web Services, and Microsoft also affected its ability to make money from its cloud offerings.
Instead of competing in the hyperscale IaaS market and repeatedly cutting prices, Rackspace "is refocusing its business on customers that need expert managed services for mission-critical needs," Gartner’s analysts wrote. These customers need hybrid cloud services that also require Rackspace’s high-touch "fanatical support," which is not available in the bare-bones infrastructure market.
In making this shift, however, Rackspace will be competing with IBM, CSC, Accenture, and HP, which are bringing outsourcing skills into the cloud marketplace in their own offerings and those of Amazon, Microsoft, and others. Several of these providers are skilled at using inexpensive offshore labor to make their outsourcing and management services more competitive.
Rackspace has acquired a number of cloud companies but has not integrated these acquisitions into a cohesive whole, Gartner’s analysts cautioned. While the company is potentially positioned to help customers use multiple clouds — other vendors’ as well as its own — it’s still struggling to convince cloud users to use its own Rackspace Cloud.
A lesser-known cloud supplier, Dimension Data, was in the Challenger quadrant last year; this year it dropped into the Niche Player quadrant. Dimension Data, a unit of Japanese telecom supplier NTT Group, has a reputation for consistent performance that could make it a highly successful niche player. With a large presence in Japan, the US, the UK, the Netherlands, Hong Kong, and South Africa, it offers both public and private cloud services out of a single, unified architecture. The company also encourages third parties to provide cloud services on top of its architecture under their own labels.
While Dimension Data offers a VMware-based virtual machine, it does not rely on VMware’s vCloud suite of service management software — instead it produces its own to hold down costs and maintain its own pace of innovation. In doing so, Gartner reports, the company has not been able to keep up with the pace of innovation in the overall market.
Dimension Data has used its NTT parent’s networking capabilities as a differentiator, but almost all cloud providers have been able to match strong networking availability in their data centers at this point. While the company may add differentiators in the future, Gartner concluded, its ability to innovate depends on NTT maintaining a hands-off, non-interference style of ownership.
VMware didn’t appear in the cloud computing Magic Quadrant last year. This year it’s included among the Niche players, thanks to the launch last September of its vCloud Hybrid Service. The service offers a solid set of basic features, is backed globally by the VMware brand, and addresses potential customers who have already accepted VMware as the virtualization provider for the core of the enterprise data center.
However, Gartner analysts cautioned, VMware still needs to appeal to the cloud users in the enterprise, who aren’t necessarily the same managers who lead the transition to virtualization. Rather, they are often business managers and application developers who are interested in moving rapidly toward next-generation applications rather than to those that are already virtualized.
Virtualization managers focus on building a private cloud as an extension of the virtualized data center. Public cloud users in the same enterprise are interested in circumventing them and getting into a self-provisioned, public cloud environment as quickly as possible. "VMware needs to win over these administrators with regard to vCloud Hybrid Service, but it also need to develop a compelling value proposition for developers," the Gartner analysts wrote.
VMware also relies on its extensive channel of third-party system integrators and VARs, such as Indianapolis-based Bluelock, but "none of those service providers attained true scale and they were not able to maintain the level of innovation necessary in this market," Gartner said. To further complicate matters, Gartner continued, VMware is not directly competing with this channel.
VMware is trying to build an ecosystem about vCloud Hybrid Service and has a marketplace of software from various providers, including HP, Hytrust, VCE, and ExtraHop Networks, that’s optimized to work with VHS. But the only software directly available from a catalogue is operating systems and Microsoft SQL Server. The broader channel of VMware partners are still learning how to sell vCloud Hybrid Service, Gartner noted.