Rackspace is Right to Stay Out of the Cloud Price War

Rackspace have responded to the latest escalation of the price war between Google, Amazon, and Microsoft with exactly the right response.

In an article at The Register, Rackspace very clearly state that they charge “premium prices for premium service” and explicitly differentiate themselves from “commodity providers of cloud infrastructure”.

Rackspace have positioned themselves as a premium provider, not a commodity. As long as customers see value in the premium offering, they’ll be just fine. In fact, as the others all compete for the Highlander prize of “lowest-cost commodity cloud provider” (there can be only one!) they serve to help Rackspace by moving themselves further away from a premium offering.

The important part of a differentiation strategy is to be different. If Rackspace were to cut prices, they’d make themselves look more similar to the others, the exact opposite of what they should do. By staying the course, Rackspace are behaving in complete consistency with their strategy, a strategy that has worked well for them for 15 years.

Cutting prices to match the others, while still attempting to provide premium services, would be business suicide. A price cut from Rackspace would be a far more fundamental change than for someone like Amazon: it would require completely changing their business to align the value provided with the price: low costs. Rackspace are not a low-cost provider.

The only reason Rackspace would want to do that is if the world suddenly stopped wanting premium services from them. This in a world where people happily buy iPhones and Prada and Ferraris and bottled water.

I say good on them.

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