[cturner]

They commoditise the software and sell the services.

This reduces the risk that a competitor will come along with either (1) a popular vertically integrated solution that locks you out of market share or (2) some arrangement that allows them to dictate terms to you. Further, if a participant does emerge matching one of those patterns, they are organised respond through their established platform.

IBM does something similar with linux, which competes with non-free unix solutions and Windows. Google have done this with android, which reduces the risk of their being held to ransom by Apple.

[tamarindo]

What do you mean by "commoditise the software"? If it's open source, how much of a commodity can it be?

Also, and again I apologize for not understanding your language here, but what do you mean by a "vertically integrated solution"? Could you give an example to illustrate what it would mean for a competitor to do this?

It would be interesting if there is a competing solution on the horizon, the success of which Rackspace is trying to preempt with this offering. I guess time will tell.

[cturner]

When I think of commodity I think of oil, or grains, or pork bellies. A good that is generic and interchangeable, 'fungible'. You're not locked in to a source, you can get it from several sources in a competitive marketplace.

    Also, and again I apologize for not understanding
    your language here, but what do you mean by a
    "vertically integrated solution"? Could you give an
    example to illustrate what it would mean for a
    competitor to do this?

Definitely!

Let's start with an example of vertical integration: Apple has a strategy that involves heavy vertical integration. They sell the hardware and the software and the services. If you want OSX, you have to buy the hardware. More so in the phone space: if you want IOS, you need to buy an iphone. Once you've bought an iphone, you have to buy apps for it through the appstore. Even if you hate one part of the Apple solution, you may be forced to take the good with the bad. Even if you only want one thing, you generally have to get everything. If you want to run something that's not in the app store, too bad.

A scenario where this could happen with cloud services: imagine Amazon came up with a really good payment services platform, and then said that in order to use it, you had to live in their cloud. The market would have to interact with their cloud to get access to the payment services. Rackspace would lose access to the segment of the target market that needed this functionality.

By building a capability on the software side of cloud services, Rackspace will have better options in a situation like the one above:

* They will have a platform that they can build a competing payment services platform.

* It's possible that other groups who want the same outcome will contribute to their platform, strengthening it in lots of small ways to compete against other offerings.

* There may be other developers out there who are skilling up for their own ends, that Rackspace can hire at short notice if it needs to skill up quickly.

* They can start building a library of prior art and patents to use in defence against sniping from one proprietary operators in the cloud space.

In the mid-90s, IBM found themselves in an odd situation. They were offering a desktop and corporate operating system platform, but weren't very good at it because it wasn't their focus. Microsoft were good at OS strategy. So IBM found itself in a situation where it needed to invest heavily in Windows NT to avoid losing ground, and this meant that another company was setting its direction to a large extent.

Since then, IBM has got behind linux in a big way. There's far less risk of agenda-setting coming at them from the linux community. It's a stronger proposition for them to offer their customers, because potential customers don't have to fear IBM trying to lock them in to IBM products because in the way that customers might have been wary about this with AIX or OS/2 (or mainframes).

Imagine if Apple move into cloud services, and then get a patent on something ridiculous, and then use that to hound opponents. That's what they're doing in the phone space.

I think the guys at Rackspace have their heads screwed on. I'm looking forward to seeing a free and open cloud platform emerge.

[tamarindo]

   imagine Amazon came up with a really good payment 
   services platform, and then said that in order to 
   use it, you had to live in their cloud. The market 
   would have to interact with their cloud to get access 
   to the payment services. Rackspace would lose access 
   to the segment of the target market that needed 
   this functionality.

Good example, but I thought the idea with OpenStack is to allow anyone to take this and run with it, customize it as they like and eventually end up with their own platform, potentially distinct from Rackspace's. In your example, Amazon says "in order to use the payment system, you have to live on the Amazon cloud" but I don't see any parallel restrictions in OpenStack, simply because it's open source and can be tailored unpredictably.

It's for this same reason that I question whether the benefits to Rackspace that you pointed out above really are such a sure thing for them. Seems like it could just as easily turn against them if someone else turns their open source solution to better advantage (assuming the open source license permits this).

[cturner]

    Seems like it could just as easily turn against them if
    someone else turns their open source solution to better
    advantage (assuming the open source license permits this).

Sure, but that's their comfort space. They're confident of their skills and economies of scale here, and enthusiastic for this to be the battleground.

My point with the amazon example was partly that if Rackspace found itself needing to build something similar, it has a stronger starting point if it already has a software group. And because the platform is open, they might have a shared interest with another company who has taken on their software to collaborate on new features. Or another party may build an open payment system on top of this open system when they're not even looking, and they benefit from the network effects.

[lsc]

it won't hurt them. the provisioning system isn't the expensive part of becoming a 'cloud' provider.