No, it competes with Linode. Having used both, I found Linode vastly superior in every way. (Currently using Linode for rationalwiki.org. Cheap and reliable.)
Big one: it's possible to send a bloody email from a Linode. Rackspace put all their nodes into the various DNSBLs, and offer email as a separate nickel-and-dimed service.
Littler ones: service and quality of service for little problems. I realise we're buying at the low end, where dealing with a customer at all blows that month's hosting fee, but somehow Linode managed way better tech support and customer service.
Bonus: Linode keep doubling what you get at a price point, with no action beyond a reboot on your part.
So if you want low-end hosting, where you do need to keep your own backups just in case, etc. ... I would heartily recommend Linode to anyone.
FYI since RS bought MailGun, they offer each RS customer 50,000 emails per month via Mailgun (though limited to 4-5 domains).
RS seems to be moving to higher minimum service levels tool -- existing plans are grandfathered, but new users will at least have to select a $50/month minimum support plan.
Of course they do. In the sense that a smartphone app competes with a printed book.
While they are completely different things, for many users in many circumstances they are substitutes.
I worked for a startup that got into the rackspace program and had several thousand $/month free in rackspace services. The same amount of raw power on DO would have cost 200$/month, but a couple of 20$/month DO VMs would have been ample.
And for prototyping you usually don't need anything more sophisticated than a VM (or a free heroku account for that matter ...)
One thing worth keeping in mind: it's no longer possible to purchase "raw infrastructure" on the Rackspace cloud; new accounts only have the option of "Managed Cloud" [1], which includes a service charge (minimum $50/month/account, on top of the hourly rate per server):
> We don't offer raw infrastructure without service. Because it takes more than high-performance, reliable infrastructure to succeed in the cloud. It takes full-featured, optimized platforms, and the expertise to run workloads wherever they'll achieve the highest performance, security, cost efficiency, and scalability.
> That's why we include high-touch service and expertise with every account.
(disclaimer: I interned at Rackspace this past summer)
Full service as in they sell things like accountability, certification, and someone to point a finger at. Smaller companies don't have the resources to do the things Rackspace can, which is why they are able to price their services so high.
People always forget that big companies do business with big companies so that they have someone big enough to sue if a major deal gets soured. (See BP trying to sue everyone related to the oil rig that started the Gulf spill to get money back)