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10/22/2008
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Rackspace Buys Two Cloud Computing Firms For $11.5 Million

The hosted computing services company acquires Slicehost and Jungle Disk to compete head-on with Amazon Web Services.

Rackspace, a provider of hosted computing services, is using two acquisitions to gain a bigger presence in the emerging market for cloud computing. It sees Amazon's Web Services, perhaps the biggest name in cloud computing, as its top competitor.

Rackspace announced Wednesday that it's acquired Slicehost, a provider of hosted virtual servers, and Jungle Disk, a provider of online storage, for a combined $11.5 million.

Rackspace manages more than 40,000 dedicated servers for businesses in its data centers in a traditional hosting model. It went public earlier this year, and for its second quarter ended June 30, reported net income of $4.2 million on revenue of $130.8 million, with revenue up 58% over the comparable quarter last year.

It sees Slicehost as paving its way into the new area of cloud computing dominated by Amazon's Web Services, in which customers share processing capacity through the use of virtualized servers and can scale up or down computing resources based on need.

Slicehost, with only about a dozen employees, hosts 40,000 virtual servers, or "slices," for customers. Each has chosen a slice of computing power, memory, storage, and bandwidth based on a monthly fee. For example, Slicehost offers a 1-GB server "slice" with 400 GB of bandwidth for $70 a month, while an 8-GB slice with 2,000 GB of bandwidth is priced at $450 a month. Slicehost will be sold through a new division called Cloud Servers; Rackspace plans to expand the business globally through data centers it has in Hong Kong and London.

Customers that have used Rackspace's traditional hosting service but aren't using their servers to full capacity may want to switch to Cloud Servers' Slicehost, said Rackspace CTO John Engates. But for some systems that require high performance and security, such as certain databases, customers may feel more comfortable sticking with Rackspace's traditional offerings, he said.

"Rackspace has the opportunity to combine the best of both worlds, bringing cloud and traditional hosting together," Engates said. He added that Cloud Servers is a "very compelling offering for people who might otherwise be an Amazon EC2 user."

Rackspace has had a small presence in cloud computing with a division called Mosso. That's being renamed Cloud Sites and provides a hosted server platform for Web-based businesses that pay for capacity based on Web site traffic spikes.

Rackspace also renamed its CloudFS online storage service Cloud Files. That service offers replicated storage starting at 15 cents a gigabyte. The acquired Jungle Disk company, which provides consumers and businesses with online storage, will fall within this division.

Jungle Disk currently uses Amazon S3 to store files for customers. It will continue to use that storage infrastructure and will expand to Cloud Files in coming months, Engates said.

Through a partnership with Limelight Networks, Rackspace is planning another new service for online content delivery and one for hosted e-mail archiving through a partnership with Sonian Networks.

Slicehost, Jungle Disk, Limelight, and Sonian ... these aren't household names in cloud computing services. InformationWeek has identified 20 other such companies along with an independent analysis. Download the report here (registration required).

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