When Rackspace bought rival Datapipe this week, it made a move that solidified its position as the number two company in the managed cloud market, and in the process created a bigger company to battle market leader IBM (according to data from Synergy Research).
While the parties didn’t talk price, it had to be a hefty amount of money just based on the numbers. Datapipe has raised a healthy $310 million since launching in 1998. According to a report in TechCrunch, the combined entities will have more than 6,700 employees and an impressive $2.4 billion in revenue.
While getting bigger isn’t always better, in this case it very likely is. The two companies working together will be offering a combined set of services and customers to create a much more powerful organization than either could have generated separately.
This is particularly true because while the two companies run a similar type of business, Datapipe is stronger in the enterprise and government, while Rackspace’s sweet spot is small to medium businesses. The fact that they fill in each other’s business gaps is another plus for the deal.
Of course, there is never a guarantee in these cases that the two companies will blend well, and there’s always a chance they won’t. But, if this comes together, the two could be a much more powerful market force.
As we look at the broader cloud market, it’s hard not to think that perhaps other areas could benefit from a similar combining of forces. If you look at the infrastructure market today, AWS is way, way in front with more than a third of the market. Microsoft has around 10 percent, and everyone else drops back from there.
What would happen if one or two the players in the rear got together? It wouldn’t give them a huge boost in terms of catching AWS, but it could be a big boost to their market share with a quick stroke of the pen. Rackspace didn’t come close to catching IBM with the purchase, but the move does allow it to be much more competitive moving forward.
There is no evidence, of course, that any of these companies are inclined to do this, but even small slices of the cloud market can add up to big dollars. So, combining a couple of those small pieces could end up being good for the bottom line and move a player up the market share standings.
Perhaps it was easier for these two private companies to combine than it would be for cloud infrastructure businesses, which are mostly part of larger public companies, but certainly Rackspace and Datapipe proved this week that sometimes the way to get bigger is to join forces to fight the common enemy ahead of both of you.
Photo: Brad Montgomery on Flickr. Used under CC by 2.0 license.