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Rackspace Enters Small Biz Email Race With Buy

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[qi:055] Small- and medium-sized businesses are the hot target markets right now, whether it’s voice and broadband or web services. The biggest opportunity, however, seems to be in hosted email, as Yahoo’s (YHOO) $350 million bet on Zimbra and Google’s (GOOG) Apps initiative demonstrate.

Rackspace, a San Antonio, Tex.-based managed hosting company, today made its own move to tap the opportunity by acquiring eight-year-old of Blacksberg, Va. The purchase price wasn’t disclosed, but I suspect it was a substantial amount of money.

With some 70,000 companies as clients and 600,000 paying business email accounts, expects to have revenues of around $6 million in 2007. It is popular because of its spam protection features, quality service, and a web interface that is both rich and just generally impressive.

Rackspace, meanwhile, is rumored to be in the running for an IPO. Its acquisition of is another way to distinguish itself from being just a hosting company. Lew Moorman, senior vice president of corporate strategy and product development at Rackspace, believes the opportunity for offering email services to small- and medium-sized businesses is wide open, even with competition from Yahoo and Google.

14 Responses to “Rackspace Enters Small Biz Email Race With Buy”

  1. Rackspace is falling into the management trap that thinks it can create revenues by hosting apps on their iron which is not kicking out enough dollars. Unfortunately, their products are not innovative, are poor in handling issues such as heat abatement and cooling and in general, are a commodity, not a technology.

    Instead, they should acquire technologies that improve their market position i.e., better clustered power and cooling.

    Good luck to you email users….

  2. stores its data on Amazons3 and uses some 200 Rackspace servers as database and webservers. I suspect large part of their robustness came largely due to AmazonS3, wonder what’ll happen to that relationship now.

  3. Any time I see a private company (Rackspace) announcing quarterly revenues, I have to also assume that they’re conditioning the market, and an IPO is in the works.

    Better do your acquisitions now when it’s easy.

  4. Om:

    Great post. It seems to me that this opportunity is arising with small and medium sized businesses because the larger players are recognizing that the needs of these entities are still not being fully met.

    Toward this end, I thought you and your readers would be interested to know about the service we launched last week, “Search Free Apps” ( that searches almost 600 hand-picked valuable business services that are available free on the Web. It’s a way for small and medium sized businesses to find the great free services that everyone knows are out there; but often difficult to locate.

    Search Free Apps ( was profiled last week in the Wall Street Journal online.

    Once again, thanks for the great post.

    Bruce Judson
    Founder, Search Free Apps

  5. Are all these companies a threat to Microsoft Outlook? I welcome the new regime. We need better communications. And I hope this continues to the entire unified communications space!

  6. I am disappointed by the acquisition. I have been a user for many years and was a Rackspace customer for many years until there growth took a toll on their service. When it starts to look like the company will be run like Rackspace, I will look for a new email hosting provider for my company.