Rackspace Hosting is to acquire two companies that will expand and improve its cloud computing services, giving customers more options and incentive to move or expand from dedicated servers to low-cost cloud services.

The overall trend is clear: cloud-based services, because of their cost and ability to scale up and down with use, are attractive to Web 2.0-type firms, start-ups of all sorts and companies with web-facing applications. Amazon's computing and storage cloud-based services are an example of this model.

The move is an about-turn for Rackspace. Just 14 months ago, the companys was warning that customers didn't want virtualised servers and that dedicated hosting was the way forward. And, on the face of it, making it easier for customers to switch from a dedicated server to a cloud service may seem dumb for a company that rents dedicated servers.

One of the companies bought by Rackspace, Jungle Disk, made its name supplying Amazon Simple Storage Service (Amazon S3) with a simple management tool that allows users to essentially treat Amazon S3 as network drive. "It makes the cloud accessible to normal people," John Engate Rackspace's CTO said.

Rackspace said also that it had agreed to buy Slicehost, a virtual server hosting company that uses Xen virtualisation and sells its servers with full root access and reserved amounts of RAM. The cost of the acquisitions weren't disclosed.

Engate said Slicehost services are similar to Amazon Elastic Computer Cloud (Amazon EC2), but he said he believed Slicehost made using a cloud-based services simpler. Slicehost is managing approximately 15,000 virtual instances in its cloud today, he said.

"The cloud really brings a capability that is more dynamic - you can add and remove infrastructure on a more real-time basis," Engate said. Dedicated infrastructure takes time, is costly, and requires a contract, something that isn't required for cloud services, he said.

Although cloud services may appear as an attractive alternative to dedicated hosting, there will still be plenty of business for dedicated systems. Jonathan Eunice, an analyst at Illuminata, said companies that had invested millions of dollars in ERP systems, for instance, and which run applications that have to meet legal compliance rules, will likely remain in corporate data centres.

Eunice said that as a general rule customers had to have a great deal of confidence in cloud providers. "They may not go down that often, but when they go down they take out everyone," Eunice said.
But the price of cloud computing is a strong selling point. Eunice cited his own experience with Amazon's storage service to illustrate how economically compelling cloud-based services can be. His firm recently moved over what he described as 15 years worth of graphics files to Amazon's service and is paying about of about 14 cents a month to store them.