Rackspace Hosting, Inc. Needs to Buy This Company Before Amazon.com Does

With so much data moving the cloud, scale and reliability are more important than ever.

Jun 17, 2014 at 2:11PM

Lots of companies want to manage Big Data. Few have shown the bonafides to handle cascading waves of bits and bytes without folding like a lawn chair. Count Apache Mesos among those occupying this rarefied air.

Mesos is an established, open-source technology for managing and deploying data-crunching applications in a large-scale environment. Or, in English, the cloud. Think of it as akin to an operating system for apps that's skilled at doling out what's needed, where, at precisely the right time.

If that sounds good, it's because large-scale apps are messy. Any software large enough to routinely crunch through terabytes or even petabytes of data needs the aid of not one server but several, a setup commonly known as a cluster. Yet every new server, or node, introduces a point of failure, which is why large-scale cloud apps sometimes go down at exactly the wrong time.

Twitter had that very problem a few years ago. Mesos helped solve it, and now a company called Mesosphere is developing tools to bring the technology to other businesses. A group of investors led by Andreessen Horowitz just poured $10.5 million into the business.

Don't be surprised if there's plenty of interest from both prospects and other investors. Consider these estimates from Cisco Systems' most recent forecast for Internet traffic:

  • By 2018, there will be nearly 4 billion global Internet users (about 52% of the world's population), up from 2.5 billion in 2013.

  • By 2018, there will be 21 billion networked devices and connections globally, up from 12 billion in 2013.

  • Globally, the average fixed broadband connection speed will increase 2.6-fold, from 16 Mbps in 2013 to 42 Mbps by 2018.

  • Globally, IP video will represent 79% of all traffic by 2018, up from 66% in 2013.

Not exactly encouraging, is it? Overcrowded networks will soon be bursting with data. If pattern holds, we'll process a great deal of it via clustered applications that exist in the cloud. Amazon.com (NASDAQ:AMZN) would love that business. So would Rackspace Hosting, Inc. (NYSE:RAX), and more than a few others.

Hosting providers thrive on the idea of helping client manage the deluge via what's known as a "hybrid cloud" environment in which internal company servers share the data processing load with servers that exist in the cloud in a sort of digitized harmony that sounds an awful lot like a ringing cash register. Already, Amazon Web Services handles data for some of the world's largest businesses. Revenue zoomed to at least $3.7 billion last year, up from less than $1 billion in 2010. Rackspace booked $1.53 billion in sales last year, up from $780.6 million in 2010.

Amazing growth for each, to be sure. And yet there's a cost to playing host to so many 1s and 0s. Cloud computers aren't any different than the local kind in that they can only handle so much, even when networked together. For Amazon, Rackspace, and their ilk, there are really only two ways to guard against this sort of eventuality. Either add servers and storage faster than data can pile up -- which, as you might imagine from the Cisco data, isn't likely to work out well -- or use tools for making existing infrastructure vastly more efficient. That's why innovative software and mechanisms for handling cascading waves of data will always be en vogue. Without them, servers fail and Fail Whales surface,

Venture capitalists know this, of course, which is why we're seeing them put money into Mesosphere. It's only a matter of time before the hosting industry catches on, too, kicking off a potential bidding war. This is a race, Rackspace. Don't let Amazon win.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Rackspace Hosting at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Cisco Systems, Rackspace Hosting, and Twitter. It recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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