DellSpace: Should Dell buy Rackspace?

After a relatively lackluster Rackspace IPO on Friday, it would seem that Rackspace is in a rather difficult spot. The RAX stock is trading at a fairly inexpensive $10.01 a share as of the end of Friday with a market capitalization of $1.02 billion. There has been a growing buzz in the cloud computing community that Rackspace with their large corporate hosting customer base may make for an ideal acquisition by a hardware vendor looking to adjust for the coming shift toward internet centric computing, aka cloud computing.

So who? One potential suitor may be Dell, located just down the road in Austin. A Dell + Rackspace (Dellspace) merger / acquisition would be a perfect match for a number of reasons. A long history, Dell is already a Rackspace hardware partner, and prominently displayed on the Rackspace homepage, so there is an existing relationship. On the Dell side, they recently stated they plan on getting into cloud computing in a big way, which for the most part hasn't resulted in anything tangible other then a professional services play and trademark fiasco.

There are a variety of competitive pressures on Dell. Companies such as Apple, HP and IBM are all in the midst of rolling out their own cloud computing offerings. There is a rumor that IBM is looking to open up its internal Research Compute Cloud to the public as an Amazon EC2 service clone possibly by the end of the year. Dell is now under pressure to compete in areas such as hosted cloud infrastructure, platform services as well as professional services. All are areas that Apple, HP & IBM have done a good job at establishing themselves in or at the very least the have a visible head start.

In order for Dell to continue to be competitive they will need to adjust for the shift towards a future where they may not be able to only count on selling hardware, but providing computing resources through a variety of hosted "as a services" offerings. Rackspace is the perfect enabler of this network enabled future. Simply put, Dell needs to look and act more like Apple and I think they are beginning to realize this fact of modern IT life.

I should also note that other obvious Rackspace suitors may include Cisco or even Sun, but that's a conversation for another day.

(In full disclosure, I own neither Dell nor Rackspace stock, but am friendly with both firms.)