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Rackspace: 'OpenStack opens doors, wallets'

Quarterly sales and profits take to the cloudy skies

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The mania around cloud computing in general and OpenStack in particular helped puff up Rackspace Hosting's latest financial report.

In a conference call with Wall Street analysts after the market tanked closed on Thursday, Rackspace president and CEO Lanham Napier said that the company's Cloud Builders program – which Rackspace started to provide its "fanatical support" for the OpenStack cloud fabric installed on private clouds at corporate clients – has "generated lots of interest" and is involved in some proof of concepts.

It has even generated a little money.

But right now, according to Napier, the important thing is that OpenStack gets Rackspace in the door to talk about private-cloud plans at enterprises of all sizes, and then gives the hoster a chance it might never get to peddle its managed cloud and hosting services. This, said Napier, is one of the factors that drove sales in the second quarter, ended in June.

If Rackspace never makes a penny on direct sales of support for the OpenStack cloud fabric it launched with NASA a year ago, whatever resources it has devoted to the project is money well spent. You can't buy the kind of publicity that OpenStack has generated – or rather you can, but it's very expensive.

During the quarter, Rackspace stacked up $247.2m in revenues, an increase of 32 per cent over the year-ago period and up 7 per cent sequentially from the first quarter. Net income rose almost twice as fast, hitting $17.6m, up 56.8 per cent from Q2 2010.

Sales from cloud-related products are still a relatively small part of Rackspace's business, but they're growing fast and are definitely material. Cloud product sales rose 85 per cent in the quarter, air-kissing $43m, while more traditional managed hosting sales rose by 24.5 per cent to $204.3m. Managed-cloud services, which are the Cadillac of the Rackspace cloud offerings, have tripled since their debut in the first quarter – the average revenue from these customers is twice that from those who settle for more generic cloud offerings.

A year ago, Rackspace had 108,023 customers and 61,784 servers deployed, and over that year the company has grown to 152,578 customers running on 74,028 servers. There were 1.75 customers per server on average at Rackspace in the year-ago period, and this has climbed to 2.06 customers per machine in the past twelve months. Clearly, cloud services, which are on shared infrastructure, allow Rackspace to cram more customers onto fewer boxes, and thereby pump up the profit margins.

Small wonder Rackspace is in love with cloud computing.

Napier said that Rackspace is not going to break out server counts and customer counts based on whether they were cloud or managed hosting customers, but that would be some interesting data to match up against sales.

At the moment, Rackspace is adding employees a little bit more slowly than it is growing revenues, which is one reason profits are growing. Rackspace had 3,712 employees as it ended the quarter, up 23.7 per cent from a year ago.

At the moment, Rackspace operates data centers in its San Antonio, Texas hometown, and also has facilities in London and Slough in the UK, where it launched the Rackspace Cloud service back in January. The UK cloud service now has 5,000 customers, up 2,000 from Q1.

Rackspace has data centers providing hosting services in a number of other US cities, as well as in The Netherlands, Hong Kong, and Australia. The goal, obviously, will be to eventually get cloudy products in all of these facilities, but Rackspace is mum on what the schedule will be. "We feel pull from customers to go into new geographies," Napier said on the call.

Napier said that the Critical Services extension, which provides higher service-level agreements for cloudy infrastructure, would go live this Friday from the London facility, and that the company's coders were cooking up firewall-as-a-service to match up with its Cloud Load Balancer, launched in April and now with 800 customers, as well as cloud block storage and a new unified management console.

Napier also said that Rackspace was on track to move its customers to the OpenStack platform by the end of the year, and is gradually moving over the relevant servers. ®

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