Feeds

Rackspace claws fistful of bucks from Amazon-ruled cutthroat cloud bearpit

Web biz squeezes just $3 extra revenue out of each server

Remote control for virtualized desktops

Rackspace is making less money than before on higher revenues as a vicious cloud market takes a cleaver to what was previously a steady business.

The Texan web-hoster-turned-cloud-provider reported a net income of $16m on revenues of $389m on Monday for its third quarter of 2013, missing analyst expectations on profit but just beating them on revenue.

Net income was down 40 per cent from $27m in the same quarter a year ago. Revenues were up 16 per cent, scrambling over analyst projections of $387.4m. Earnings per share were $0.11, far below analyst estimates of 16 cents.

Rackspace's shares were down 7.22 per cent in after-hours bloodletting trading.

Several key indicators displayed warning signs, with strategically crucial public-cloud revenues inching up nine per cent for the quarter from $99m to $108.4m. The company's traditional dedicated hosting business – and, we reckon, main profit center – crept up a mere 1.5 per cent to $280.2m.

These results stand in stark contrast to cloud rival Amazon Web Services, which booked revenues of $1.011bn in its cloud-containing "other" category last quarter, compared with $892m in the quarter before, representing a 13 per cent climb.

Scale aside, in the hyper-competitive market for cloud computing, growth matters, and for Rackspace to be growing slower than Amazon means it can't take advantage of as great economies of scale when ordering in new hardware, nor can it gain as much insight into how its distributed systems behave under large-scale load.

Marketing costs remained high at $50m as the company continued a messaging splurge it began last quarter, when costs rose to $52m. This also bit into profits, and highlights how the company has been forced to spend big bucks on peddling its "open cloud" vision to punters.

The average monthly revenue per server for the quarter rose to $1,290, up from $1,287 the company was making a year ago. Given the near-30 per cent rise in Rackspace's public cloud business since then, we would expect a far greater rise in revenue-per-server due to the cost-savings afforded by the growth of virtualized multi-tenancy that cloud computing is built on. As this hasn't happened, we surmise the company is having a hard time making its OpenStack-based infrastructure scale cheaply, and that competitive cloud pricing is biting into its lucrative dedicated server revenue.

During the quarter the company grew the number of servers it has under management from 98,884 to 101,967.

Things may change next quarter given the recent launch of the company's beefy "Performance" range of high-memory, solid-state-drive servers, though these could ultimately further add to the company's cost base as well. It may also put its recently acquired Israeli-made ZeroVM technology to work to give it a new storage and compute service, though integration difficulties could make this take several months.

All told, the results stress the new business realities bought about by cloud computing: it's harder to make money, growth is crucial, and profits are being sliced by a competitive market defined by Amazon, whose seemingly endless price cuts put downward pressure on all other providers. ®

Remote control for virtualized desktops

More from The Register

next story
Azure TITSUP caused by INFINITE LOOP
Fat fingered geo-block kept Aussies in the dark
NASA launches new climate model at SC14
75 days of supercomputing later ...
Yahoo! blames! MONSTER! email! OUTAGE! on! CUT! CABLE! bungle!
Weekend woe for BT as telco struggles to restore service
You think the CLOUD's insecure? It's BETTER than UK.GOV's DATA CENTRES
We don't even know where some of them ARE – Maude
DEATH by COMMENTS: WordPress XSS vuln is BIGGEST for YEARS
Trio of XSS turns attackers into admins
Cloud unicorns are extinct so DiData cloud mess was YOUR fault
Applications need to be built to handle TITSUP incidents
BOFH: WHERE did this 'fax-enabled' printer UPGRADE come from?
Don't worry about that cable, it's part of the config
Astro-boffins start opening universe simulation data
Got a supercomputer? Want to simulate a universe? Here you go
prev story

Whitepapers

Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.
Getting started with customer-focused identity management
Learn why identity is a fundamental requirement to digital growth, and how without it there is no way to identify and engage customers in a meaningful way.
10 threats to successful enterprise endpoint backup
10 threats to a successful backup including issues with BYOD, slow backups and ineffective security.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
The Heartbleed Bug: how to protect your business with Symantec
What happens when the next Heartbleed (or worse) comes along, and what can you do to weather another chapter in an all-too-familiar string of debilitating attacks?