Rackspace Grows Managed Cloud Business

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The cloud business has often seemed like a race to the bottom in terms of pricing, with Amazon and Google constantly aiming to make cloud computing resources cheaper. It’s a race that Rackspace doesn’t want to win — instead Rackspace is aiming to find a niche in the managed cloud services market. It’s a market that is showing growth.

Rackspace reported its second quarter fiscal 204 earnings on August 11, with Net revenue coming in at $441 million for a 17 percent year-over-year gain. Looking forward, Rackspace provided third quarter guidance for revenue to be in the range of $454 million to $461 million.

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Rackspace’s earnings call comes at a particularly turbulent time for the company. The company had previously announced that it had hired Morgan Stanley on May 15 to evaluate strategic proposals about the future of the company.

“At this point in time, the evaluation is ongoing,” Graham Weston, Chairman of the Board and Chief Executive Officer of Rackspace said during his company’s earnings call. “The Board has not set a timetable for completion of this process and there can be no assurance that any transaction or partnership arrangement will be reached.”

Taylor Rhodes, President of Rackspace noted that for the first time in Rackspace history, the company added more than $20 million of new revenue in a single quarter. Rhodes emphasized that Rackspace’s cloud performance growth occurred in the face of lower pricing from its public cloud rivals at Amazon and Google.

There are a number of reasons why Rackspace executives believe their company is growing, even while pricing is falling.

“We unbundled our pricing to highlight the value of Fanatical Support and allow a more accurate comparison of our offerings to the total cost of an unmanaged cloud,” Rhodes said. “We strengthened our service level agreement and guarantees to further emphasize the differences between Rackspace and the unmanaged cloud.”

Karl Pichler, Chief Financial Officer at Rackspace, admitted that the unbundled pricing model has potential risk as some customer choose to go the do-it-yourself route.

“The way that we structured our pricing, we have unbundled the price tags for the support and then the infrastructure piece,” Pichler said. “So basically, what that does for us, is it creates a filter for companies to really pick when they really need the support and when they can profit from it.”

Pichler noted that Rackspace may lose a little bit of traction on the low-end for customers that just want to consume a do-it-yourself model, but Rackspace is really aiming for the high workloads, growing customer set that it can serve well. 

Rhodes stressed that there is a very different market between what AWS and Google are selling, which is unmanaged cloud, and what Rackspace is selling, which is managed cloud.

“As the cloud market moves from the early adopter to the mainstream phase, more and more companies of every size and technical sophistication level are realizing that there is a lot more to making the cloud produce value than getting seemingly low price per unit hour of compute,” Rhodes said.

Sean Michael Kerner is a senior editor at and InternetNews.com. Follow him on Twitter @TechJournalist