Rackspace Ramps Up OpenStack Cloud Profits

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Is there money to be made in the cloud?

If you pose that question to cloud hosting vendor Rackspace, the answer is a definitive yes.

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Rackspace reported its fourth quarter and full year fiscal 2012 earnings late Tuesday, showing continued growth in its cloud business. Net revenue for the full year was reported at $1.31 billion, up by 28 percent from the $1.03 billion in 2011. Net Income grew to $105.4 million, up from $76.4 million in 2011.

The biggest change that occurred at Rackspace during 2012 was the company’s shift to using the OpenStack cloud platform as the primary platform for cloud services. Rackspace co-founded the OpenStack effort along with NASA in 2010, but was not using it as the primary cloud platform for its own clients until October of 2012.

“One of the most important projects we completed in 2012 was the launch of our public open cloud as products and services leveraged the features and scalability advantages of the OpenStack software platform,” Lanham Napier, chief executive officer of Rackspace, said during his company’s earnings call.

“Our new open cloud platform was released at the end of October and consisted of seven new products, including Cloud Servers, Cloud Database, Cloud Block Storage, Cloud Networks, Cloud Monitoring, Cloud Backup and a new control panel for managing the elements of the open cloud platform.”

Napier added that the new OpenStack-based product rollout at Rackspace was the largest product investment his company has ever made.

Open vs. Proprietary

Napier stressed that the key value proposition of OpenStack is the fact that it is open. He noted that open has typically won out over closed technology when it comes to infrastructure.

If you recall, the open age started with Linux and Apache,” Napier said. “Both gained market share at the expense of proprietary alternatives.”

In Napier’s view, OpenStack has emerged to become the de facto standard for open cloud software, and furthermore, it will displace proprietary alternatives.

“To date, each of the public and private cloud markets have been largely pioneered by a single vendor, Amazon and VMware, respectively,” Napier said. “Both Amazon and VMware embraced a legacy model of using proprietary technology to lock in their customers.”

Napier said that though Amazon and VMware have had great success in the market, there is strong customer demand for open technologies.

Open Source Competition

Demand for open source cloud technologies is so strong that multiple vendors, including IBM, HP, Dell and Red Hat among others, are all building OpenStack-based cloud solutions. All those vendors are also potential commercial rivals to Rackspace’s cloud business.

“I think it’s good for the ecosystem that these other companies are out there and from a distance, I think they seem to be doing well,” Napier said. “We serve a chunk of the Fortune 1000, but we don’t serve all of them. So I think there’s plenty of room for these other companies to be making traction there as well.”

Napier argued that Rackspace has a significant amount of credibility in the OpenStack space, since his company is both the co-founder of OpenStack and the operator of the world’s largest OpenStack cloud.

“In this ecosystem, there is room for multiple players and it’s going to be a big market,” Napier said. “We want to dominate that niche and segment where people want a fanatical outcome. This is what we think we are uniquely capable of doing.”

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.