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Summary:

With its OpenStack-based cloud coming online, Rackspace CEO Lanham Napier says the company can take on Amazon Web Services for the biggest of big accounts, provided those accounts want the sort of value-add service Rackspace provides.

Rackspace CEO Lanham Napier.

OpenStack gives Rackspace the scale it needs to attack the biggest of big public and private cloud customers, according to CEO Lanham Napier. Now it just needs to snag a few of those customers.

The need for big reference accounts for the OpenStack-powered Rackspace cloud, was a recurrent theme on the company’s third quarter earnings call Tuesday night and in a subsequent phone interview I conducted with Napier. For the quarter, the company reported $27.2 million, or 19 cents per share, in profit — up from $20 million (14 cents per share) from the year-ago period. Overall revenue grew 27 percent to $336 million.

Asked if Rackspace can win huge accounts from Amazon Web Services, the leader in public cloud, Napier said yes — at some point:

“Is there an opportunity to have some competitive wins there? Yes, think there is … we are working hard on it. We’re having some great conversations. We just don’t have that final win on a silver platter to talk about right now.

Napier added that the various pieces of Rackspace’s OpenStack public cloud just started to come online in August — “admittedly, later than expected”.

But, he added, those customers must be companies that value the sorts of services that Rackspace provides above and beyond the raw technology — reiterating a message he stressed earlier this year.

Netflix is a marquee Amazon customer and one that competes with Amazon’s streamed video services. It’s clear that Rackspace would love to attract those sorts of customers.

Asked specifically if Rackspace was talking to Netflix, Napier said he personally was not but that Rackspace would be a good home for them “if they value the sort of services we provide… Amazon is in the scale game, we’re in the service game”.

But, to be clear, he thinks Rackspace can now handle AWS-type scale. Rackspace customers, he said, have already built more than a million instances on the new platform which has handled more than 120 million API calls since its alpha phase.  And, he noted, “the platform has delivered its targeted uptime SLA [service level agreement.”

On the conference call, he made his pitch:

“We’re running the largest open cloud in the world. This should all translate into Rackspace earning their trust to run more complicated workloads. In the question you referenced, Netflix and potentially paying millions of dollars a month. The analog there being: ‘does our new service set position us for that type of workload? ‘I think the answer is ‘yes’. Have we won any of those yet? No, sir, we haven’t; but we are in conversations with them. I think this is a traditional enterprise sales cycle with some of the stuff. These customers are testing us today, okay, but we don’t have that big reference win to tell everybody on the call about yet, but we are focused on it.”

But Amazon is just one, albeit the largest, of a growing number of cloud competitors. Rackspace will also have to contend with more mature open-source cloud technologies from Eucalyptus, CloudStack, and OpenNebula. And, that’s not even counting other OpenStack clouds from HP, Cloudscaling, Internap, Red Hat and others. In addition, with VMware — an original target of OpenStack — in the fold, there’s likely to be some competition there as well.

The good news, Napier said, is that Rackspace, by putting OpenStack into a foundation led by multiple companies, enabled the growth of a vibrant OpenStack ecosystem. The bad news is: “We created competitors to our OpenStack cloud but I have faith in our ability to out-serve the rest.”

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  1. I’ve thought this has always been a challenge for Rackspace and their Cloud. They are about “Fanatical” service vs. scale. When you are Netflix and you write cloud management code that rivals Openstack in some instances how much value is there in service vs. scale. It’s going to be a tough sale because Amazon is a known quantity for large services.

    Another challenge Rackspace has is recovering from their own reliability issues they’ve had in their datacenters albeit a it’s been a couple of years since a major outage. I believe it’s still in the back of some customers minds.

    Rackspace did at one time host a much smaller Youtube so, they know how to serve large customers but that was in a hosted model vs. a cloud model. I’m certain RAX will pick up a big customer but who I couldn’t guess.

    1. I’m confused… RAX outages? Wasn’t their last one due to a truck driving into a data center in 2007? And at least every blog in the hemisphere was publishing updates being released by them until the problem was solved. I gave them big points of such openness that you don’t see elsewhere.
      I’m not a RAX fanboy…but I must say the only company with high profile outages recently has been Amazon. The last one lasting 3 days for some of their larger customers…to me scale means nothing at that point. Outages can happen…it’s the nature of the business, and you do all you possibly can to avoid them; however, 3 days is unacceptable in anyone’s book.

  2. I’ve thought this has always been a challenge for Rackspace and their Cloud. They are about “Fanatical” service vs. scale. When you are Netflix and you write cloud management code that rivals Openstack in some instances how much value is there in service vs. scale. It’s going to be a tough sale because Amazon is a known quantity for large services.

    Another challenge Rackspace has is recovering from their own reliability issues they’ve had in their datacenters albeit a it’s been a couple of years since a major outage. I believe it’s still in the back of some customers minds.

    Rackspace did at one time host a much smaller Youtube so, they know how to serve large customers but that was in a hosted model vs. a cloud model. I’m certain RAX will pick up a big customer but who I couldn’t guess.

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