Rackspace announced its third-quarter earnings on Monday, and they sent the same message as they did last quarter: Growing a legitimate cloud business in the shadow of Amazon Web Services is hard work.
Here’s a chart I made comparing Amazon and Rackspace cloud earnings for the second quarter, updated to include the third quarter and to include total “other” revenue for Amazon. Rackspace’s cloud revenue rose nearly 37 percent year-over-year to $108.4 million.
Rackspace revenues for both its cloud and dedicated hosting businesses were up during the third quarter, but as a whole they dropped in terms of year-over-year growth and failed to meet analyst expectations. Net income was down nearly 40 percent, although Rackspace CEO Lanham Napier said during the company’s earnings call that’s a product of increased technological investment that should pay off down the road, according to a ZDNet post.
Napier noted the company’s uptick in investment — mostly around improving its OpenStack-based infrastructure and offerings — during an interview with me last July. And, indeed, the company is still spending around $25 million a quarter on what it labels “capitalized software and other projects.” Rackspace also spent about $12.4 million building out data centers during the third quarter and $6.7 million building new offices.
Rackspace might never compete with AWS in terms of sheer user count or revenues — in fact, it looks nearly impossible that will happen — but AWS isn’t the only cloud provider around. Companies like HP and IBM might be more closely targeting the same type of customers as Rackspace is, and I assume they expect their public clouds to be billion-dollar businesses sooner rather than later. Heck, IBM just spent $2 billion on SoftLayer to ensure that happens.