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Rackspace Sees OpenStack Public Cloud Demand Slowing

By Sean Michael Kerner (Send Email)
Posted November 10, 2015

The key to running a profitable cloud business for Rackspace likely doesn't rely on infrastructure but rather on support for multiple cloud infrastructures, including OpenStack.

Rackspace reported its third quarter fiscal 2015 results on November 9, with revenue coming in at $509 million, for a 10.7 percent year-over-year gain. Net income was reported at $36.5 million, up from the $25.7 million OpenStack - Roundedreported in the third quarter of 2014.

Taylor Rhodes, President and CEO of Rackspace, credited part of his company's positive third quarter results to higher growth in Rackspace's public cloud business. Rhodes noted that the public cloud customer based is loyal and there is little customer churn.

"We also experienced increased usage due to normal seasonality as our e-commerce customers ramped up for their busiest season," Rhodes said.

Rackspace's public cloud is powered by the OpenStack open-source cloud platform that Rackspace helped to create with NASA. While Rackspace continues to invest in and support OpenStack, it also now provides support for other cloud platforms, including rival Amazon Web Services (AWS).

Rackspace first announced its support of AWS in October, providing several tiers of managed cloud support.

"We've been pleased by our progress in the first month since our launch of Fanatical Support on AWS," Rhodes said. "A large majority of the customers are new customers to Rackspace."

Rhodes added there are also established Rackspace customers that are now bringing incremental AWS workloads back to Rackspace for management. While AWS support is a key part of the Rackspace's growth strategy, it is still very focused on OpenStack for the long term.

"We see that the OpenStack public cloud appeals to customers who value open technologies and who are concerned about long-term vendor lock-in," Rhodes said.

Competition Hampers Growth Rate for OpenStack Public Cloud 

That said, Rhodes admitted the growth rate for Rackspace's OpenStack public cloud has slowed over the past year.

"We expect it to continue to grow albeit at a slower rate than in the past, because of the appeal of other public clouds," Rhodes said. " Many customers prefer AWS or Azure as their public cloud platform, which presents us with the opportunity to add value by managing those clouds for them as part of a comprehensive multi-cloud strategy."

Managed Cloud Strategy Stays the Course

Rhodes said it's likely the market for OpenStack will shift towards large, private and hybrid cloud environments, which will be a good source of future growth for Rackspace. Overall, Rhodes emphasized that Rackspace's strategy around managed cloud has not changed.

"We see managed cloud as being the path that most enterprises and mainstream companies will take as they come out of their corporate data centers," Rhodes said. "They'll look for multiple types of infrastructure to include AWS and Azure. They'll look for private clouds in addition to public clouds, and they want someone with credibility around SLAs and service to manage them."

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

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