Today in Cloud

Amazon is due to report quarterly earnings today, and Reuters took the opportunity to speculate that the company’s cloud computing division will soon pass $1Billion in revenue. Amazon, however, is notoriously unwilling to discuss financials for the business unit. We may know that 449 billion objects are stored in Amazon S3, and we may project Amazon’s marketshare as the largest, but when it comes to understanding the margins that the company achieves we’re typically left guessing. Maybe Amazon will surprise us later today, and finally lift the veil a little.

Will Cloud Builders Help or Harm Rackspace’s Reputation?

Rackspace has made a name for itself as a provider of managed hosting services, by being an increasingly strong competitor in the public cloud market and as a key player in the open-source OpenStack project. This week, the company announced its new Cloud Builders business, in which a team can enter other companies’ data centers and install OpenStack for them. But with this move, has the company strategically broadened its portfolio or damagingly muddled its brand?

Established in 1998 as a hosting company, Rackspace entered the cloud storage market with Mosso in 2006. Mosso rebranded as Rackspace Cloud in 2009, and its technology became the current Cloud Files storage solution offered today. The Rackspace Cloud also includes a processing product known as Cloud Servers, based on technology Rackspace acquired with Slicehost in 2008. Figures collected by Onavo CEO Guy Rosen suggest that Rackspace is number two in the cloud-server business, behind Amazon. Those figures also imply that this gap may be closing.

But despite growing revenues, it’s unlikely Rackspace will pass Amazon soon, and perhaps recognizing that, the company joined with NASA and others to establish the open-source OpenStack project. The community behind the project has grown, and now includes over fifty hardware, software and solutions providers, including Canonical, Cisco, Dell and Citrix. Rackspace donated its Cloud Files code to the project, which became OpenStack Object Storage. NASA contributed code — largely sourced from its contractor, Anso — from its Nebula Cloud, which became OpenStack Compute. Together, these products offer an increasingly robust open-source solution for those wanting to build and run clouds.

Lending corporate weight to OpenStack makes sense for Rackspace on a number of fronts:

  • The project sits logically alongside the company’s existing hosting and cloud businesses.
  • The donated Rackspace Cloud Files code is improved and extended through the efforts of Rackspace’s many partners in OpenStack.
  • These enhancements are incorporated back into the commercial Cloud Files product, making it better, too.
  • Developers and users gain familiarity with the Rackspace Cloud Files/OpenStack Object Storage methodology, which gains traction as it is used by Rackspace and every non-Rackspace site to which OpenStack is deployed.
  • Rackspace’s commercial hosting and cloud products become the logical solution for those seeking support and other features not available from a smaller open-source deployment of the code, increasing market share and revenue.

Each of these steps is logical and defensible, and complement the existing products in Rackspace’s portfolio. Despite the company’s acknowledged reputation for “Fanatical Support,” this week’s announcement of Cloud Builders strikes me as a step that is far less clear than those that went before. It is worth noting that my colleague Derrick Harris seems to disagree, writing on Tuesday that “today’s news should be good news both for OpenStack adoption and for Rackspace’s bottom line.”

With Cloud Builders, Rackspace offers three services:

  • Support for those trying to deploy OpenStack on their own hardware, which fits well beside Rackspace’s existing support team.
  • Training and certification for those wishing to design, deploy and maintain OpenStack clouds; it may be possible to align this with Rackspace’s existing support apparatus.
  • Deployment services that will go out to customer sites, design a cloud infrastructure and then plug the requisite hardware and software together to get a new cloud up and running.

It is this final service that competes with the company’s existing businesses, possibly drawing customers away from Rackspace’s established hosting and cloud products. It brings Rackspace inside the data center, into direct competition with solutions providers previously might have recommended Rackspace’s off-site products; those competitors could retaliate in the future by recommending other hosting or cloud providers. Finally, and far more seriously, the announcement about Cloud Builders creates confusion in the market about Rackspace’s intentions. It’s a model that is expensive, labor-intensive and difficult to scale — very different from Rackspace which today operates at scale and with low margins.

Cloud Builders only subtly changes Rackspace today, but it also leaves me uncertain about what the company wants to be tomorrow.

Question of the week

Will Cloud Builders help or harm Rackspace in the long term?