CDN Roundup: Rackspace, Verizon, CloudFront

It’s been a busy week for the content delivery network (CDN) sector, as Amazon’s launch of its CloudFront has been followed by several significant developments that further expand options for CDN customers:

• Verizon (VZ) announced that it has deployed a dedicated peer-to-peer content delivery network on its infrastructure. Verizon will use technology from Velocix that can cache popular content, and then seeds the files from servers within the ISP’s network, reducing network traffic. Verizon’s approach offers interesting decisions for content providers who are currently using Akamai or Limelight but covet Verizon’s FiOS customer base. See additional coverage and analysis at Contentinople and Telecom Ramblings.
• Rackspace’s Mosso unit has launched its CDN, which allows CloudFiles customers to use Limelight Networks to deliver their files. Gartner’s Lydia Leong compared it with Amazon’s new CloudFront CDN: ”Competitively, it seems like Rackspace’s Cloud Files plus Limelight may turn out to be the stronger offering,” Leong writes. “The price of Rackspace/Limelight is slightly higher, but apparently there’s no origin retrieval charge, and Limelight has a broader footprint and therefore probably better global performance.”
• In that same post, Gartner’s Leong also provided an assessment of the impact of Amazon’s CDN. She writes: “Some people will undoubtedly excitedly hype CloudFront as a game-changer. It’s not. It’s certainly yet another step towards having ubiquitous edge delivery of all popular static content, and the prices are attractive at low to moderate volumes, but high-volume customers can and will get steeper discounts from established players with bigger footprints and a richer feature set. It’s a logical move on Amazon’s part, and a useful product that’s going to find a large audience, but it’s not going to majorly shake up the CDN industry, other than to accelerate the doom of small undifferentiated providers who were already well on their way to rolling into the fiery pit of market irrelevance and insolvency.”      

Is Your Cloud New or Pre-Owned?

Rackspace (RAX) says it expects to be able to build its cloud computing infrastructure for less than it originally believed. The financial crisis is likely to make its data center expansion cheaper, allowing the San Antonio company to buy rather than build. There are also advantages available to companies with existing hosting operations that expand into the cloud - like the ability to get more mileage out of server hardware.

Rackspace said Tuesday that “larger use of recycled equipment” was one of the trends allowing it to reduce its capital expenditures for 2008 by $40 million. “The cloud computing operation gives us the ability to reuse servers pulled off the shelf after customers have left us,” said Rackspace CFO Bruce Knooihuizen. “Cloud computing is much more capital efficient, and gives us an avenue to use the older equipment.” 

Rackspace Goes Shopping for Data Centers

Rackspace Hosting (RAX) is reducing its planned capital spending on data centers because it believes it will be able to buy or lease a facility for less than it would cost to build one of its own. CEO Lanham Napier said the company, which has $260 million in cash, is focused on “opportunistic investments.”     

The company is reducing its anticipated capital expenditures estimate for 2008 from $310 million to $270 million. The reduction is due to revised build out plans for its data centers and headquarters and reduced customer equipment spending.

“We are starting to see changes in the data center market where we think we will not have to build a data center next year,” said Rackspace CEO Lanham Napier. “We think there are opportunistic (acquisition) opportunities for data center space.” 

The Rackspace-Limelight CDN Deal

Almost lost in the hubbub around Rackspace’s acquisitionsof Jungledisk and Slicehost last week was an expanded partnership between Rackspace and Limelight Networks (LLNW). Lydia Leong has some details at CloudPundit:

Under the new partnership, customers of Rackspace’s Cloud Files (formerly CloudFS) service — essentially, a competitor to Amazon S3 — will be able to choose to publish and deliver their files via Limelight’s CDN. Essentially, this will place Rackspace/Limelight in direct competition with Amazon’s forthcoming S3 CDN.

Amazon said in September that it would launch a content delivery network that will deliver files stored on Amazon’s S3 storage service.

Roundup: Rackspace’s Cloud Acquisitions

There was some interesting commentary around the blogosphere on Rackspace’s acqusition of Jungledisk and Slicehost to accelerate the rollout of its cloud computing services. Here’s some of the analysis:

• Stacey Higginbotham at GigaOm calls Rackspace’s acquisitions “a move aimed at boosting its Mosso cloud offerings in order to step up competition with Amazon’s Web Services. But whether or not Rackspace can successfully transition from being a hosting provider to a provider of a truly on-demand cloud offering remains to be seen.”
• Does Rackspace want to transition? Not so long as customers are split between the two formats. “Rackspace has the opportunity to combine the best of both worlds, bringing cloud and traditional hosting together,” CTO John Engates tells Information Week. 
• Gartner analyst Lydia Leong says Rackspace’s announcement “signals an intent to be much more aggressive in the cloud space than I think most people were expecting.”
• Jason Kincaid at TechCrunch says the Rackspace expansion is good news for developers. “Amazon has been the dominant force in this space for some time, and competition will only decrease prices and (hopefully) lead to an arms race in features, stability, and performance,” he writes.

Rackspace Acquires JungleDisk, Slicehost

Flush with cash, Rackspace (RAX) has decided to both buy and build as it seeks to expand its beachhead in cloud computing. The San Antonio managed hosting company said today that it has acquired online backup company JungleDisk and developer-focused virtual machine hoster Slicehost to hasten its expansion into the cloud. Rackspace’s combined cost for the two acquisitions is $11.5 million, payable in cash and stock, with a potential earn-out of up to $16.5 million based on performance.

On the build side, Rackspace will rebrand the two cloud services it developed in house, and integrate its new acquisitions and third-party providers into its new suite of cloud offerings under Mosso, its cloud hosting unit. Here’s the details Rackspace announced today:  

• The Hosting Cloud will now become Cloud Sites.
• Mosso’s CloudFS storage service will become Cloud Files and host JungleDisk’s customers (whose files are now stored on Amazon’s S3 service).
• Slicehost’s technology will be used to power Cloud Servers, which will offer on-demand cloud hosting using Xen virtualization software.
• Rackspace will expand its relationships with Sonian Networks, which will provide its cloud mail archiving solutions for customers of MailTrust, the enteprise e-mail unit of Rackspace.
• Rackspace will also expand its relationship with content delivery provider Limelight Networks (LLNW).
• Finally, Rackspace has lined up support for its new offerings from a number of cloud tool companies, including RightScale, CohesiveFT, rPath, SOASTA and Vertica.

“Our new offerings are part of a strategy to bring cloud benefits to all businesses with simple, cost-effective products that everyone can use, backed by the best customer support that only Rackspace can deliver,” said Rackspace CEO Lanham Napier.

Rackspace Draws $150 Million From Credit Line

Managed hosting company Rackspace (RAX) said Friday that it has borrowed an additional $150 million on its revolving line of credit, describing the move as “a prudent measure based on the uncertain economic conditions in the credit and bank markets.”

As a private company, Rackspace built itself into one of the leading brands in managed hosting, with more than 33,000 customers and 2007 revenues of $362 million. Rackspace went public in August in a widely-watched IPO. The company’s shares began trading at $12.50, but soon headed lower and are priced at $6.55 a share this morning.

Rackspace had previously borrowed $50 million on its credit line, which is backed by Comerica Bank, JPMorgan Chase, Wachovia Bank, Bank of America and The Frost National Bank. The company has another $44 million “available and committed” on the credit line.

New Customers Boost Growth at Rackspace

With its focus on support, managed hosting specialist Rackspace (RAX) strives to create “customers for life” that expand their business over time. That formula has worked well in helping the company build revenues of $362 million in 2007. But late last year, as management looked ahead to 2008, Rackspace made a strategic decision to step up its marketing, believing that new customers would be crucial to maintaining revenue growth as the economy slowed.

That decision helped Rackspace report solid growth yesterday in its first earnings report as a public company. The San Antonio company reported second quarter revenue of $130.8 million, up 9.4 percent from the first quarter and 55.7 percent from the same period in 2007. Rackspace raised net proceeds of $144.9 million from its IPO last month.

In yesterday’s conference call with analysts, Rackspace president and CEO Lanham Napier noted the ”challenging macroeconomic environment” but said the company’s stepped-up customer acquisition had paid off.  During the second quarter the company’s customer count grew by 6.1 percent to more than 33,600. 

Rackspace Outlines Asian Expansion

Back in July we wrote about Rackspace’s plans to expand into the Hong Kong market by leasing data center space from PCCW. The facility is the second phase of international expansion for Rackspace, which operates several data centers in the United Kingdom.

Today Rackspace (RAX) is officially announcing the Hong Kong data center and offering additional detail about its Asia/Pacific expansion plans. The company will invest at least $20 million in the new facility, starting with a footprint of about 9,500 square feet, with an option to expand to 18,000 square feet if needed.

“As our customers expand to other regions, they want a partner that will grow with them, and our expansion into Asia is an important step towards meeting our goal of becoming one of the world’s great service companies,” said Lanham Napier, president and CEO, Rackspace Hosting. “Hong Kong has a strong local economy and growing customer demand for hosting, especially in the financial services area, so we look forward to a successful expansion in the Hong Kong market.”

“Obviously (Asia Pacific) is a large market and we wanted to be sure we were able to serve local customers,” said Jim Fagan, Managing Director of Rackspace Asia. “As we’ve been moving upstream with our customer base, they absolutely have a requirement for a global provider. It’s a key requirement for us to be a global company.”

The opening of the Hong Kong a data center followed a two-year process in which Rackspace scouted sites in major markets around the region, including Hong Kong, Singapore, Japan, and Australia. The company already had more than 500 customers from the Asia/Pacific region, who host their equipment in Rackspace data centers in the US and Great Britain.

Rackspace Still Mulling Data Center Options

I got a chance to sit down with Rackspace (RAX) chief technical officer John Engates last week at the Next Generation Data Center conference in San Francisco, where he provided an update on the company’s data center plans. We spoke prior to Rackspace’s IPO, which raised $187 million Friday, some of which will fund additional data centers.

Engates said Rackspace will continue to expand its data center network, but is unlikely to build facilities on the mammoth scale of Microsoft or Google. The company currently operates about 115,000 square feet of data center space - about the size of a single Google data center building. They won’t be in every large market, either.

“Rackspace has never been a company that needs a data center everywhere,” said Engates. “We’re trying to add capacity to meet our growth needs, but we’re not going to have one of these huge distributed networks of data centers.”

The company says it will add another U.S. data center this year, but has not decided on a location, and whether to build from scratch or retrofit an existing facility.

One possibility is to build a data center in the new Rackspace headquarters complex, a 1 million square foot former shopping center in suburban San Antonio. The mall property was affordable, and it would be convenient to have the data center adjacent to the company’s headquarters, Engates said. But the mall wasn’t built with mission-critical facilities in mind, and it would take considerable work to adapt the property for a modern data center.