An aerial view of the massive Digital Realty Data Center Park in Richardson, Texas.

Rackspace Hosting has leased a large chunk of data center space in Richardson, Texas to expand its growing cloud computing operation. On Dec. 29 the company leased 58,200 square feet of data center space at Digital Realty Trust’s huge Datacenter Park – Dallas campus.

Rackspace (RAX) has emerged as one of the leading players in the fast-growing market for cloud computing services. The company added more than 12,000 servers last year to acommodate new cloud customers, leading to a major expansion of Rackspace’s data center infrastructure.

Expansion Option in Dallas

The new facility will provide Rackspace (RAX) with an expansion option in the Dallas market, where it operates one of its largest data centers. The company’s current facility in Grapevine, Texas is also one of its oldest data centers, and was the site of of power outage in 2009 that involved a series of equipment failures.

Rackspace will deploy 29,000 square feet of  raised-floor data center space in Richardson in  the third quarter of 2012, with an identical second phase to follow in 2015, according to an SEC filing. The expansion provides space to house servers for new cloud customers, but could also give Rackspace the option to gradually migrate customers from its Grapevine facility, which began operating in 2000.

The 69-acre Datacenter Park – Dallas is a $488 million project spanning seven buildings with a total of 797,000 square feet. An on-site 40 megawatt substation can be expanded to 125 megawatts, with fiber connectivity from multiple providers.

Strong Leasing for Digital in Dallas

Digital Realty (DLR) has fully leased the first redeveloped building on the campus, and is underway on the second phase of development. Integrated Design Group was recently hired to provide architectural and engineering services for the second building.

With the deal with Digital Realty, Rackspace has continued its practice of leasing “wholesale” data center space to expand its footprint, rather than building its own facilities. In the wholesale data center model, a tenant leases a dedicated, fully-built data center space. This approach is quicker and cheaper than building an entire data center facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.

Rackspace has leased significant amounts of wholesale space from DuPont Fabros Technology (DFT) in both Virginia and Chicago. In Septmber the  company said it will expand its Chicago-area data center, adding 22,500 square feet of raised-floor space to house its servers. The new space in Chicago, which adds about 3.9 megawatts of power capacity, will be deployed between July 2012 and early 2013.

“We are always looking for ways to expand our data center footprint, however, our strategy will remain the same,” Rackspace spokesperson Rachel Ferry told Data Center Knowledge. “We have no plans to build our own data centers, and will continue to lease through third parties.”

So why does the company’s name keep coming up in association with these rumored greenfield builds in Oregon? One possibility: Rackspace may be quietly working with a wholesale provider or developer on a project in Oregon. This approach would allow Rackspace to lease rather than build (consistent with its strategy) and provide the right economics for a developer to pursue new construction of a wholesale or build-to-suit project.

It would also explain the report in The Oregonian that Rackspace has applied to participate in the Oregon Investment Advantage program, which can exempt new companies from Oregon income taxes for as long as a decade.

Rackspace Looking for New, Efficient Space

Rackspace declined any specific comment on the Oregon reports or whether it was scouting sites with a wholesale player, limiting its comments to its broader data center strategy. But the wholesale scenario would fit with comments from Rackspace CEO Lanham Napier during the company’s recent third-quarter earnings call. Napier said the company is looking at new space, and finding a cost-effective location is a priority.

“We are looking at places to where we are going to get a combination of the right climate, a good tax environment, (and) green power in the right infrastructure to deliver good performance for our customers,” said Napier. “We want to combine that with the right wholesale data center partner.”

In the wholesale data center model, a tenant leases a dedicated, fully-built data center space. This approach is quicker and cheaper than building an entire data center facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.

Rackspace has leased significant amounts of data center space with DuPont Fabros Technology (DFT) in both Virginia and Chicago. Another large player in the wholesale space, Digital Realty Trust, recently announced a build-to-suit project in Hillsboro, Oregon in which it will lease data center space to NetApp.

Rackspace Hosting continues to lease data center space, even as it extends its business beyond its own facilities, as seen in this week’s announcement of its Rackspace Cloud: Private Edition. The new private cloud is powered by OpenStack, the open source cloud computing platform organized by Rackspace at last year.

The new offering provides Rackspace with an opportunity to build revenues atop private clouds living in customers’ on-premises data centers or third-party colocation centers operated by companies like Equinix. It also allows Rackspace to leverage its focus on “Fanatical Support” and the growing popularity of the OpenStack platform, which hopes to become the “Linux of the Cloud.” The OpenStack project now has 137 companies participating in its development.

Taking Fanatical Support Beyond the Data Center

“This is a first step to take Fanatical Support outside our data centers,” said Rackspace CEO Lanham Napier. “We believe (private cloud) has the potential to dramatically improve IT operations worldwide. We believe that OpenStack is the de facto open source cloud computing standard.”

Rackspace has published a reference architecture for OpenStack to help ensure compatibility and interoperability in the industry. One of the appeals of OpenStack is that it allows companies to operate standardized clouds housed in several locations, such as hybrid architectures connecting open stack implementations in both public clouds and in-house data centers. This setup provides the control and security enterprises covet, while retaining the ability to scale apps quickly through “cloud bursting” to public clouds.

“The customer maintains more control, with no software license fees or technology lock-in, and they can now rely on one company for public, private, and hybrid cloud management regardless of location,” said Jim Curry, General Manager of Rackspace Cloud Builders.

Opportunities for Partners, Including Equinix

That creates opportunities for providers like Equinix, which was announced as the initial data center partner for customers building and deploying private and hybrid clouds using Rackspace Cloud: Private Edition. OpsCode, RightScale, Cisco and Dell were also among the partners announced by Rackspace. More than 4,000 companies house servers in colocation space operated by Equinix, providing a ready supply of potential users for new offering.

“We have continued to collaborate with Rackspace to make it even easier for customers to deploy OpenStack-powered clouds and ensure the high performance today’s cloud applications require,” said Vince DiMemmo, general manager, global cloud and IT services for Equinix. “Rackspace Cloud: Private Edition represents a tremendous advancement in OpenStack capability and Equinix is pleased to be a data center partner to further increase cloud deployment velocity, enhance flexibility, and advance infrastructure integration capabilities.”

Rackspace Cloud Keeps Growing

Rackspace will help enterprises run private clouds in production, relying on its knowledge of OpenStack and experience operating one of the world’s largest clouds. That cloud continues to grow, as rack space added more than 4,700 servers in the third quarter of 2011, now runs nearly 79,000 servers across its infrastructure.

“We’re reaching a scale that few companies ever reach,” said Napier. “We’re in a perpetual state of expansion, and we are constantly looking at new space.”

Napier says Rackspace will continue to lease turn-key wholesale data center space, a strategy which has helped it quickly expand its cloud footprint in Northern Virginia and Chicago, where it has leased finished space in data centers built by DuPont Fabros Technology. “Our intention is that we will be leasing space,” said Napier. “It better aligns the spending to the revenue. That is going to be core to our strategy going forward.”

The Oregonian says Rackspace is sizing up potential sites in Prineville and the Port of Morrow, citing “a person familiar with the project” who said Rackspace was halfway through a six-month option to purchase 100 acres at the Port of Morrow. Economic development officials in both areas have been actively courting data center projects.

“Rackspace is constantly looking for the best ways to expand our Data Center footprint and exploring options,” company spokeswoman Rachel Ferry told The Oregonian. “At this point, we don’t have anything to report on that front.”

UPDATE: In our initial story we raised the possibility that Rackspace might be considering a “greenfield” data center construction project , since the initial projects in both Prineville and the Port of Morrow have been single-user data centers, rather than multi-user wholesale facilities. In recent years, Rackspace has leased plug-n-play wholesale data center space to house its fast-growing cloud computing operation. Rackspace has since clarified that it plans no change in that strategy.

“We have no plans to build our own data centers, and will continue to lease through third parties,” said Ferry. “We are always looking for ways to expand our DC footprint, however, our strategy will remain the same.”

The San Antonio company has leased space from DuPont Fabros Technology in Ashburn, Virginia and Elk Grove Village, Illinois. In the wholesale data center business, providers supply customers with turn-key suites of finished data center space. Leasing space can bring new capacity online more quickly than new construction, and requires less capital.

A Fast-Growing Cloud

Rackspace has added more than 12,000 new customer servers over the past year, with most of that hardware supporting the company’s cloud computing operation. Last month the company said it will expand its Chicago-area data center, adding 22,500 square feet of raised-floor space to house its servers, with an option to add even more space if its growth continues.The new space in Chicago, which adds about 3.9 megawatts of power capacity, will be deployed between July 2012 and early 2013.

If Rackspace is ready to expand its data center footprint, it will have access to capital. Rackspace has just finalized a $200 million credit line with a group of major banks including JPMorgan Chase, Wells Fargo, Barclays and Regions Bank. The credit line was included in a Rackspace SEC filing last week.

A look at finished data center space inside the DuPont Fabros CH1 data center in Elk Grove Village, Ill., where Rackspace Hosting has leased additional space.

Rackspace Hosting continues to gobble up data center space to house its fast-growing cloud computing operation. Rackspace will expand its Chicago-area data center, adding 22,500 square feet of raised-floor space to house its servers, with an option to add even more space if its growth continues.

Last week Rackspace amended its lease to take additional space in a data center in Elk Grove Village, Ill. operated by DuPont Fabros Technology.

Rackspace is one of two major tenants at the facility to announce expansions last week, as ServerCentral said that it will add another 20,000 square feet of space. The lease announcements are good news for  DuPont Fabros (DFT), and also underscore continuing demand for data center space in the Chicago suburbs, following last week’s unveiling of Comcast as the new anchor tenant in the Ascent CH2 facility in Northlake.

12,000 Servers in 12 Months

Rackspace has added more than 12,000 new customer servers over the past year, with most of that hardware supporting the company’s cloud computing operation. The new space in Chicago, which adds about 3.9 megawatts of power capacity, will be deployed between July 2012 and early 2013.

Rackspace estimated its financial obligation for the latest data center expansion would be between $125 million and $135 million over the 15-year term of the lease.

The second phase of DuPont Fabros’ CH1 data center is now 71 percent leased. The building is scheduled to open in the first quarter of 2012.

ServerCentral Keeps Growing

Meanwhile, ServerCentral  announced plans to add more than 3 megawatts of critical load and 20,000 square feet to its existing data center space in phase II at Elk Grove Village. The ServerCentral expansion was included in leases announced by DuPont Fabros with its second quarter earnings, but the tenant was not identified at that time.

The first phase of the ServerCentral expansion will add 2,000 square feet of high-density space for customers immediately, offering a power and cooling density of over 360 watts per square foot. The second and larger phase of ServerCentral’s additional build-out is scheduled for availability in the first quarter of 2012.

“We’ve enjoyed tremendous success with our data center at the DuPont Fabros facility, and we’re excited to offer our customers a roadmap for continued high-density colocation and cloud growth,” said Jordan Lowe, ServerCentral Co-founder and CEO.

Third Expansion Since 2009

This will be the third time that ServerCentral has increased its floor space within the facility since 2009. When complete, this will bring their total footprint to over 40,000 square feet and more than 5.5 megawatts of critical load by early 2012.

“ServerCentral’s continued expansion in our Elk Grove facility further strengthens our relationship and demonstrates the great success that ServerCentral has experienced with its own customers,” said Hossein Fateh, President and Chief Executive Officer of DuPont Fabros Technology, Inc.

Rackspace Offers Hands-on Training for OpenStack – Rackspace Hosting today announced the availability of professional training for OpenStack, delivered by Rackspace Cloud Builders. OpenStack is an open source cloud operating system that is quickly becoming the industry standard for public and private clouds. Hands-on training courses for OpenStack developers and administrators will cover the fundamentals of setting up, administering and troubleshooting OpenStack clouds via real-world situations in a training lab environment. The initial five-day training course, Fundamentals Training for OpenStack, will be offered in Boston before the OpenStack Design Summit, at the Rackspace campus in London, and at the Dell campus in Austin, with additional dates and locations to be announced.

iMemories Selects Phoenix NAP – Phoenix NAP announced today that iMemories, a website for digitizing, storing and sharing personal videos and photos, has selected the Phoenix NAP facility to support its growing technology infrastructure needs. “We are excited to expand our U.S. data center capacity by fully leveraging Phoenix NAP’s modern facility and advanced capabilities,” said Mark Rukavina, Founder and CEO of iMemories. The photo service will offer cloud-based storage and sharing of personal videos and photos through Internet, mobile devices and Web-connected TVs out of the Phoenix NAP location.

Datapipe Facilities Complete SSAE 16 Audits – Managed services provider Datapipe announced today that its San Jose, Calif. and Somerset One and Somerset Two, N.J. facilities have completed SSAE 16 audits. The Statement on Standards for Attestation Engagements (SSAE) No. 16 was finalized by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) in January 2010 and became effective on June 15, 2011.”Our clients trust us to manage their mission-critical information and ensure a compliance record that consistently reaffirms the continual security and integrity of their organization,” said Joel Friedman, Chief Security Officer for Datapipe. “Successfully completing the SSAE16 audit in all of our U.S. facilities enables our clients to meet new standards of control governing financial reporting.”

The impressive growth trend for revenue-per-square-foot of data center space at Rackspace Hosting.

Rackspace Hosting is making more money from each square foot of data center space with every successive quarter. And now it’s beginning to add capacity to further scale up its revenue.

In its second quarter earnings, Rackspace reported that it is now making $5,195 in net revenue per square foot. The gain continues an upward trend that has seen Rackspace improve its profitability each quarter since mid-2009, when it was making approximately $3,600 per square foot.

Cloud Economics Driven By Utilization

The data continues to bear out Rackspace’s belief that cloud computing can be more profitable than the company’s managed hosting business. It all comes down to utilization – how efficiently the provider can use its server hardware and data center space. While managed hosting customers typically use dedicated servers, Rackspace can pack many cloud computing customers onto one physical piece of hardware.

Rackspace (RAX) continues to offer the best window into the economics of cloud computing. Unlike its primary rival, Amazon Web Services, Rackspace provides detailed reporting on its cloud operations.

Rackspace increased its revenue efficiency in the second quarter, even as it added 17,000 square feet of raised floor technical space. The company’s data center expansion will gain speed in coming quarters, as shown in Rackspace’s spending on capital expenditures (CapEx). Rackspace spent $17.5 million on data center constructon in the second quarter, a bump up from the $6 million to $10 million range seen in each of the previous four quarters.

Growth in London Market

Rackspace interim CFO Karl Pichler said the increased CapEx was due to the buildout of the final stage of the company’s London-area data center, as well as its ongoing consolidation in its San Antonio headquarters. “We expect to complete the London data center buildout, as well as the current phase of our headquarters consolidation project by the end of the year,” said Pichler.

CEO Lanham Napier said the expansion is designed to ensure that Rackspace doesn’t lose revenue opportunities by running out of data center capacity. Napier said Rackspace needs to be ready for bursts of growth due to growing demand for its cloud computing business.

“As we look at the product launches we’ve had and the growth that we’re experiencing, we are making investments on (data center space) and trying to provide ourselves some operating wiggle room in the event of a growth spike,”said Napier. “We’re talking about adding thousands of servers here on a quarterly basis. The last thing we want to do right now while we are experiencing rapid adoption into the cloud is to have capacity constraints at the basic compute level.”

A Global Cloud Opportunity

Naper said some of that growth will be international. “We believe that this is a global opportunity for our company,” he said. “We feel pull from customers to go into new geographies. We will start a product launch in the U.S., get down the experience curve a bit, do some learning and then roll it into new marketplaces.”

How big is the upside for cloud computing? Rackspace believes it is huge.

“We believe the cloud computing era represents the biggest market opportunity in all of technology, one that could represent a multi-billion dollar revenue stream for Rackspace,” said Napier. “We’ve only just begun to tap into that opportunity. While the overall size of the market opportunity for Rackspace is difficult to precisely calculate, we know that it is massive and growing rapidly.”

“We believe that OpenStack is rapidly becoming the de facto open source standard for cloud computing,” said Rackspace CEO Lanham Napier. “It’s in our interest as a company to have a ubiquitous standard for the cloud. With standards-based computing, Rackspace can build services and provide Fanatical Support around that to capture opportunity and create revenue.”

Analysts Focused on OpenStack Strategy
OpenStack was a hot topic Thursday during Rackspace’s quarterly conference call with securities analysts. OpenStack was founded in July 2010 by NASA and Rackspace, which later announced the formation of a Cloud Builders service to provide paid support for companies deploying the free software, following a model developed in the Linux ecosystem by companies like Red Hat.

“I believe OpenStack is gaining traction at a high rate,” said Napier. “As OpenStack becomes an accepted standard, we have a tremendous opportunity. I would say the revenue is a mid to long-term opportunity. But as we have conversations about OpenStack with CIOs figuring out what their long-term architecture ought to be, it’s a wonderful chance for us to talk to them about the portfolio we already offer. What OpenStack is doing with our thought leadership there is opening the door for us to have some really cool conversations with customers and prospects, and earn additional business from them today.”

Rackspace (RAX)  is currently shifting its entire cloud hosting infrastructure to OpenStack, which Napier says will position the company to see benefits from the platform both in its own data centers and customer facilities.

“As we roll out our cloud on OpenStack, we’ll be the largest OpenStack cloud in existence,” Napier said. “This creates a natural opportunity for us to sell services around every other OpenStack cloud that is developed out there.  And that is a wonderful thing for our business model.

Revenue Benefits Seen as Long-Term
“When people deploy an OpenStack cloud on their gear inside of their own corporate data centers and then we provide support, we are now creating services and value and capturing that service margin, all on top of the customer’s capital,” he added. “So in the long run, providing services on OpenStack inside of customers’ data centers is another boost in our business model. But we don’t want to point to that as a near-term revenue impact.”

Because OpenStack is open source software, other companies can pursue similar opportunities. Dell recently deployed its own OpenStack-powered Infrastructure as a service platform. Some of the developers involved in NASA’s cloud effort have recently launched startups Nebula and Piston Cloud Computing to pursue business opportunities with OpenStack technology.

Napier said Rackspace isn’t overly concerned about competition, due to its knowledge of the product, experience with deploying OpenStack, and expertise in customer service.

“Is there anything to prevent Rackspace look-alikes or me-toos out there to try to build the next Rackspace on OpenStack? From a technology point of view, OpenStack is available to everybody, including our competitors, so they can certainly try to do that,” Napier sad. “I think it will be difficult for them to compete with us because we bring these advantages. So we like our chances there.”

Rackspace Virtual Desktop Platform

Rackspace (RAX) announced the availability of the Rackspace hosted virtual desktop platform. The hosted virtual desktop platform utilizes Rackspace hosting services and may be paired with desktop virtualization solutions from Citrix and other joint channel partners. The offering enables customers to host their virtual desktops on their choice of dedicated and/or cloud solutions.  Rackspace cites the Gartner expectation that mainstream adoption of virtual desktops to take place in 2012 through 2014, with 70 million users by 2014. Gartner listed Rackspace as a leader in the Magic Quadrant for Cloud Infrastructure as a Service and Web Hosting.

“We’re tapping our vast community of partners and their networks to provide customers with a hosted virtual desktop platform that offers them choices,” said Odus Wittenburg, vice president of enterprise solutions for Rackspace. “Providing Fanatical Support on top of our solutions portfolio produces exceptional business outcomes for our customers and that is what we do best. By working with partners like Citrix and their network of nearly 9,000 partners, we can utilize their exceptional software and application solutions, which is what they do best.””

Kaviza VDI-in-a-Box

Citrix Systems (CTXS) announced they have closed on the acquisition of Kaviza, makers of the all-in-one “VDI-in-a-box” solution for small and medium business. The Kaviza product complements the Citrix XenDesktop product line for enterprise-class desktop virtualization. The VDI-in-a-Box solution is a software virtual appliance that provides quick and easy management, Citrix HDX, and an open architecture supporting multiple hypervisors.

“Kaviza understands the needs of small and medium businesses and has made great strides in giving these types of organizations a simple, low-cost solution for virtual desktops,” said Gordon Payne, senior vice president and general manager, Desktop Division at Citrix. “The Kaviza team and the innovative technology they have built will add significant value to our desktop virtualization product line as more and more SMBs adopt virtual desktops, and it will help us drive continued growth and market leadership in desktop virtualization.”

Cisco Desktop Virtualization Solution

Cisco announced that they won the 2011 Citrix Ready Business Solution of the Year with the Cisco Desktop Virtualization Solution with Citrix XenDesktop. Cisco was chosen for this award based on five selection criteria: Impact on Citrix Systems’ business, commitment to its relationship with Citrix Systems, customer satisfaction, channel and field commitment, and marketing commitment.

Rackspace launches startup program.  Rackspace announced a new program, the Rackspace Startup Program, in which the company will provide cloud computing resources to startups participating in programs with TechStars, 500 Startups, Y Combinator and General Assembly.   Rackspace began as a small entrepreneurial venture itself and will help provide guidance and cloud compute resources to help power these startups to success. In addition to the program, Rackspace also announced the availability of the version 2.0 application, Rackspace Cloud 2.0, now available on the iPhone, iPad and iPod Touch. The free download allows system administrators the ability to manage OpenStack clouds and their cloud servers and files from mobile devices and automate processes. “Now that the cloud application is available on more portable devices and has more features, Rackspace is extending fanatical support by bringing ease of use and portability to the cloud,” said Mike Mayo, mobile application developer of the Rackspace Cloud.

Cloud.com launches CloudStack 2.2. CloudStack sponsor  cloud.com announced it has launched CloudStack 2.2, the latest version of its open source cloud computing platform.  Some of the new features include support for Citrix XenServer 5.6 and the Xen Cloud Platform, the ability to manage multiple availability zones geographically dispersed, an improved user interface, and CloudBridge to enable applications to interoperate with other cloud solutions including Amazon EC2 and S3 APIs as well as the upcoming OpenStack API. “With the advancements around usability, scalability and management, CloudStack 2.2 offers enterprises the fastest path to successfully deploying and managing their own infrastructure cloud,” said Cloud.com CEO Sheng Liang. “We continue to benefit from the feedback of our successful large-scale deployment customers and the open source community to further enhance our solution.”

Verizon and SAP partner for cloud based CRM. Verizon (VZ) and SAP America, a subsidiary of SAP AG (SAP) announced that they will jointly deliver the SAP Customer Relationship Management (SAP CRM) rapid-deployment solution to enterprise workers through Verizon’s cloud offering, Computing as a Service (CaaS). Verizon’s CaaS presents a application delivery system comprising integrated delivery centers around the world and is paired with their global IP network. Additionally enterprises can integrate their SAP applications with Verizon’s Mobility platform through the Sybase Unwired Platform to mobilize applications including the Mobile Sales for SAP CRM application. “Verizon and SAP have joined forces to harness the true potential of the cloud by delivering proven enterprise applications that enable workers to enhance their ability to serve clients and to better business outcomes,” said Kerry Bailey, group president, cloud strategy and services for Verizon. “Together, we are opening up a whole new world that allows clients to truly work without boundaries.” The joint company announcement comes a little over a year after Vierzon launched an application management service that offers enterprises end-to-end management of SAP applications and delivery platforms with custom service-level guarantees that extend beyond server and application availability to include transaction and business-process metrics.