How OpenStack Helps Rackspace's Business

As OpenStack continues to gain momentum, how does this translate into business benefits for Rackspace, the cloud hosting provider that helped found the project. In Thiursday's earnings call, Rackspace CEO Lanham Napier discussed how OpenStack will help Rackspace's business.

Rich Miller

August 5, 2011

3 Min Read
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It's been a good year for Open Stack. The open source software for building cloud computing platforms now has 1,200 developers and more than 90 companies contributing code - including HP and Dell. But how does this momentum translate into business benefits for Rackspace, the cloud hosting provider that helped found the project.

"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."

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