Rackspace (NYSE:RAX) CEO Lanham Napier said the company will soon launch so-called managed cloud services. In a nutshell, Rackspace is looking to bring managed service levels to its cloud customers.
Napier briefly outlined the move on Rackspace’s third quarter earnings conference call. Rackspace delivered a solid quarter overall with earnings of $11.8 million, or 9 cents a share, on revenue of $199.7 million. Wall Street was looking for earnings of 9 cents a share on $197.5 million.
Company executives outlined a few key trends. Among them:
- Enterprise demand was picking up for Rackspace as it grabs more wallet share.
- The company’s launch of cloud services for Microsoft Windows has fueled demand.
- Napier noted that Rackspace isn’t seeing any effects from Amazon Web Services and its recently announced free tier. In any case, Rackspace is looking to move upstream in cloud services and leave commodity infrastructure to Amazon.
But the more notable item is what’s next. Napier talked a lot about hybrid cloud deployments and how Rackspace could blend its cloud service with its hosting business. Enter managed cloud services. Napier explained:
Another new capability that we are reading for launch is one that we call Managed Cloud. This new production extends our support to Cloud customers. The Managed service level in Cloud is designed it help ensure performance through monitoring, support for the operating system and application infrastructure, as well as provide technical guidance.
In addition to Managed service level in Cloud, we are also nearing completion of our Hybrid hosting product. Hybrid will enable customers to run a managed environment of dedicate and Cloud infrastructure solutions. For example, a high performance database running on dedicated gear with a link to Cloud service to handle peak load spikes or unpredictable traffic.
As the market becomes more familiar with cloud technologies, we believe that nearly all businesses will use a mix of both dedicated and cloud platforms. And we believe Hybrid will become one of our largest differentiators in the market.
Napier added that launch details will be released shortly. Managed cloud services are now in beta with select customers.
The melding of cloud and hosting makes sense for Rackspace. In the third quarter, managed hosting revenue was $173 million, up 18 percent from a year ago. Cloud revenue for the quarter was $27 million, up 75 percent from a year ago. Bringing the attributes of hosting and cloud services together could bring in more enterprise dollars.
Napier also talked about Amazon Web Services and the plan to avoid commodity services.
In terms of the competitive landscape, yes, there is certainly an announcement here from Amazon Web Services about offering a free development tier, which is really a micro-slice for free for a period of time for developer customers. Up to — it’s early in the game. Up to this we would say we have had no impact — that has had no impact on us, and that what is happening here is really the market is starting to more clearly identify the different segments. So Amazon has done a great job, and the offerings they have out there are really a do-it-yourself offering. So it’s about providing customers access to their infrastructure, and then the responsibility on customers to make the work happen and make the infrastructure generate the right results is really on the customers’ shoulders.
When we look at our offerings out there, our core customer is going to be a customer that wants a partner, that values service, and is willing to pay for a world-class outcome. So as we look at the new offerings we have, for example, our Managed service layers on Cloud, we will be increasing the price in our offerings.
So what we believe is happening is the market is bifurcating here, and it’s reinforcing the different segments in market opportunities. There will be a segment in the cloud market will people just want access to infrastructure, and it’s going to be a commodity type experience, and Amazon is a great pick there. When we think about it, our core customer is that customer who is going to want to trusted partner, value the service, and be willing to pay a premium for a world-class customer outcome. That’s who we’re targeting.
Indeed, the managed cloud offering is a way to move upstream. Rackspace is looking to add better support to cloud services. For now, Rackspace is garnering cloud customers for a few applications and then upselling more services.