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Rackspace Grows Revenue as Cloud Pricing Races to Bottom

There is money to be made in the cloud, even in an era where the Amazon and Google are in a race to the bottom for pricing. That’s the message coming from Rackspace’s management during the company’s first quarter 2014 earnings call. For the quarter, Rackspace reported net revenue of $421 million, for a 16 […]

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Sean Michael Kerner

May 13, 2014

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There is money to be made in the cloud, even in an era where the Amazon and Google are in a race to the bottom for pricing. That’s the message coming from Rackspace’s management during the company’s first quarter 2014 earnings call.

For the quarter, Rackspace reported net revenue of $421 million, for a 16 percent year-over-year gain. Net income for the quarter was reported at $25 million. Looking forward, Rackspace provides second quarter 2014 guidance for revenue in the range of $434 million to $440 million.

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One of the key competitive challenges facing Rackspace is the continued reduction in pricing from rival cloud vendors Google and Amazon. Graham Weston, Rackspace CEO, noted during his firm’s earnings call that at the end of March, Amazon, Google and Microsoft, sharply cut unit prices for access to cloud infrastructure.

“This attracted a ton of publicity within our industry, but it’s important to remember that this is just the latest iteration of a long-standing trend for those players who sell raw computing capacity, a service that only covers a fraction of the real cost of transitioning, running and scaling on the cloud,” Weston said. “Rackspace’s strategy is to be the leader of the managed cloud category, the higher value alternative to the unmanaged cloud approach.”

Weston added that Rackspace’s business has always been about more than just renting out access to infrastructure.

Taylor Rhodes, President of Rackspace, said during the earnings call that his company’s job is to move the industry conversation beyond unit prices for infrastructure toward total cost and value.

“In the coming months, you will see us getting more aggressive as we educate the market on the important choice between unmanaged cloud and managed cloud,” Taylor said. “Rackspace is extremely proud to be the founder of OpenStack, and we will continue to contribute to and leverage the power of OpenStack in our Managed Cloud model.”

Rhodes noted that Rackspace’s public multi-tenant cloud is built on OpenStack and it is the world’s largest instantiation of an OpenStack public cloud. He added that the ability to leverage the OpenStack community to continue to help Rackspace to develop new capabilities within the public cloud, is one way that it leverages OpenStack.

Rhodes also is not worried about price cuts from Google and Amazon.

“It simply says that they are intent on racing, and racing to the bottom in a very undifferentiated approach, which is to go try to compete primarily for developer-driven decisions with technology and low prices,” Rhodes said. “We will continue to emphasize the alternative that we provide and also, that we have this firm conviction that the further they cut prices, it becomes very difficult for them to try to add more value or expertise on top, even if they want to.”

Sean Michael Kerner is a senior editor at Datamation and InternetNews.com. Follow him on Twitter @TechJournalist