Rackspace Says it's Closing the Gap with Amazon

Written by Alex Williams / November 14, 2009 12:12 AM / 7 Comments

The chief executive of Rackspace says the company has closed the gap with Amazon, gaining significant market share in its cloud computing compared to a year ago.

In an interview with Reuters, Chief Executive Lanham Napier said a year ago Amazon was "incredibly far ahead," of Rackspace in the cloud computing market. But this year he said Rackspace has closed the gap with Amazon's web services business.

Napier did not provide details about the gap nor how much Rackspace has gained on Amazon.

He did say the Rackspace cloud business contributed 10 percent to the company's revenue in the third quarter. Business for cloud computing services has been growing in excess of 100 percent per year. In the second quarter, the Rackspace cloud business grew 17 percent.

The cloud business does have its pitfalls, in particular in respect to the tight margins that come with offering the service. Napier said those tight margins have been offset by its hosting business. Rackspace provides hosting to large enterprises. Cloud computing services are primarily provided to customers for hosting websites and renting servers that can be scaled up and back down at any time.

But can this scenario continue? Competition is only starting in the cloud computing market. Rackspace competes with other cloud computing providers such as Joyent. Microsoft will soon enter the game.

The key will be in how to add margins to the cloud business. Depending on traditional hosting business may get tricky if more of that business goes to the cloud, too.

Amazon seems to be fighting that battle on a daily basis. They continue to add features but have to respond to market pressures with competitive pricing. The company recently announced it was dropping prices for its EC2 service.

Disclosure: Rackspace is a RWW sponsor.

Comments

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Why don't they get into the 'Book Publishing " Industry. It can be very lucrative and as far as I'm concerned, I'm ready to get out of my contract w/ Publishamerica.com...I'm already beyond my 50-50- mark. I want to go w/ Pocketbooks or Tynsdale. Done playing..I've got too much of a following and an awesomely cool book that is geared towards the :young-adult Occult/drug addicted person. Although, I have been told that the reason that my book is doing so well is because it hits all bases, not the demographic that I was aiming towards! It is a story of the 'Prodigal', only VERY graphic and true to life. I am so sick of people that say that they are your friends and then stab you in the back. If you are my friend 'Stab me in the Front'!!!! 'Slave to the Darkness' it has not hit the American Market yet.go to the page..scroll to the bottom and in the search area put the name of the book. Where is the "Honor" anymore?! It seems that everyone turns out to be a Puss in the long run! Have not had a best friend except for Chicvs(that I hav'nt slept with) in 14 years!! Peace

Posted by: Paul Love | November 14, 2009 12:58 AM

Maybe will change in futures!

Posted by: nassy | November 14, 2009 10:55 AM

Rackspace is maybe closing the gap on 10% of AWS.

According to Google Finance page the total revenue for 3 months ending 2009-09-30 was 162.40 million. "Rackspace cloud business contributed 10 percent to the company's revenue in the third quarter" so their cloud business is maybe $16.2 million.
http://www.google.com/finance?q=NYSE:RAX

AWS revenue is estimated to be something like $167 million per quarter. http://cloudscaling.com/blog/cloud-computing/on-second-thought-how-big-is-aws-really.

Posted by: Edward Miller | November 14, 2009 1:18 PM

Rackspace will continue to close the gap. Anyone using Amazon has to consider the fact that you may be feeding the beast that bites you. As they expand into new markets they may just expand into yours.

Posted by: Mark | November 14, 2009 1:59 PM

Thank god it was at 11PM or I would have had some ANGRY clients.. I really hope this isn’t a foreshadowing of downtime to come. Having had dozens of sites on the Mediatemple proto-cloud Grid service I’m pretty used to this.

Cloud downtime is like an earthquake, you can never quite predict it but the smaller ones always linger as fear of a larger one to come. A “foreshock” if you will.

Interestingly enough slices I purchased before the RS acquisition were unaffected. I knew the RS buy would corrupt Slicehost just wondering how long it would take…

Posted by: ink cartridges | November 14, 2009 8:14 PM

Interesting that competition is this close, given Amazon's name-recognition. Of course the market will only get tougher as the Google App Engine gains traction and Microsoft releases the Windows Azure Platform (which the author mentions in this article) later this month.

It's too bad Napier doesn't mention what Rackspace's market share actually is, other than to say it has "closed the gap" with Amazon. In any case, Amazon's recent moves of offering a RDBMS and .NET SDK in EC2 will likely give it another boost to which Rackspace must respond to.

Posted by: JasonM80 (working with M80, representing Microsoft and Windows Azure) | November 15, 2009 7:01 PM

In order to be successful in the medium to long term Cloud providers need to build in resilience now when they can afford it, not when the margins become even thinner.

The outages at Rackspace's Dallas data centre earlier this year demonstrate that the Cloud is still in its infancy.

Posted by: Graham | November 17, 2009 5:21 AM