Rackspace's grand OpenStack plan: Target Amazon Web Services

Rackspace CEO Lanham Napier said the company is starting with retailers as it tries to make a dent in Amazon Web Services.
Written by Larry Dignan, Contributor

Rackspace reported solid third quarter results, indicated that the OpenStack cloud platform is gaining traction and spent a lot of time setting itself up as an alternative to Amazon Web Services.

The company consists of two businesses---a smaller but fast growing cloud unit and a hosting business that's distinguished by customer support. The cloud unit is closely watched because many analysts think Rackspace can be an alternative to Amazon Web Services (AWS). Amazon's cloud business remains largely a mystery, but is fast growing and a de facto standard.

Rackspace CEO Lanham Napier laid out the Amazon comparison early on the company's third quarter earnings conference call. Napier noted that OpenStack, which is open source, will gain traction as an alternative to AWS as well as VMware. He said:

We have gone all-in on the OpenStack technology because we believe No. 1 it enhances our differentiation and competitive position in the market; No. 2 advances the technical capabilities of our public cloud platform; No. 3, greatly expands our addressable market by allowing us to extend -- on-premise workloads; No. 4, improves the efficiency of our model; and No. 5, enables us to deliver our solutions the way businesses want to consume technology in an open format. Looking at the competitive landscape today, the public and private cloud markets have each been largely led by single vendors, Amazon and VMware, respectively. Amazon capitalized on being first to market in public cloud and has executed extremely well at attracting early adopters and evangelizing the potential public Cloud infrastructure. VMware pioneered the x86 virtualization market and built a multibillion dollar business selling proprietary software to companies building their own small private clouds. However, both Amazon and VMware are pushing the legacy model of using proprietary technology to lock in their customers. We think the world is moving in a different direction.

Napier added that Rackspace is now a viable alternative to AWS and early indications of demand "have been strong."

The follow-up question here is obvious: How is Rackspace going to poach AWS customers?

Napier indicated that Rackspace's grand plan starts with retailers, who may use AWS and then compete with it. He said:

We need to make sure that the CEO of every retail business that uses AWS knows they don't have to continue funding their biggest competitor. We need to make sure the world knows the Rackspace Cloud is here. It's ready and it's open for big applications.

Napier also indicated that Rackspace was already talking to retailers. He said Rackspace was having "great conversations," but doesn't have a big win to talk about right now.


Analysts asked Napier if Rackspace needed to land an account like Netflix, which runs on AWS, to make a significant dent in its rival. Napier didn't address the question directly, but said that OpenStack has allowed Rackspace to have more high-level enterprise discussions. Napier said:

We've started some conversations with large enterprise customers that we just weren't having a year ago. A year ago, the conversation would pop up and we would gracefully bow out because we couldn't look them in the eye and tell them we could serve them appropriately. Now, we can. Some of these conversations, I am involved in personally. I was on the East Coast a couple weeks ago right before the storm hit. During those conversations with CIOs, CIOs are looking for someone to come in there and teach them how to get to the cloud. This is where our expertise as running the largest open cloud in the world and our position as a service provider really work effectively. The reality is, with the rise of digital commerce, IT departments need to become tech engines in the business. And the cloud is a great tool to do that.

Amazon's playing a scale game. We are playing a service game.


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