Rackspace hopes OpenStack opens doors to enterprise

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Since patience isn’t Wall Street’s strong suit, Rackspace shares are taking a beating today.

The company’s shares are nose diving after it reported sales growth for the fourth quarter that was weaker than analysts were predicting.

On a conference call to explain the results, company executives described 2012 as a year of investment and preparation for growth. That makes this year an important time for Rackspace to prove that its target customers – enterprises – like what it has to offer.

Rackspace hopes OpenStack will help it better target enterprises.

Source: Cliff1066 via Flickr

In October, Rackspace launched its OpenStack cloud. Since then, it says it’s been primarily lining up pilot projects with potential enterprise customers.

“These pilot projects are about these enterprise customers testing our cloud, putting some workloads on it, figuring out how to write to our APIs and really optimizing the performance on those workloads,” Lanham Napier, Rackspace's CEO, said on the conference call, a transcript of which is available online. “We’re going to do everything we can to have successful pilots with them so they turn into long-term complex production workloads on our cloud.”

So now the question is, can Rackspace land those deals.

The challenge for Rackspace is that it’s tackling a lot of new things at once, starting with the new technology. “We’re learning a ton as [pilot customers] go through it,” he said. “The pilot phase here gives us a chance to tweak things on the platform so that it’s more consumable for them.”

But Rackspace is simultaneously shifting from targeting just SMBs to going after bigger businesses. “We are an SMB company that has grown into enterprise. We’re still the relative newcomer on the block when it comes to enterprise,” he said.

The shift to the OpenStack cloud appears to have been designed in part to help Rackspace land those enterprise deals. “Our new Open Cloud has eliminated bottlenecks that prevented us from running large deployments on our legacy platform that inhibited some of our customers from growing larger. With these scaling barriers removed, we believe we are now able to compete for and run very large and complex production deployments,” he said.

Rackspace has a slight timing advantage over some of the legacy enterprise vendors, but not by much. HP, Oracle, IBM and Dell have either recently launched public clouds or plan to. Some enterprises may be more comfortable going with the vendors that they already have long relationships with.

Time will tell. For now, Rackspace touted its first big enterprise customer – Staples – during the call. Wall Street and the rest of the market will be watching for additional announcements about other enterprises that make a bet on Rackspace.

Read more of Nancy Gohring's "To the Cloud" blog and follow the latest IT news at ITworld. Follow Nancy on Twitter at @ngohring. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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