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Hosting vendor Rackspace believes that the models of managed services and cloud computing are becoming harder to differentiate

The decision by online retailer Amazon.com to become a utility computing provider presented vendors in the hosting and managed services market with some unexpected but well-funded new competition.

Neither this nor the economic downturn, however, have done much to hurt business for web and data centre hosting provider Rackspace. In February 2010, the company reported quarterly revenues of $169.5 million, up 18.4% from the same period in the previous year.

By far the majority of this business ($152.4 million) was derived from Rackspace’s traditional hosted services offerings, whereby customers pay for dedicated infrastructure, maintained and managed by Rackspace in one of its data centres.

The company’s cloud computing services, which include Internet-based utility computing offerings analogous to Amazon Web Services (AWS) and also software-as-a-service versions of such popular tools as Microsoft Exchange and SharePoint, drew in significantly less: $17.1 million.

Even as Rackspace launched its own cloud computing offerings, the company maintained that there would always be demand for its traditional hosting services, and there is nothing in its recent financial performance to disprove this argument. This raises a question: when cloud computing has reached maturity, what proportion of Rackspace’s business might it make up?

CTO John Engates dismisses the question, however, as he sees the distinction between the traditional, dedicated infrastructure business and the utility-based cloud computing business blurring over time. “The traditional model will increasingly resemble the cloud model,” he says. “In the long term, we will let customers provision physical hardware in the same way they can with virtual machines in the cloud today.”

This means that physical infrastructure will be provisioned and billed for through an application programming interface (API), the standard control mechanism for today’s virtualised cloud systems.

Engates believes that Rackspace will achieve this by applying lessons it has learned while building its own cloud platform. “In the cloud world, the growth is so rapid that we’ve had to learn how to deploy servers en masse,” he explains. “We had to do a lot of automation in order to bring new servers in a rack at a time and then automatically discover the inventory of each of those servers, the capabilities of those servers, and allow them to be placed in this pool of virtual technology. Now, we can take a lot of that same technology and apply it back to the physical work.”

This has helped the company cut the time it takes to provision a new physical server to – in certain circumstances – just ten minutes.

As Engates’s comments reveal, Rackspace’s operational efficiency rests on its ability to develop its own management systems, and this has always been the case. But the advent of cloud computing may make software development even more important for hosting providers, as they look for ways to differentiate commoditised services.

In March 2010, Rackspace rather unexpectedly hired a team of employees who had originally been part of open source relational database company MySQL but ended up, via Sun Microsystems, being part of Oracle. This team works on an offshoot of the MySQL project called Drizzle. Rackspace also has on its payroll a number of the developers working on a distributed, non-relational database platform entitled Cassandra, which was started by staff at social network Facebook and which is also open source.

“We may well turn one or both of those platforms into a hosted service for our customers at some point,” says Engates, adding that the two projects are just the foundation of what could become Rackspace’s strategic future. “We certainly buy into the approach of hosting providers offering services that would have traditionally been packaged software applications.”