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Rackspace Hosting, Inc. (RAX)

Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference

March 05, 2013 11:30 am ET


Bryan McGrath

Jason Luce


Unknown Analyst

Hello, everyone. Welcome to the fourth telecom track of the day. My name is Jordan Sanchez. I'm a member of the U.S. telecom services research team here at Deutsche Bank. We're very pleased to have Rackspace with us today. From Rackspace, we have Jason Luce, VP of Finance; and Bryan McGrath, Director of Finance. So we'll just jump right into Q&A and I'll make sure to leave some time at the end for some questions from the audience.

Question-and-Answer Session

Unknown Analyst

But just to get things get started off. Last year was a pretty busy year. The back half of the year, you launched some OpenStack products and you kind of started moving over to the OpenStack platform. So maybe you can talk about some of the key milestones you guys hit last year. And did you come in as expected? Or are you seeing the sales you expected? Did products come in as expected, et cetera?

Bryan McGrath

Yes. So just to take a few setbacks, so a couple of years ago, 5 years ago, we acquired this company called Slicehost, which will enable you to do -- to take a physical server, divide it up into multiple pieces and sell those as they were their own physical server. And that became kind of the genesis of what is our cloud business today. And so over the years, we've reiterated on that technology and built the business. It was a couple of hundred million dollars, growing, call it 80% year-over-year. But we got to a point where that business, that platform was limiting. We had customers who where getting -- who were kind of tapping out into how big they could possibly get. And so, we -- our the biggest competitor, of course, Amazon, was getting much larger workloads. And so last year, the milestoness that you touched on, were all about rearchitecting that business and that platform, deploying OpenStack, which is an open-source software project that we're cofounders of and building our cloud based on OpenStack. So the milestone all last year where getting the brand-new cloud out, up and running and getting it going. So that was the #1, 2 and 3 goals last year. And so the very first pieces went out and went live in August and the last pieces went live in the last couple of days of October. So those are the milestones we had for the year.

Now one of the best accolades so far is we haven't had any big outages, right? Brand new platforms comes out and rolls out, we are really hyperfocused on making sure it's up and running, that we get good performance metrics, that we get good reliability out of it because that's the key into attracting new deployments of the cloud. And last year was about getting it out. This is the year we're all about going and marketing it and selling it. So once -- when we got everything out and we really got it rolling, when we had it up and running, we kind of laid out 2 new operational goals for us. The first was that we needed to attract, get close, deploy and be able to tell the world about some big, kind of complex workload.

And then second being, if we're successful with that, then in time we should be able to reaccelerate the growth of the cloud business. And a lot of the thinking there was kind of looking back what happened with Amazon Web Services. So they were, obviously, the pioneers in this whole idea of this cloud computing. Huge adoption of their platform was when they had some big workloads they can point to and Netflix was the one that really stands out in my mind. That when Netflix came out and said, "You know what? We're going to deploy our stuff onto your platform." That gave anyone, not anyone, but for many customers or potential customers that had -- was reluctant to adopt the platform, that for scalability or for whatever reason, that got them over that hump. And so we need to do the [indiscernible]. Right? We've got a lot of, or a good handful of pilot customers that we think will fit that bill but we haven't done any of them live and certainly, we don't have anything that we can talk about. So those are the key milestones that we need to kind of -- they need to judge us on going forward.

Unknown Analyst

So you guys launched several products in the back half of last year. Maybe you can talk about, which products you're the successful to date. And if there are any glaring holes that you guys kind of wish to fill going forward or is the product platform kind of set.

Bryan McGrath

Yes, we have the -- I would characterize it more as the brand new re-architective platform and there's a lot of different pieces to it, right? But just to kind of give you a high-level how we think about it. The whole idea is to, what does it take to run very complex, highly scalable workloads, right? And so if you look at what it takes, you need a big compute platform. So we got cloud servers which is our compute format. The -- our prior platform was similar -- had servers we called the Cloud Servers but the ability for it to scale was very limited. This one we don't know what the limits are yet.

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