Rackspace Still Mulling Data Center Options

I got a chance to sit down with Rackspace (RAX) chief technical officer John Engates last week at the Next Generation Data Center conference in San Francisco, where he provided an update on the company's data center plans. We spoke prior to Rackspace's IPO, which raised $187 million Friday, some of which will fund additional data centers.

Engates said Rackspace will continue to expand its data center network, but is unlikely to build facilities on the mammoth scale of Microsoft or Google. The company currently operates about 115,000 square feet of data center space - about the size of a single Google data center building. They won't be in every large market, either.

"Rackspace has never been a company that needs a data center everywhere," said Engates. "We’re trying to add capacity to meet our growth needs, but we’re not going to have one of these huge distributed networks of data centers."

The company says it will add another U.S. data center this year, but has not decided on a location, and whether to build from scratch or retrofit an existing facility.

One possibility is to build a data center in the new Rackspace headquarters complex, a 1 million square foot former shopping center in suburban San Antonio. The mall property was affordable, and it would be convenient to have the data center adjacent to the company’s headquarters, Engates said. But the mall wasn’t built with mission-critical facilities in mind, and it would take considerable work to adapt the property for a modern data center.

Engates said Rackspace also has the option of building a new facility atop the current parking lot, but could also opt to build or retrofit a facility elsewhere. A decision will probably be made later this year.

But Rackspace generates a lot of revenue from that footprint, with annual revenue of $362 million and net income of $17.8 million in 2007

In a recent investor presentation, Rackspace CEO Lanham Napier said the company expects to see stronger growth and perhaps even better profit margins – from cloud computing. "Cloud computing can be more profitable because you get more out of the infrastructure," said Engates. "In the cloud we can sell customers exactly the right amount of infrastructure."

In a period of cloud proliferation, in which the hosting industry is struggling to sort and define various niches within the cloud computing boom, Rackspace is approaching the cloud opportunity from several fronts. The San Antonio, Texas company has set up Mosso and its Hosting Cloud as a subsidiary, while offering custom cloud application hosting through its Intensive Hosting unit.

This strategy addresses the emerging divide in the cloud computing game, in which small businesses and start-ups are embracing new cloud platforms while enterprises are charting a more deliberate course, waiting for mature service platforms that can meet their security and compliance requirements. Rackspace’s two-pronged approach allows Mosso to compete in the price-conscious consumer cloud, while Rackspace continues to offer premium clouds for its managed hosting clients.

Mosso is off to a modest start, hosting 43,000 domains, but has recently revamped its customer control panel and added a storage service called Cloud FS. Mosso can provide instant scalability for customers like TeenChoiceAwards.com, which saw a major traffic spike last week during its annual awards show as Miley Cyrus, Vanessa Hudgens and the Jonas Brothers collected their awards.

"The system recognizes demand spikes," said Engates. "We can recognize traffic spikes before they become a real problem and adapt dynamically to add resources our move assets around."