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WIKI ANALYSIS
Rackspace Hosting (NYSE:RAX) is a hosting company, meaning it runs its clients web servers at its own facilities, allowing clients to reduce the number of in-house servers and in-house IT professionals needed to run them. Rackspace is the first managed hosting company to go public. Rackspace management says the company's services go beyond just keeping servers up and running - the company sells its clients "computing on demand" and related services - anything from email systems, load balancing strategies, system stress testing, better monitoring, and higher security.
Rackspace' revenue has grown around 60% each year for the last three years, and the company's customer base has grown 227% since 2005.[1] The company attributes its rapid growth to its customer service. Rackspace does not use call centers, but instead has experts from Rackspace, Microsoft, and Red Hat available 24 hours a day. Another factor driving demand is the rise of new technology that is making hosting a more attractive and cost efficient option. Virtualization helps reduce hardware costs by allowing multiple “virtual operating systems” on one server rather than having one physical operating system on the server. This can therefore decrease the number of necessary servers by sharing a single computer among multiple rackspace clients. The expertise and manpower to manage and operate a large virtualization system makes hosting a more desired option for companies. Cloud computing offers a cheaper alternative to leasing a dedicated server, because it allows a customer to use space and bandwidth from a central server rather than leasing its own personal (dedicated) server.
Company Overview
Rackspace serves 29,193 customers and 36,692 servers with its 2,600+ employees.[2] Rackspace's customers are businesses, web designers and web developers. Rackspace offers the following hosting services to its customers:
- Virtualization: Virtualization allows multiple operating systems to run on one computer or server, helping to most efficiently allocate load. Rackspace uses VMware virtualization.
- Security Services: Rackspace offers firewall, anti-virus, intrusion detection and other security provisions for its customers.
- Email Services: Rackspace's hosted email service takes care of managing and maintaining your email application.
- Database Services: Rackspace does installation, monitoring, and database optimization.
- Storage & Backup: Rackspace stores and backs up files, data and any information for a company.
- Reporting & Administration: Rackspace offers tools like URL monitoring and web analytics to help the customer better understand their site performance or better manage their own customers.
- Professional Services: Rackspace has consultation services for databases, system architecture, and capacity planning.
Revenue reached $362M in 2007 (up 161% from 2005), but Tier1Research estimated that the global hosting market was $12.3B in 2007.[3]
Trends and Forces
An Alternative to Outsourcing
Hosting has gained popularity as an alternative to in-house IT operations and IT outsourcing services. In-house operations require a large amount of manpower and hardware to effectively run IT services. Outsourcing IT services usually means that the entire IT and computing operation is outsourced. Rackspace’s hosting service allows companies to pick and choose the services they want to have hosted and the services they want to keep in house, while at the same time reducing the cost of hardware and IT professionals. For example, a customer can choose to have its database run in-house, but have the website’s storage and backup operations hosted.
Maintaining a High Level of Service
Rackspace attributes much of its growth and business to its high standard of customer service. Rackspace does not use call centers, but instead has experts from Rackspace, Microsoft, and Red Hat available 24 hours a day. Rackspace was also named one of the most reliable hosting companies by Netcraft.[5] However, Rackspace has had revenue growth of 161%, customer growth of 227%, and employee growth of 177% all in the span of three years.[6] Rackspace must be able to maintain its high level of customer service despite this rapid growth by being able to add enough employees but still delivering the necessary attention and expertise to its customers.
More Efficient Computing
Hosting is growing ever more efficient and reliable with technologies like virtualization and cloud computing. Virtualization helps reduce hardware costs by allowing multiple “virtual operating systems” on one server rather than having one physical operating system on the server. This can therefore decrease the number of necessary servers by allowing consolidation of different operating systems and capacity on to less servers. Virtualization also most efficiently handles server load by allowing the option of turning certain capacity on or off depending on the customer’s needs. The expertise and manpower to manage and operate a large virtualization system makes hosting an attractive option for companies. Rackspace works with VMware to offer and manage its virtualization services. Cloud computing services offered by Rackspace gives customers storage space and bandwidth from a central server at a lower cost than if the customer got its own dedicated server from Rackspace.
Competition
Rackspace competes with other hosting companies, as well as IT outsourcing firms like Infosys Technologies (INFY) and Wipro (WIT). However, most of Rackspace's closest competitors are not public companies.
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