Rackspace is seeing growth in its cloud computing business at the same time the company’s traditional managed hosting operation acquires more of an up-market tone. But exactly how much has RackSpace’s cloud grown? And where is it going next? Here’s a look at the company’s strategy.

Rackspace executives shared some strategic updates Monday during a Q3 earnings call. Here are some of the main points:

• Rackspace generated $15.3 million in cloud business in Q3, a 17.5 percent increase over Q2 and a 138 percent lift compared with last year’s Q3.
• Cloud now accounts for 10 percent of Rackspace’s total net revenue, up from 5 percent in Q3 2008, according to Bruce Knooihuizen, the company’s chief financial officer.
• Managed hosting revenue for the quarter came in at $147.1 million, up 5.8 percent from the second quarter and a 11.5 percent increase over last year’s Q3.

Lanham Napier, Rackspace’s CEO and president, said the company aims to move up market in the managed hosting space, solving more complex IT needs. The cloud business, meanwhile, targets simpler, more dynamic workloads, he explained. Napier said the company is migrating single-server managed hosting customers to its cloud.

The company’s customer count suggests this movement. Between June 30 and September 30, Rackspace’s manage hosting customers declined from 19,363 to 19,328, while cloud customers rose from 51,440 to 61,616.

Overall, Napier said he sees a big opportunity on the enterprise side. He said Rackspace launched as an SMB-oriented company. While the company still caters to that segment, enterprise customers represent a bit less than half of the company’s business, he said.

Rackspace’s enterprise push has placed the company on a track to compete against traditional outsourcers such as IBM and HP. But Napier said Rackspace enjoys a business model advantage over those firms.

“We are cheaper and faster than they are,” he said, adding that Rackspace offers a degree of flexibility that traditional outsourcers can’t provide.

Rackspace’s enterprise rivals have a considerable size advantage. IBM had $103.6 billion in revenue last year, while HP’s sales are also north of the $100 billion mark. Rackspace had revenue of $531.9 million in 2008.

But market transitions have a way of favoring the smaller competitor — at least in the initial stages. Companies such as Lante Corp. and Sapient Corp. possessed an early edge in the client/server transition of the early 1990s, focusing on that technology from the outset. The larger integrators, invested in the mainframe world, had to learn a new business. Lante enjoyed a decent run through the 1990s, but was a 2002 casualty of the dot-com debacle. Sapient, meanwhile, has soldiered on as a business and IT consultancy.

In the cloud computing transition, the inevitable shakeout has yet to materialize. Hosting providers such as Rackspace, Savvis and Terremark will all have a go at cloud survival.

Proper Perspective

In RackSpace’s case, cloud revenue looks promising but it’s only 10 percent of total revenue, up from 5 percent at this time last year. Napier credits Amazon Web Services for pioneering cloud computing, but Rackspace Cloud will be gunning for Amazon’s Elastic Compute Cloud spot at the top of the heap going forward.

Lanham also said that while Rackspace “is not a custom shop,” Rackspace’s competitive edge is their trademarked “fanatical support,” which helps match enterprise customers with the existing cloud solution that’s best for them.

“The cloud is for everyone, but not for everything,” Lanham said.

Also in the third quarter, Rackspace launched NoMoreServers.com, an online community meant to assist in moving hosted services to the cloud. Basically, Lanham says, SMBs should never need to buy another in-house server as long as Rackspace is willing to provide managed hosting.

And a closing thought: There’s no word on how much revenue Rackspace lost this quarter in payouts due to the outages that have hit its data centers since the summer - the most recent occuring Tuesday of this week.

By John Moore and Matt Weinberger. Follow MSPmentor via RSS; Facebook; Identi.ca; and Twitter. And sign up for our Enewsletter; Webcasts and Resource Center. Plus, check out more MSP voices at www.MSPtweet.com.

The Cisco Partner Velocity event in Paris has wrapped up, and I’ll be flying back to New York on Nov. 15. In the meantime, here are seven managed services blog entries our staff didn’t have time to write for the week ending Nov. 13.

7. MSPs Welcome: Axient, which specializes in data backup and business continuity has launched version 1.0 of a managed services partner portal.

6. The Big Picture: I have a video interview with ConnectWise CEO Arnie Bellini that I still need to publish. In it, Bellini describes how MSPs and VARs (”IT Nation”) can defend the last mile (local business relationships) from big vendors. I hope to have the video live early the week of Nov. 16. In the meantime, our MSPmentor FastChat video center is loaded with new interviews.

5. Blogging Contributors: We’ve expanded our team of contributing bloggers. More to share next week, including bios and beats for our writers.

4. Deal or No Deal?: Edison Peres, Cisco Systems’ senior VP of worldwide channels, mentioned to me that Cisco witnessed fewer mergers and acquisitions among VARs and solutions providers this year. The reason: Most sellers were holding out for inflated multiples that buyers weren’t willing to pay. (More thoughts from Peres here.) Still, some deals are getting done. The latest example: Uptime IT Systems Inc. of Pittsburgh is buying Microvations, Inc. of Charlotte.

3. MSPWorld: How’s the conference? Who’s attending? Send along news and we’ll give it a look.

2. Feedback Please: Our beta tests of www.MSPtweet.com and www.VARtweet.com. Check out both sites and send me your feedback (joe [at] NineLivesMediaInc.com). We’ll be making some tweaks ahead of the sites’ official launches in January 2010.

1. Clouds: Two major MSP-centric clouds are set to launch before the close of 2009. I hope to get a preview within the next two weeks and will be sure to share the details.

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One of Cisco Systems’ top channel partners is making the managed services move. BlueWater Communications Group, Cisco’s US and Canada partner of the year, has built a network operations center (NOC) and has lined up 30 mid-market customers for managed network services. Here’s a look at BlueWater’s strategy, along with some tips for other aspiring MSPs.

This isn’t yet another “break-fix to recurring revenue” story. BlueWater ranks among Cisco’s fastest-growing integrators. The company’s revenue grew from $1.9 million to more than $70 million in less than three years, notes the annual CRN Fast Growth report.

Based on Long Island and in Manhattan, BlueWater focuses on mid-market customers in several verticals: Financial Services, Telecommunications, Legal Services, Advertising, Manufacturing, Healthcare, Retail, and progressive Educational institutions and Government.

I caught up with BlueWater CEO Bob Cagnazzi at the Cisco Partner Velocity conference in Paris. Some key thoughts:

• Instead of managing PCs and mobile devices, BlueWater is focusing on managed voice, video and IP infrastructure services.
• BlueWater has no plans to offer its NOCs to peer VARs and MSPs. Cagnazzi considered the move but BlueWater won’t become a master MSP because of potential competitive conflicts with other channel players.

For a bit more on BlueWater’s strategy check out this MSPmentor FastChat video:

Howdy, Neighbor

Full disclosure: I’ve known Cagnazzi my entire life. We grew up on the same block and we still live in the same town. We were sitting in a session at the Cisco Partner Velocity conference in Paris when I asked Bob for an update on the managed services strategy. Within 5 minutes, were having a deeper MSP conversation. I’ll share more thoughts from Cagnazzi in the weeks ahead.

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Cisco Systems sees demand for managed services growing roughly 20 to 30 percent annually, according to Senior VP of Worldwide Channels Edison Peres. I caught up with Peres during Cisco Partner Velocity, a marketing-centric event for 200 VARs and MSPs in Paris. In this one-minute MSPmentor FastChat Video, Peres offers an update on Cisco’s managed services partner program, along with Cisco’s views on the overall managed services market.

Here are Peres’ thoughts:

MSPmentor’s Perspectives

Cisco’s mid-2009 decision to revamp its managed services partner program was welcome news. As you may recall, Cisco’s MSP partners no longer need their own NOC (network operations center). Instead, Cisco MSPs can leverage third-party NOCs from other Cisco partners. Smart move.

But there’s also a growing trend toward mid-size and large Cisco VARs building their own NOCs and moving into managed services. A key example involves BlueWater Communications Group, a fast-growing Cisco partner, launching a branded managed service called Blue.

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Amy Katz (my business partner) and I have been talking quite a bit lately about life-work balance. Frankly, Nine Lives Media Inc. (MSPmentor’s parent) is consuming more and more of our time. And that means less time for us to unplug to focus on our respective families. I received a timely reality check at the recent HTG Peer Group meeting in Orlando, Fla. It involved an eye-opening 10 question survey. Here’s what happened.

First some background. HTG Peer Groups involves non-competing VARs and MSPs networking in groups of about 10 to 12 companies. Each peer group member bares his soul — and his balance sheet — to the other members. The end goals are personal, professional and business development for everyone at the table.

The Ultimate Test

Still, HTG Peer Group meetings involve more than business discussions. Members also focus heavily on life-work balance (notice, it’s not work-life balance). And in one daring — but important — move, peer group members actually have their spouses fill out a 10-question feedback form. Each question is on a 10 point scale (10=fantastic score, 1=pathetic score), for a possible total score of 100.

Basically, your spouse ranks you in terms of your ability to maintain a reasonable life-work balance. The 10 question survey includes:

1. Works a reasonable number of hours on the business
2. Schedules time for exercise, hobbies, not just work
3. Makes time for me and family activities
4. Never misses family activities for the business
5. Brings an acceptable amount business work home (reworded from previous quarter)
6. Helps with household responsibilities
7. Schedules vacation that is not around business events
8. Never checks phone during dinner and family activities
9. Supports my work related activities equally
10. Truly wants the best for me and our family

I’ve got some pretty big dreams. Don’t tell anyone but my stretch goal is to be the world’s most popular tech blogger. Like I said: Stretch goal. And frankly, I’m not even Nine Lives Media Inc.’s most popular author (that distinction belongs to The VAR Guy).

But perhaps my priorities are out of whack. If I asked my wife to fill out the survey, I think I’d score about a 10 out of a possible 100. Pathetically bad. But I guess admitting the problem is a first step toward recovery.

Right now I’m in Paris. Working hard at the Cisco Partner Velocity conference but also mulling my priorities for 2010. My wife is here with me. Time to take a hard look in the mirror.

I’m thankful HTG showed me the survey. I suspect it will be a real eye-opener for MSPmentor’s readers. It was for me.

More From HTG

When HTG shared the survey with me, they also sent along the following nuggets of information:

1. Every partner in HTG peer group 5 scored low on question #8.  One partner scored better by handing his cell phone to his spouse when he arrived at home and waiting until it was returned later in the evening.  It’s all about focus.

2. One partner had several heated debates with his spouse regarding the form last quarter.  The debates evolved into healthy discussions and, fast forward to the present, home life has improved.

3. One partner was not only given his results, but was given his expectable range. By the way, the partner’s spouse is an engineer.

For the record, the authors of the spouse feedback form are: Sharon Sobel and Deborah Lindley.

More than 200 VARs and managed service providers this week are attending Cisco Partner Velocity, a marketing-centric event in Paris. Our editorial team is at the conference including ongoing coverage from The VAR Guy. Read on for 12 secrets to marketing success plus some clear tips for building your personal brand. Watch for ongoing marketing tips on The VAR Guy throughout this week.

Nimsoft has launched a Unified Monitoring Alliance that includes Autotask, ConnectWise, FusionStorm, Ingram Micro, Rackspace Hosting and roughly 30 other service providers and independent software vendors. What does all this mean? Here’s my take on Nimsoft’s efforts.

For more than a year, readers have been telling MSPmentor that they need a single dashboard for monitoring on-premise systems and a growing number of cloud applications.

Already, roughly 20 percent of MSPmentor readers are monitoring their customers’ cloud applications, according to a May 2009 MSPmentor reader poll. But many MSPs use a hodgepodge of tools to monitor a range of customer systems.

Eager to solve those challenges, Nimsoft in October 2009 launched a Unified Monitoring platform that apparently allows MSPs and IT managers to monitor IT infrastructure from the data center to the cloud.

Helping Hands

Still, building a single dashboard that can monitor scores of third-party applications requires third-party help. That’s where the Unified Monitoring Alliance enters the picture.

According to a Nimsoft press release, the alliance will include three types of partners:

• Service Provider Partners — Members of this group deliver managed, hosted, cloud-based, and other related services that are monitored using the Nimsoft Monitoring Solution (NMS), according to Nimsoft. Charter members include Alvaka, Atrion, BSG, CDW HMS, Data Electronics, ENKI, FusionStorm, Ingram Micro Inc, Seismic Division, IT Authorities, Longview, MicroMenders, PHNS, NetEnrich, Rackspace Hosting, and Thomas Duryea.
• Solution Partners — These ISVs and SaaS providers extend the Nimsoft solution by providing complementary IT service management solutions and capabilities such as net-flow traffic capture, service desk, and IT infrastructure library configuration management databases, Nimsoft asserts. Charter members include Acentix, Attention Soft, Autotask, BigFix, ConnectWise, geoXMF, Plixer, Sanfir, Service-Now, Sensatronics, Shavlik, Stratavia, VaultLogix, and Wendia.
• Technology Development Partners — These partners are building data collection probes to extend the myriad of types of objects NMS monitors, from non-standard databases to ERP applications to geo-location-based devices, and more, Nimsoft asserts. Utilizing the Nimsoft Unified Monitoring solutions and APIs, these partners create probes that are then resold to Nimsoft customers. Charter members include InTeliNet and Agentil.

The Bigger Picture

The Unified Monitoring Alliance sure sounds promising. But remember: Multiple software companies in the MSP industry want to be the de facto dashboard for monitoring or maintaining all systems.

Two quick examples:

• Level Platforms in May 2009 announced monitoring and management of emerging Microsoft cloud and SaaS applications — including the Microsoft Business Productivity Online Suite (BPOS).
• Rivals ConnectWise and Autotask, among other MSP software providers, each have been promoting APIs (application programming interfaces) that allow RMM, backup and other tools to integrate with the respective PSA platforms.

Still, each dashboard effort varies from the next. In Nimsoft’s case, the company clearly wants to appeal to both corporate IT managers and service providers. Plenty of vendors are lining up to voice support for the Unified Monitoring Alliance. But it will take months to truly measure the alliance’s potential impact.

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Please join MSPmentor for our next webcast on November 18, 2009 at 2:00 p.m. Eastern Standard Time. We’ll focus on real-world case studies from two prominent MSPs — Alpheon Corp. and Sabio Information Services. They’ll describe how they reduce customer power consumption and energy costs even as they boost their own margins.

Here’s an interesting business and technology paradox: AMI Partners, a research firm, says North American SMBs will increase their spending on remote managed services at a compound annual growth rate of 28 percent for the next five years. Sounds awesome. But if things are so good why are some MSP software providers suggesting that portions of the managed services market have somewhat stalled?

Let’s start with the apparent good news: North American SMBs will increase their remote managed IT services spending 3.3 times over the next five years, AMI Partners asserts.

According to Anil Miglani, SVP of IT Infrastructure and Managed Services at AMI: “Of the total installed base of 60 million PCs and 8 million servers in North America, only a tiny fraction is currently managed remotely, offering tremendous growth opportunities for managed service providers.”

That sounds fantastic. And AMI Partners is right: MSPs are only monitoring a small fraction of SMB systems.

Now the problem: Whether you speak to  Ingram Micro Seismic or N-able or a range of other vendors, those sources say many MSPs haven’t figured out how to push beyond their initial SMB customer base.

To accelerate growth many MSP industry players are launching “freemium” initiatives. A few examples:

• The Ingram Micro Seismic team has a free Global NOC introductory offer.
• N-able has introduced a free endpoint security strategy.
• Level Platforms is developing some sort of freemium strategy, CEO Peter Sandiford has hinted.

MSPmentor’s key point: Be careful as research firms continue to hype managed services market growth. The best MSPs continue to grow and do well. But many MSPs are victims of circumstances they can’t control — such as being headquartered in Detroit, where IT spending has stalled with the auto industry.

Will the North American managed services market really triple in size over the next five years? If true, that’s wonderful news for all of us. But I think most MSPs are cautiously optimistic rather than wildly bullish.

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Instead of trading blows with one another, the two leading PSA (professional services automation) are starting to take their cases directly to the people. During ConnectWise Partner Summit in Orlando (Nov. 4-6), I can’t recall a single mention of the competition. And from Nov. 4 to Nov. 6, rival Autotask offered multiple updates on its October business performance and year-end outlook. Here’s a look at the latest chatter.

During his keynote at ConnectWise Partner Summit, CEO Arnie Bellini described how IT Nation (his term for progressive MSPs and VARs) can defend the “last mile” against big vendors pushing into small business. More than 900 MSPs and VARs attended the event, the largest in the MSP industry.

At some previous ConnectWise events, Bellini took aggressive jabs at the competition. But I didn’t hear any of those jabs this time around. Bellini emphasized a need for ConnectWise MSPs to collaborate on long tail opportunities, such as IP video surveillance. He also highlighted numerous ConnectWise user groups popping up across North America, Europe and Australia.

Also of note: ConnectWise Community Director Jeannine Edwards described how the company’s community would continue to grow, including plans for an even larger ConnectWise Partner Summit in 2010.

Overall, ConnectWise appears to remain in growth mode. As Bellini mentioned to me in July 2009:

For 2009, ConnectWise expects to generate roughly $24 million in annual revenue, up from roughly $16 million in 2008. Also, Bellini expects $11 million to flow to ConnectWise’s bottom line in 2009, up from $6 million in 2008.

Equal Time: Autotask

Meanwhile, Autotask tactfully issued three key press statements to remind media, MSPs and partners that Autotask is a growth company in the PSA market. The press releases surfaced one-by-one (Nov. 4, 5 and 6) during the ConnectWise Partner Summit.

In one release, Autotask suggested that its October 2009 business performance may indicate an economic upturn for the IT services community. According to the release…

more than 300 individual IT Service companies placed new orders or upgrades for Autotask. In addition, the company saw more than 1,000 new seats added to its subscriber base – an indicator that IT service firms are hiring again.

In a prepared statement, Autotask CEO Bob Godgart said October 2009 was “a big month for us. Our biggest for the year, and one of the largest spikes in activity from individual companies.” Godgart also mentioned growing momentum for TaskFire IT service desktop solution. Plus, 20 percent of Autotask revenues now come from outside the U.S.

Also of note: Interwork Technologies (Interwork) chose Autotask as the “exclusive professional services automation (PSA) offering” for all of its 4,000 VARS and solution providers. In a similar deal, SMB Technology Network is embracing Autotask.

This is part of a growing trend across the managed services market, where MSP software providers strive to become the de facto standard for associations, organizations and peer groups. For example: HTG Peer Groups has embraced ConnectWise.

Multiple Winners (For Now)

One of my favorite books about the software industry is “Everyone Else Must Fail: The Unvarnished Truth About Oracle and Larry Ellison,” written by the late Karen Southwick.

In the book, Southwick explores how Ellison dismantles his rivals even as he grows Oracle.

No doubt, software companies in all market niches compete fiercely. But does the “Everyone Else Must Fail” example apply to the PSA market? Not yet. ConnectWise and Autotask both are growing, and Tigerpaw Software (another key player) is finally polishing its brand and attending a growing number of MSP-oriented events — such as the recent N-able Partner Summit.

Stirring the Pot?

In recent months, some readers have accused me of “stirring the pot” as Autotask and ConnectWise compete in the PSA market.

Folks, I just report what I hear: If Bellini takes shots at Autotask and suggests he’s ready to buy software partners and rivals, I’ll report it. If Autotask issues a wave of press releases during the ConnectWise Partner Summit, I’ll report it.

But I’ll also add my perspectives. And in the past week, my perspectives have changed a bit.

• Instead of focusing on the competition, Bellini spent ConnectWise Partner Summit focused on his company’s partners and customers. Smart move.
• Instead of yielding the entire week to ConnectWise Partner Summit, rival Autotask provided some timely updates about its own business performance, market growth and customer wins. Smart move.

Both companies are growing. And for now, the PSA industry has multiple winners. Could that change amid a future wave of consolidation? Certainly. And we’ll be sure to offer our two cents, if that wave ever arrives.

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