OpenStack, the open source cloud platform, continues to generate hype. But Rackspace (RAX) and Red Hat (RHT) offer timely reality checks -- even as deployments at Best Buy, Bloomberg, Comcast, Fidelity Investments and Hubspot accelerate.

June 21, 2013

2 Min Read
OpenStack Clouds: Where's the Revenue? Sales? Treasure?

By samdizzy

OpenStack, the open source cloud platform, continues to generate plenty of hype. But here’s a reality check: Rackspace (RAX) and Red Hat (RHT) — two of OpenStack’s most vocal backers — have yet to transform the cloud software into revenue gold.

During a Q1 2014 earnings call earlier this week, Red Hat CEO Jim Whitehurst said the company’s OpenStack distribution won’t really generate any major revenues, billings or booking for at least the next 12 months. And in May 2013, Rackspace Director of Finance Bryan McGrath told Wall Street analysts that the cloud services provider (CSP) faces five key business risks:

  1. market acceptance of Rackspace’s cloud platform, services and products;

  2. the continued adoption of OpenStack as the open source cloud computing platform standard;

  3. increasing competition in our industry;

  4. unfavorable economic conditions; and

  5. other risks that are described in Rackspace’s SEC filings.

So am I losing faith in Rackspace, Red Hat and OpenStack? Absolutely not. In fact, I own a few shares of both Rackspace (RAX) and Red Hat (RHT) — mainly because I believe they both have disruptive technologies in growing markets (open source, cloud computing, etc.).

Honest Answer

But Red Hat’s confession — OpenStack won’t drive any real revenues for the company over the next 12 months — is timely and important. Much of the media suggests OpenStack for cloud computing is like Linux for servers — a big-time success that delivers cost-savings, flexibility and open standards to CSPs, enterprises and channel partners.

Instead of embracing the OpenStack hype, CSPs should keep multiple realities in mind:

  • Amazon Web Services remains the CSP market leader, with roughly $2 billion in revenue last year and no major OpenStack rollout planned.

  • Microsoft Windows Azure is coming on strong, now generating a $1 billion annual revenue run rate. Here again, OpenStack really isn’t a big consideration.

  • Dell has canceled plans to launch an OpenStack public cloud. HP’s own public cloud, also built on OpenStack, has yet to generate major buzz.

  • Major SaaS platforms — Salesforce.com, NetSuite, etc. — seem to be doing fine without any underlying cloud platform (OpenStack, CloudStack, etc.). Or did I miss something here?

Still, I see plenty of room for OpenStack to grow, mature and thrive. True believers (i.e, OpenStack customers) include Fidelity Investments, Best Buy, Bloomberg, Comcast and Hubspot.

But each time we hear about a new OpenStack deployment or partnership, let’s all agree that it’s time to scale back the hype — ok?

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