RAX and EQIX

from the RAX c.c. (Seeking Alpha transcripts):

>>James Breen – William Blair

Okay, thanks and just one follow up Equinix actually, especially saying that they’re providing you Rackspace Cloud, the private edition services, can you talk about just that overall environment for infrastructure and how you guys are thinking about going forward in terms of leasing space or owning your own space and how the environment may have changed in the last couple of quarters, thanks.

A. Lanham Napier

Yeah, sure. Well, there is a couple of different nuances in your questionnaire. Let’s start I guess, which is the infrastructure environment in general. Our intention consistent with the prepared remarks is that we will be leasing space, but the reason we want to do that is it just better aligns the timing of the expense with the investment with the revenue we have received that from a basically it turns into a variable nature instead of a fixed nature that is all up front for us. Nothing has changed in the market place to make us deviate from that plan that is core to our strategy going forward, if you look at the infrastructure expansion, we’ve had over the last call it year and a half, vast majority it has been within this recent model.

We believe it’s very effective, we’ve been able to deliver great results to our customers in it specifically with what’s happening with the Equinix, in our press release we are pretty excited about the Rackspace Cloud private edition, for us this is a first step for us to take Fanatical support outside of our data centers, which is consistent with our long-term vision of managing and running open stacked powered clouds anywhere, basically if a customer wants to deploy an environment just for themselves inside an Equinix data center, we want to be able to provide Fanatical Support for them.

So we see it real simply is that there are two primary layers in our business, the infrastructure layer and a service layer in this Rackspace cloud private edition based on the open stack technology, the customer would be purchasing the infrastructure, paying Equinix rent for that data center infrastructure, and then they would be paying us the service fee to manage it remotely on top of that infrastructure.

So this is a business model innovation for us, which has minimal capital involved in all of the profit margin of our service layer. So we like this innovation, we are just getting started with it, there will be a lot more work to do, but we believe this is a good solid first step.