RightScale lands $25 million to support cloud computing demand

Cloud management service provider RightScale just landed a third round of funding, but this time, it's to handle growing demand.

RightScale has joined the parade of cloud computing vendors flush with cash as investors continue to show confidence in the fast-moving cloud market. The cloud computing management startup landed $25 million this week, its third round of funding since opening its doors four years ago.

There's even a mini-RightScale inside of RightScale to manage RightScale.


Michael Crandell,

Many cloud companies are seeing re-investment. Infrastructure and platform services provider Joyent and grid software maker-turned-cloud platform maker Adaptive Computing recently spilt a $30 million windfall from Intel. Earlier this year, Eucalyptus, run by CEO Marten Mickos, landed $20 million in venture capital. These companies are all well past the initial stages of business. Adaptive has been in business, and profitable, for 10 years, and RightScale has more than 100 employees and thousands of steady customers.

"It reflects the confidence overall in the cloud market, and really it's how dang fast this juggernaut is growing," said RightScale CEO Michael Crandell, who echoed the positions of the other firms.

He said RightScale is taking the cash to expand its facilities, staff and operations to handle international growth and an increase in enterprise customers. Of course, that's a story every vendor would be expected to tell, but there does seem to be some independent evidence to support his market claims.

For one thing, RightScale posts the numbers of virtual server instances it has launched over its four years. It hit 100,000 servers in 2008, 1 million in April 2010 and currently stands at over 1.5 million only five months later. Surveys carried out by research firms like Evans Data Corporation indicate strong majorities (over 60%) of developers are using cloud services now, and the majority of enterprises will adopt public infrastructure in some fashion within the next few years.

Increased enterprise interest in cloud
Crandell said that enterprise customers were the fastest growing part of RightScale's revenue. He attributes the growth to two major factors. One is the increasing comfort enterprises have with cloud services, and the other is the gold-rush stampede by systems integrators, hosters and service providers, and IT management software companies, like CA and BMC, to offer cloud products.

Enterprises have gotten comfortable with the proven, obvious uses for cloud infrastructure, Crandell said, and have begun a long-term, permanent migration to Infrastructure as a Service (IaaS) for things like Web-facing operations and software development. He said RightScale had begun seeing nibbles from the enterprise late in 2008 and demand had snowballed this year, partly due to the competition among providers and the sudden intense interest around building private clouds, which RightScale can also support.

"Eventually, there will be many of these things, and that has been the plan from day one," Crandell said, "but what was unexpected was the rate of change. The adoption rate on infrastructure is astounding. Suddenly, we're in a big game with lots of players."

Crandell said that usage of cloud services within enterprises was still separated by a pretty bright line. Firms were not coming to RightScale looking to outsource critical business applications, sensitive data, or even applications that did not require changes in operational scale.

"Let's just be real, that's not what most of our business is today," he said.

Long-term, enterprises will come around to cloud computing for most IT service delivery, and it will be a hybrid model for larger enterprises, Crandell said. He thinks it's simply a different world view for larger enterprises.

He said he toured a large software vendor and was shown their version of cloud management software. "In one of the systems that I looked at…they said, 'Hey, we can work with Amazon, if users are here, and they want to launch a server, they push a button like this.' I said, 'Is the server launching?' and they said no, what that did was send an email to their supervisor."

The plain fact is that enterprises are slow to change direction, according to Crandell. He said IaaS is compelling, but the vast bulk of enterprise applications aren't built to take advantage of cloud computing's characteristics. "Let's check back in five years," he said.

International cloud growth in Asia and India
In the mean time, clouds are popping up everywhere, Crandell said, especially in areas where there is not a lot of legacy IT or telecom infrastructure, like Asia and India. "If you don't have that [existing infrastructure], going cloud is just a no-brainer," he said.

It reflects the confidence overall in the cloud market, and really it's how dang fast this juggernaut is growing.


Michael Crandell, CEO of RightScale,

That's where the funding comes in. RightScale will be adding employees and opening offices, as well as IT operations, in Singapore, the UK and Hong Kong over the fall and next year, in an effort to be closer to these new cloud services.

IDC predicts that worldwide, cloud services will grow at 27% year after year until 2014; in the Asia-Pacific (APAC) region, most new data center building will include some component of cloud computing. Very large providers like NTT in Japan have opened cloud services, and the trend continues.

Amazon Web Service (AWS) recently opened an Availability Zone in Singapore; RightScale relies on AWS to provide its own service, using cloud computing to provide cloud computing to its customers. "It's 'turtles all the way down'," joked Crandell, referring to the famous anecdote (attributed to Bertrand Russell) on the question of infinite regression.

"There's even a mini-RightScale inside of RightScale to manage RightScale," Crandell said.

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