hosting and cloud computing represent a massive virtually untapped market opportunity for Rackspace. We made good progress in the quarter toward capturing a larger share of its market.
There is a tectonic shift underway that is fundamentally altering the way the world consumes computing resources. We expect the magnitude of this change to eclipse that of past technology era, such as mainframe computers and PCs, simply because there is especially more computing power in the world today.
We are the leader in the hosting and cloud computing industry, and our mission is to aggressively pursue this emerging multi-year,
multi-billion dollar market opportunity.
- Lanham Napier - Rackspace Hosting Inc. - CEO and President
Revenue & Customers
Cloud revenue for the first quarter was $19 million, accelerating to 13% sequential growth from the fourth quarter and 77% year-over-year growth from the first quarter of 2009. Managed hosting revenue increased to $160 million, accelerating to 5% sequential growth from the fourth quarter and a 19% year-over-year from the first quarter of 2009.
We were pleased to see managed hosting customer additions turn positive for the first time in three quarters, even though we actively migrated 135 single server customers to our cloud offering in the quarter.
Return on Capital
Manage Hosting business is a more mature business -- still a high growth, but more mature business than our cloud. And so, our cloud returns at this point -- that business has its scale, so they're low at this point. Now overtime though, when you think about cloud, one of the huge advantages of cloud is that you've got a lot more capital efficiency in that versus our Manage Hosting business. And so our expectations are that we'll get margins very similar between the two businesses, but our return on capital would be much higher because I turns on the cloud will be higher.
technology advantage. It's just hard to make that durable and sustainable - Our point of difference is going to be around the service that we provide.We're going to write a covenant in our SOAs about what this performance is going to be. So our belief is the way this marketplace works out is there will be segments -- there will be a commodity infrastructure segment where people want to buy for the cheapest price. For people that want that experience, Rackspace is not the right pick.
During the conference call analysts were asking questions about possible competition coming from Azure specifically for dotnet based apps. Given that they have a windows based cloud service in beta.