Hosting provider Rackspace exceeded analyst predictions yesterday when it posted strong financial results, but it continues to be dwarfed in the infrastructure as a service (IaaS) market by the juggernaut that is Amazon Web Services (AWS).

Rackspace reported overall second quarter earnings of $22m, and revenues of $376m, up 18 per cent on the previous year and beyond the Wall Street predictions of $372m.

The Texan-headquartered hosting company is increasingly turning its focus to the public cloud and grew the revenue of this part of the business by 36 per cent in the second quarter to $99m, up from $72m the previous year.

However, it’s still not growing at nearly the rate as its main rival, AWS, which posted second quarter revenues a couple of weeks ago of $844m for its “other” business (widely believed to represent the earnings of Amazon’s mysterious cloud segment). This is a 64 per cent year-on-year increase.

The public cloud requires more initial capital investments than hosting to be made on infrastructure because companies want to buy capacity on a cloud immediately. However, in the last quarter Rackspace spent just under $120m on infrastructure and added only 4,762 servers, while Google and Microsoft spent a combined $3.4bn on infrastructure over their last quarter, according to GigaOM.

Many companies offering cloud services, such as AWS, Google and Microsoft, attempt to drive down their costs by employing a bullish economies of scale approach, but Rackspace claims that it doesn’t wish to compete in this way.

While Rackspace isn’t in the same league as AWS, neither are Microsoft and Google. Microsoft said in April that its Windows Azure platform has exceeded a billion-dollars, while Google’s Compute Engine has only been active since May.