Hosting provider Rackspace is set to begin beta testing of its OpenStack open-source software this week, GigaOM reports. Launched two years ago, the cloud project is running hundreds of computing instances in alpha tests right now, according to John Engates, Rackspace’s chief technology officer. When it begins beta testing, it will be running tens of thousands of instances.

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OpenStack aims to provide an open-source software foundation alternative to Amazon Web Services and VMware . The project, originally backed by Rackspace and the National Aeronautics and Space Administration, better known as NASA, is now also championed by others including Citrix , Dell , Hewlett-Packard and Cisco , many of which plan their own OpenStack implementations. Ericsson and IBM also recently jumped on the bandwagon. The first company to have an OpenStack cloud was Internap last October.

Engates said he hopes to have Rackspace-labeled OpenStack clouds ready for use in the third or fourth quarter. Until now, Rackspace had been using the Slicehost infrastructure it acquired in 2008, said Engates, but that technology was not designed to handle the scale Rackspace has achieved.

Amazon Web Service is still the undisputed leader of the cloud-computing market, but recent blunders like the outage last April and a major reboot of Amazon Elastic Compute Cloud instances may have left customers in the mood to reconsider their options. On top of that, Cloudscaling recently announced that it intends to focus on creating a webscale OpenStack-based cloud to compete with companies like Amazon.

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