Rackspace President Taylor Rhodes was promoted to his current position in January are seven years in various executive positions. He recently sat down with me to talk about the company's performance, his view of the highly competitive cloud computing market, and his confidence in the continued growth of San Antonio's leading technology services company. In part one of our conversation, 'Rackspace President Confident Amid Cloud of Doubt,' Rhodes said Rackspace's trademark Fanatical Support would continue to serve as a major differentiator in a market crowded with big players selling cloud service at a low price.
Rivard Report: Others in the tech world have said that cloud services companies have only penetrated 15 percent of the potential market. Most companies still have legacy IT departments that are slowly being outsourced. The tech writers and analysts who like Rackspace see huge growth potential. They think people who dismiss Rackspace as the little guy are missing the fact that this market is not even close to maturing.
Taylor Rhodes: Using a baseball analogy, we’re in the second inning of a nine-inning game — and it’s one that might go into extra innings. The size of this market within a few years — whether you read Gartner, Forrester, IDC, or any of the industry analysts — will be somewhere between $60 billion and $100 billion. Today, it's only a $5 billion to $8 billion market. There is going to be an enormous generational shift in the way businesses consume IT. It’s just starting.
Not only is a huge new wave of cloud adoption just beginning, but the type of customer in that wave is very different. The early adopters of cloud computing have been tech enthusiasts who enjoy solving complex engineering problems. If you think back to my metaphor about cutting your grass versus hiring a landscaping service, many early adopters are squarely in the first camp. They actually enjoy fixing broken lawn mowers — and, hey, more power to them.
But a much larger wave of adoption is just beginning among more results-oriented businesses. The developers and executives in these businesses have the ability to learn any new technology that they choose — but they also have the discipline to focus their scarce engineering talent on their core business. They don’t want to hire a new specialist every time they use a new database or adopt some other tool to leverage the power of the cloud. What they want is a trusted partner with lots of specialist expertise. They want Rackspace.
We feel like Rackspace offers key elements -- Fanatical Support, hybrid cloud and specialization -- that make our company the natural home for the new wave of business customers in this big market.
Rivard Report: What’s going to convince that larger market that the time to change has arrived? Is it your sales and marketing force, or does the realization occur internally in the companies who then come to you?
Taylor Rhodes: It’s a realization inside company management that they need to have a cloud strategy because cloud is compelling from an economic, speed and agility perspective. Most IT shops in the main market are spending the majority of their resources maintaining yesterday’s systems — just keeping the lights on. They don't have the expertise and staff to really think about innovation and the future. The real pressure point that’s building within IT shops is they’re saying, 'I need to take my systems that are there today and get them out of my data center. You need to manage those for me, Rackspace, and provide great service and uptime so that I can make space in my budget for innovation.'
We’ve built and optimized our hybrid cloud platform for open and standard technologies, so that our customers can always choose which technologies to run, and where to run them, without fear of vendor lock-in. We are the founders of the Open Stack, the leading open-source operating system for cloud computing. We have a portfolio that is open and hybrid in nature that allows customers to get the best-fit infrastructure for their specific needs.
Rivard Report: Some people are wary of trusting their data to the public cloud. The hybrid really means that you don’t have to be 100 percent public cloud.
Taylor Rhodes: We offer a unique hybrid cloud platform – one that combines public and private cloud form factors with dedicated, bare metal servers. That way, each customer gets the best fit for its specific needs. Each workload runs on the platform where it will deliver the best performance and cost-efficiency. Some workloads, including most modern databases, don’t run well on the public cloud, which is why more and more customers are choosing us over the one-size-fits-all vendors who only offer public cloud.
To rewrite an application for the cloud is not a simple endeavor. Most CIOs say they need a stepping stone path, some of their application portfolio will never make it to the cloud because they're going to retire it, but it needs a home today. That CIO is looking for a partner that can offer all flavors of the hybrid cloud rather than having to go to one partner for a multi-tenant public cloud, one partner for another iteration, etc. We feel like the hybrid system is a very important differentiator for us when you think about vis-à-vis Amazon, which offers only a one-size-fits-all public cloud, or a traditional IT services company that can really only offer you dedicated, managed hosting.
Rivard Report: What would your competitors say about Rackspace that would challenge or contradict your reading of the market?
Taylor Rhodes: Actually, everybody is jumping on the hybrid-cloud bus, which is pretty good validation for our approach, given that the analysts describe us as the pioneer and leader in hybrid cloud. Amazon is probably the strongest challenger to our analysis of the market. Their thesis is very much 'everyone’s going public cloud; that’s where you need to be.' One implication of their thinking is that the big wave of pragmatic adopters are going to be willing to jump straight from in-house computing to a one-size-fits-all public cloud. Another implication is that those customers are going to be willing to just rent access to raw infrastructure and do everything themselves — hiring a new tech specialist, or a new team or them, every time they want to use a new database or other tool for leveraging the cloud.
We believe that Amazon and other do-it-all-yourself cloud providers may be right about their part of the market. But we know that they’re wrong about our part of the market. We know that from our conversations with customers, and our observations of their behavior.
We feel we have an innate advantage in appealing to the new wave of cloud adopters. The hybrid cloud is one component of that advantage. Being able to run customers’ infrastructure and provide our services and expertise are the other two angles to it, and we feel, frankly, in a much better position to serve this new wave of business customers than any of our competitors.
Rivard Report: How do you answer the security concerns of people who don't trust technology? The CEO of a company may have an IT guy pushing for the cloud, but he’s reading the Wall Street Journal about another company's sensitive customer data being hacked. He doesn’t quite speak the language. How do you convince him to let go of that internal server operation?
Taylor Rhodes: You’re describing more of the main market, the mainstream customer. That’s where we come in with our approach: Cloud is for everyone but not for everything. You’ll need to get to cloud at some point in time. But because you may have apps and environments that require compliance with certain standards or really just to make you feel secure, you may want to start them out in a dedicated hosting environment that connects over to a public cloud for bursting capabilities.
This goes back to that main market. Companies are going to want the power of cloud; they’re just going to need to understand how they can use it. Most of them will start out with some test and development in the cloud. But for some of the core applications that are very important, e-commerce systems or big data solutions that house a lot of customer data, they’re going to feel pretty good about having a dedicated, single-tenant environment with security features around it.
Rivard Report: How do you attract the developer community, many of whom are influential voices inside companies that will be migrating from their own IT operations to a cloud solution?
Taylor Rhodes: We think about the market as two big buckets. We’ve been talking a lot about the mainstream market, that portion that’s just starting their move now. Rackspace is starting to work more closely with the developers that initially went to Amazon . It's important because that community is a signaling mechanism. They are the ones who set the trends and innovate. We need to win our fair share there.
Most of the developer community has gone to Amazon, but we think Amazon as the reference cloud competitor is in an interesting situation with these developers who are, by definition, mostly open-source type people. When you’re talking about large, cloud-oriented applications today, very few of them think about developing their applications on Microsoft technologies or another proprietary set. They want to use open-source tools and technology to develop. They want choice in the IT tools they use and the ability to optimize the performance of those tools. That’s very difficult to do in a proprietary, multi-tenant public cloud like Amazon’s.
Also, some workloads just don’t run well on the public cloud, whether it’s Amazon’s or ours. Developers are looking for optimized solutions to run things like MongoDB, which is a leading open-source database that is really growing like a weed in the market.
Amazon is trying to run it on the public cloud, but it’s not working well. Customers have to cope with that by either over-provisioning and over-paying for their cloud resources or by hiring more talent — expensive developers to manage the misbehavior of that application. Rackspace is developing and investing in capabilities around purpose-built solutions for big data and other critical open-source technologies that will say to developers, 'We will run those things for you in an optimized environment and allow you to get the performance you need out of them.' Then, the developers can get back to writing code – and by the way, we may be able to provide an economically advantaged situation for you. Those are very important conversations. When we can deliver high-value solutions to these folks that are critical to the cloud applications they’re writing, it gets you out of a unit-price conversation. It very much gets you into a value-based conversation.
Because of this, we made an acquisition in 2013 of a little company called Object Rocket, a purpose-built solution for MongoDB. It’s a small group of crazy, innovative developers who saw an opportunity among MongoDB users to say, 'All this is tough to manage in the wild. This is a pain for developers. Let’s go build a purpose-built solution and run it as a service for these folks.' Since Rackspace acquired Object Rocket, it has done really well and has proven to be a great gateway to turn the heads of people who are either doing it themselves or running MongoDB on another cloud. We get that first iteration with them, they experience Fanatical Support and guess what? We get them to bring other companies and clients to us.
So we’re super excited this year not only about the big mainstream market that’s moving, but also these developers that have experienced the pain after being on a one-size-fits-all public cloud for a few years and saying, 'There are things that I just need to have run differently for me, and what helps me do that is a hybrid solution with specialist expertise.'
Rivard Report: Is that what you mean when you talk about Rackspace being a 'company of specialists?'
Taylor Rhodes: Yes, MongoDB is a great example of what we call a practice area, where we can go out and develop a depth of expertise that is very valuable to customers. These technologies all have very identifiable communities around them. This is the nature of open-source. There are these crazy people out there who are super passionate about these technologies. They hang out in the same community and when we can go build expertise, get into those communities and become thought leaders, it’s very powerful.
Rivard Report: Acquisition of small, innovative startups seem to have worked well for Rackspace, companies like WebmailUS and SliceHost.
Taylor Rhodes: We take a very disciplined approach to acquisitions. We’re not in the market to go buy revenue or customers. We’re usually in the market to buy expertise in a particular technology and to buy something already built that we can invest in to accelerate us down the path. With our Fanatical Support culture, buying another large company for the sake of size would be a tough match, and difficult to integrate.
Rivard Report: When you do acquire expertise, such as the expertise acquired via Object Rocket, is it a tough match?
Taylor Rhodes: It works well because we give the founders and developers a real boost for their vision. These are very passionate folks, as you know from doing your own startup. These are people who are true believers in what they’re doing, their mission and purpose, and we come to them and say, 'Hey, we want to use Rackspace to accelerate your mission and purpose. We want to use our good market capabilities, our brand, our legal department even, to make you go faster.'
So we bring these folks in, we allow them to retain control over what they’re doing as the product experts and the community experts and we just put fuel behind them. It's a really good market right now for startups. There's a lot of money available. You’re seeing a real renaissance again in venture capital and private equity money behind these really smart developer and cloud solutions. There’s a lot to choose from out there.
Rivard Report: Will new acquisitions and applications redefine Rackspace and make it something other than Fanatical Support?
Taylor Rhodes: Fanatical Support remains the core of our being. It’s how we represent ourselves to customers – it basically says that this is the place where you will work with someone who will treat your business as if it were their own. We back that up, and we make that incarnate in the service levels and the contracting that we give to customers. That remains at the center of what we do. But we’ve always expanded and evolved Fanatical Support, and we continue to do that today. That’s why we’re emphasizing and investing in our role as a company of specialists who offer expertise in running today’s leading technologies.
Rivard Report: Do you find yourself subjected to the same line of questioning about Lanham Napier’s retirement -- 'are you guys okay?'
Taylor Rhodes: The market has a really short memory. Even in the months since we announced Lanham’s retirement we’re really starting to see the tail end of the concerns about his departure. When Lanham was going to tell the world that he was retiring, we knew we were going to surprise the market, and the market does not like to be surprised; they interpret surprise as risk. Risk means a lot of people sell first and ask questions later. We’re a month in, and I can tell you Rackspace is moving forward.
Spend some time in our halls as you have done in the past, and you’re going to hear people talk about the excitement around the company of specialists refocus. The world wants and needs this specialist who will bring them the capability to run technologies for them in a way that they can’t or choose not to.
We’re excited about that. We had an Investor Day, part of a normal routine here, a few weeks ago, and I will tell you throughout the whole day with more than 40 institutional investors here, we got one question about Lanham’s retirement. All the other questions were about our future, our strategy, how we intend to win, what segments of the market we are targeting, etcetera.
Rivard Report: The market doesn't like surprises, so why did you surprise it? Why not organize the succession first?
Taylor Rhodes: I’m not saying this to sound flippant, but Rackspace is a 'go fast' company. When deciding how to deal with Lanham’s desire to retire, we knew that, first and foremost, we had to to respect his wishes. Fourteen years as a top leader of this company, including five years as a public company CEO, is a long tenure. It’s not like running a packaged-good company. It’s a world of constant change and 70-hour weeks. Most people do not get the opportunity to be in that job that long and also to build a company from $1.5 million to more than $1.5 billion in annual revenue.
Lanham is the most humble CEO you’ve ever met, right? He’s an anti-CEO. People who meet him love him because he’s not like a big company CEO. And he didn't want to announce his retirement and then hang around like a lame duck while we searched. We’re a nontraditional company, and sometimes we do things that surprise people.
Rivard Report: Looking ahead to the search for a new CEO, some in San Antonio expect it to be you.
Taylor Rhodes: If we find someone in the market who brings us experiences and skills that we don’t have here, that will make us more competitive and give us a better long-term future, we will hire that person to be the CEO. What we’re really looking for in the market is someone who comes more from a technology product orientation. We have a rich history as a service company, but more and more, we’ve been investing heavily in becoming a software engineering and product company. Think about it this way: we used to take other people’s gear, wrap services around it, and then go sell services. But since you can’t go buy a cloud off the shelf, we’ve had to build our software engineering capability and our product teams up to hundreds of Rackers, and we invent a lot of the product today that we service. We’ve become an OEM ourselves.
Rivard Report: Who’s an industry leader you admire in cloud computing?
Taylor Rhodes: Amazon is a strong product company. They have invented their own technology that is a part of their cloud. You can think about Microsoft as a strong product company – developing, building and engineering their own products. Apple is a classic case of an exceptional product and marketing company. They design and engineer; they might hire someone else to build, but they are at heart a classic technology product company.
Rackspace is different. We’re a service and product company. As we think about the future for Rackspace, we know we have lots of depth here. We are leaders in the service part of the industry; we’re three years into being a product company, and that’s a really important part of our future. When we think about attracting leadership talent, we’re looking to complement the leadership team here, which has long-term service expertise, with more in-depth product expertise.
Rivard Report: That's the first time I've heard a Rackspace executive describe the strategic plan to grow from a service company to a products company.
Taylor Rhodes: When we sell you a cloud solution, a lot of the software that makes that cloud solution work well and the tools that we use to run and operate it for you are things that we have built or are building. When we talk about products, we talk about things that we run services on top of for our customers.
Rivard Report: So is Rackspace charting a new path under you and Graham Weston, who has added the CEO title and responsibilities to his role as Chairman?
Taylor Rhodes: Think about us as refocusing our core strategy of differentiation as a company of specialists. We are bringing Fanatical Support to our customers in an evolved and expanded manner, by helping them run critical applications and technologies. This offers the market a great alternative to other companies that will build technology but not manage it for you. Rackspace will build the technology and manage it for you. Management is the key word there. It’s hard to manage technology, and we do it well for our customers.
Rivard Report: Are you in San Antonio to stay, or could a change in CEOs lead to a change in venue?
Taylor Rhodes: We find incredible advantages to being located in San Antonio. While we hire a lot of people from all over the world who bring great technology skills and talents, our service culture requires that we hire first and foremost for attitude and aptitude. And then we do a lot of training. We find plenty of great attitude and aptitude in San Antonio. We think some of that comes from the service culture in this city, and the military culture and the family-oriented culture. We find people with servants’ hearts, a hunger to learn and a hunger to put the specialized expertise that they’ve learned to use in service to our customers.
We are investing in programs in our community, like our Open Cloud Academy and partnerships with UTSA and other educational institutions in San Antonio, to develop more technology expertise in this community. We can source talent here and train people very well. One of the core parts of our business is that you can’t go pick a lot of the talent we have off of a tree somewhere. They are scarce resources. We grow them up here, we build them here, we train them here. They become very valuable.
We’ll continue to use San Antonio as our home base, but we’re also learning to make the most of our offices in Austin, San Francisco, Blacksburg, Va.; London, Hong Kong and Sydney. Those are all talent hubs as well. We can tap into different skill sets participating in conversations that are happening around innovation in the Bay Area and Silicon Valley. So we complement our San Antonio hub with talent acquisition in other parts of the world.
It's getting easier to attract talent to San Antonio. The city has always been attractive to families, and has a strong and balanced economy. Now it’s also getting more attractive to young, single people. That’s thanks in part to the efforts to develop and promote downtown, by the city’s government and business community, and by institutions like the Rivard Report.
It’s also getting easier to attract talent to San Antonio because Rackspace's brand and market share have become bigger. When you show up as #29 on the Fortune 100 Best Places to Work list, as we just did, that is an amazing recruitment tool. San Antonio’s distance from Silicon Valley is less of an issue for us than the fact that the fight for top programming talent is pretty keen right now. It’s a hot market for talent.
Rivard Report: Should interested readers apply? Is Rackspace hiring?
Taylor Rhodes: Oh yeah. My best advice for your readership: Become a Linux system engineer and software developer. The world is going to live and breathe off of these cloud-era applications that smart young folks are writing. You have to be a geek to be excited about it, but the world is being run by geeks, let’s just admit it. You’d better become a software programmer. Rackspace is hiring. We'll hire hundreds of people across the company this year.
Find out more at www.rackspace.com/talent.
*Featured/top image: Rackers collaborate to provide Fanatical Support to their customers. Photo courtesy of Rackspace.