How Rackspace Lost Its Mojo

Rackspace Hosting was on fire. With a stock price that was multiplying by the day, it could seemingly do no wrong. Then, suddenly, its stock price lost 60% of its value. Its CEO resigned. The company notified its shareholders that it was considering selling itself. How did a company, established in 1998, and with a track record of success go so wrong?

Perhaps what went wrong were that things went so right, for so long. Founded in 1998, Rackspace has a long track record of success, with numerous awards and accolades. It has consistently been named a top 100 company in Fortune’s best places to work. So when management decided to re-position the company around the new opportunities presented by cloud computing, they probably thought they had it right – but they couldn’t have been more wrong.

Possibly the most egregious mistake was the new tag-line. Originally claiming the mantle of a top “managed hosting” company, the organization eschewed it successful past and rebranded as a “open cloud company”. Not only did this alienate their core customer – the customer seeking help managing their hosting infrastructure, it also squarely positioned the company as tone-deaf by choosing a term like “open cloud” when security is one of the top concerns with potential customers.

By pressing headlong into a new cloud computing strategy, Rackspace positioned itself in intellectual purgatory from a marketing standpoint. Customers who once looked at Rackspace as a managed hoster that could help manage their hosting infrastructures were encouraged to look elsewhere – especially if they didn’t want to move to the cloud. At the same time, Rackspace’s cloud product isn’t competitive with Amazon’s AWS in features, price and most importantly mindshare. In short, Rackspace failed to transition from a managed hoster to a IaaS company, failing to provide a competitive product for where they wanted to go, while closing the door on their old business model.

Today, Rackspace’s cloud model is even more confusing. While offering an IaaS solution, new customers are required to purchase a managed service level. With a confusing mix of hourly service management fees and minimum monthly revenue commitments, Rackspace still is challenging itself in acquiring new customers. Why promote a IaaS service that can’t be purchased as a IaaS offering?

At the same time, it’s may be the case that Rackspace is waving the white flag. It recently announced it was essentially shopping itself to the highest bidder. Yet no deal has materialized. While the mainstream pundit scoff at a Rackspace tie up with a Fortune 500 company, Rackspace has consistently grown both revenue and EPS – in a very low growth environment.

It’s unlikely that there aren’t bidders circling. It’s possible that the price tag is too high, or Rackspace thinks its best options are to go it alone. But if that’s the case, then why announce you are “for sale” via the public markets? With a CEO leaving with little notice, these are hardly the actions that inspire confidence in the hunt to grow revenue with existing customers, or capture market share from competitors.

It may be possible that Rackspace is dealing with the challenges of migrating its existing dedicated server base into a cloud-based future. With their new slogan, the #1 managed cloud company, Rackspace seems to be repositioning again. From managed hosting, to open cloud, to managed cloud, it’s getting hard to know what Rackspace does, or who they are trying to sell to.

Rackspace has a track record of success, seasoned management, and corporate culture that is consistently highly rated. The company stands at an important inflection point between market leadership and becoming increasing irrelevant. Rackspace needs to focus on what it wants to do, who it wants its customers to be, and focus like a laser. The market is moving with or without Rackspace, and its up to their leadership to make sure they are relevant in a future with increasingly well-armed, aggressive, and nimble competitors. It will be interesting to see if Rackspace can get back on track, and lead the market they helped pioneer, or get left by the wayside.

 Disclaimer: This article was written by a guest contributor in his/her personal capacity. The opinions expressed in this article are the author’s own and do not necessarily reflect those of