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Rackspace quiets rumors, stays independent

Rackspace CTO John Engates talks Amazon, niche markets and all the reassuring the company had to do as outsiders debated the company's future.

NEW YORK – The past five months have been a wild ride at Rackspace. Its future became the target of endless guessing games. Should it go private or accept an outside bid? The speculation came to an end this week when Rackspace said it will remain independent, and it named Taylor Rhodes as CEO.

John Engates

CTO John Engates met with SearchCloudComputing this week. Though he said he wasn't privy to all the conversations around potential suitors, he did discuss some of Rackspace's challenges and where the company goes from here.

What have these past few months been like given all the speculation and uncertainty?

John Engates: The news this week was really a load off of employee's minds. They've watched from the sidelines. They're not all insiders on the board knowing how the conversations are going and who is knocking on the door. There was some reassurance that what we're doing is in the long-term best interest no matter which way it goes. Those same reassurances to customers were probably harder [to deliver] because customers would try to call and get information to help them decide about whether they should sign a contact with us or whether we would get bought out?

How did you handle those conversations?

Engates: We got on the phone and tried to give reassurance without any real information. A lot of times it was our senior team talking to people at a senior level within their company. If you put up a wall and say nothing, that's one thing. It was never about a quick exit, it was about the long-term vision for customers, [employees] and the shareholders -- we were trying to make sure it was right for everybody, just reassuring them that it will be OK no matter what.

We had to do that quite a bit. It's hard not to have customers ask that kind of a question, because they're signing up for something that has risk on their side.

Was there anyone who jumped ship during that window?

Engates: No. I don't think anybody jumped ship. If anything it just slowed down the sales process or the contract renewal process.

So where do you go from here?

Engates: It's kind of building more on our legacy than trying to go in a completely different direction. Our legacy is managed hosting. It wasn't just infrastructure; the value that people would spend on with Rackspace was all that stuff up above it and our opportunity, and the strategy we've laid out this year is to tell that story in the context of cloud computing.

In the first few years of cloud computing Amazon defined it. Amazon has had the early adopters and the mindshare, but I don't think that is the only flavor of cloud computing. That [might be the flavor] for the early adopters who want to do it all themselves, but it doesn't mean there's not an equal proportion of people who want to get to the cloud but don't have the skills or expertise.

Those enterprises have dozens, potentially thousands, of applications that eventually have to go to the cloud. A lot of them don't go straight to the cloud. They go through VMware or some private cloud stair-step approach. That's where we're really going to resonate with customers.

Some analysts worry that Rackspace is squeezed at both ends of the cloud computing spectrum. Is "fanatical support" enough to compete against vendors who have far more money to throw around?

Engates: It depends on how they throw their money around. Sometimes if you're throwing money around it can be a waste, but if you're methodical and you think about things the right way -- I'll give you an example. VMware got into cloud last year… I have heard that some deals they've sold were just tacked on to customers' licenses the customer never uses. They didn't buy the cloud service; they got it thrown in as an afterthought. And some of Microsoft is sold that way as well. Oracle hasn't been that successful in cloud computing. They have tons of money. They have huge enterprise sales force. Where are they? They are a great example of somebody that could do, but hasn't.

Amazon is the best competitor we have, by a long shot. They're the ones that know how to get cloud computing going and define the market and the mind share, but I even think they're caught in the middle a little bit. They're in between a Google who can undercut them and that can really go out there and sort of resonate with that developer market… Does [Amazon] really cater to the enterprise and retool its sales force and its team and get serious about that?

So do you see Amazon as your main competition, even though they come at it from a different perspective?

Engates: Well, they're the main alternative. Maybe we're not competing head-to-head because they're going in with commodity cloud and we're going in with managed cloud and we're trying to sell to a customer who values the service and support -- so not a direct competitor in that regard but a direct substitute if you're going to go out and hire a team and do your own work.

But then again, everybody is that. Sometimes in our industry we get enamored with something new and interesting and we believe that logically if something is superior or newer or cheaper, people should just pick up and move. It seems like that's the way it ought to go, but the enterprise IT departments don't work like that. We've even been surprised at how slow sometimes the adoption of cloud computing is with some people that ought to be able to do it…

These applications are built over many years and the vast majority of applications are legacy apps built with the traditional architecture approach. Those are going to be hard to pry out of that environment any time soon unless your cloud could support those, and a VMware cloud potentially could. That's a reason we're making some bigger investments this year in VMware.

Rackspace has been called a niche player. Do you see yourself that way, and is that a bad thing?

Engates: No, I don't think it's a bad thing if you accept that label 'niche.' Every company has strengths and weaknesses. There's only going to be one Wal-Mart, one giant company that tries to meet everyone's needs, and then there are going to be companies that try to cater to one or two or three specific needs. We're going after a subset because we're not going after the people who want to pay the lowest possible price and aren't willing to pay anything extra for support. The niche would be all the rest of the people that are willing to pay a little bit more to get something different or better.

This week Cisco acquired OpenStack cloud provider Metacloud -- less than a week after HP did the same with open-source and Amazon-compatible private cloud vendor Eucalyptus. What's your reaction to some of the consolidation in the market?

Engates: It's all good for OpenStack. My guess is they take Eucalyptus and start to weave some of the API compatibility into OpenStack so people can adopt it as an alternative to AWS. That isn't necessarily an HP only thing. It isn't in their best interest to make it HP only, because then they get cast as the only guy that isn't a real OpenStack cloud. That's the debate a lot of people have about how do you differentiate? Probably what they will do is put that into the core OpenStack platform and do some things that are unique to them, but not the whole thing. I think over time you're going to see OpenStack become more AWS compatible.

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at

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