Rackspace angles for bigger fish

Although the hosting market has experienced many bankruptcies, Rackspace Managed Hosting says it has been profitable for two years. We recently spoke with Rackspace CEO Graham Weston.

Although the hosting market has experienced many bankruptcies, Rackspace Managed Hosting says it has been profitable for two years. The San Antonio, Texas company last year began focusing on larger businesses with its Intensive Hosting, a fully managed package. Network World Senior Writer Jennifer Mears recently spoke with Rackspace CEO Graham Weston.

As competitors have folded or scaled back, Rackspace has been growing. Why have you been able to weather the storm?

We’ve grown our business through referral, and the way you get referrals is by doing a good job for your customers and having customers who want to tell their friends about you. We did that through fanatical support. We really built our business not as a technology business, but rather as a service business.

Rackspace initially was focused on smaller clients, right?

We started out as a Linux company and today over half of our business is Microsoft. We still are the No. 1 hoster on the Linux platform, but we’re also No. 3 on Microsoft. We were focused on the small to [midsize] enterprise when we started. But today, the competitors at the high end have been falling like flies and [customers] have been attracted to us like honey.

How did you decide to target larger companies, and how are you making sure they know who you are?

[The launch of] Intensive Hosting was our decision to formally target the enterprise customer with a proactively managed offering, and it was directly competing with the low end of IBM and squarely at the Digex space. While Rackspace is not a household name, what has really paid off for us is the word of mouth. We built the whole company around serving customers, and we don’t try to be all things to all people. And when you have the force of the customer on your side, you don’t have to be a household name to have great growth.

Intensive Hosting is strictly offered for Microsoft running on Dell hardware. Does that limit your ability to attract clients? Are they looking for more flexibility?

When you decide to focus, you gain power in the area where you’re focusing. There is such amazing growth taking place at the high end on the Microsoft platform that we decided to formally launch an offering that was specifically Microsoft and that was specifically targeted at enterprises. We took a best-of-breed approach, which allows us to find the best monitoring software for Microsoft. Those are the decisions you don’t make when you’re going cross-platforms and trying to satisfy a Linux user as well as a Microsoft user. While we’re not going to be all things to all people, we’re a great fit for someone who is hosting a complex Microsoft Web site.

Have larger companies been coming to Rackspace?

Because we are profitable, cash flowing and stable, and focused on a narrow slice of this market that we can serve extremely well, we have been a great alternative for those people who were fleeing the once-great hosting provider. As a result, we’ve grown 45% last year and we’re on track for huge growth again this year.

What percentage of that growth is the larger enterprise customer?

Two-thirds of our business today is large customers, whereas when we started 95% was small customers.

Whom do you consider competitors?

It’s Digex. We do compete with IBM now and then. When you need an end-to-end consulting, development and hosting and maintenance service, IBM is the place to go. But many people don’t want to pay the cost and don’t have the need to be at IBM. So for everyone else, they belong at a proactive hosting company like Digex or like Rackspace’s Intensive offering.

So as you’re gaining more enterprise customers, what are the changing demands from customers as your customer base shifts?

We’re going to enter those segments and provide those services that are the must-have services, the things that the vital elements that managed hosting requires. We’re not going to go and explode our offering in 20 directions. We’re not going to support Sybase or Informix or DB2. We’re going to stick to the things that we can do really well, and the customers that are a good fit will choose us and those who aren’t will go elsewhere.