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Rackspace Hires Morgan Stanley to Evaluate Options (bloomberg.com)
67 points by AJ72 on May 16, 2014 | hide | past | web | favorite | 62 comments

Rackspace's real strength is in their managed services. Either with a managed dedicated server or managed cloud account. The level of support and assistance you get is something that isn't even available from Amazon, Google, etc. It seems, however, that Rackspace is feeling the pressure from both large and small players and some businesses go with Amazon, Google, etc and do all the OS and stack management in house while others go with the lower end (features/price/SLA) of a Digital Ocean or similar.

Don't get me wrong, I think there's a place for all of them, and actually use both Digital Ocean as well as a Rackspace managed dedicated and cloud setup. But I think a lot of people are buying based on price and just accepting a lower level of support in the process. Oddly, some folks seem surprised by the lower level of support of some of these services (no phone support, lesser monitoring, increased downtime, backups that are lost when the node fails, etc), even several HN posters when these services have issues.

Rackspace has been dropping the ball on support, big time, over the past 6-12 months. I'm not sure what's changed, but it's not for the better.

I'd have to agree... we have tickets that go days without response, for things like requesting an increase in server quota (nothing ridiculous - like the ability to spin up an additional 6 servers / 96GB RAM - when we are a long term customer who spends five digits a month with them).

My experience has been the opposite.

Live Chat help seems to fix just about every single problem we have on the fly, and they open Tickets when it gets more complicated, with thorough and fast follow-up.

I have never been happier with my hosting support, and I've used company after company over the years. I've now been with Rackspace (Sites and Cloud Servers specifically) the longest.

I should note that I ended up with them because they took over SliceHost (also great support), so I didn't really "choose" Rackspace based on anything, but loved SliceHost, and the transition was seamless, and the great support seemed to follow.

No joke, they took away our ability to use chat support a few months ago.

Why? Because we're such an important client, that they want us to have a more personal relationship, by forcing us to interact over the phone. I wish I were kidding.

This freaks me out. Live Chat is my life-blood, especially given my schedule and number of clients. Particularly regarding issues with my Sites customers.

It's odd. I think of 'live chat' as cheap-o support manned by folks who likely can't fix anything, since that's been my experience. To the point that I won't use something for production if that's all they offer. The cheap guys offer a live support linke, often offline, and call it 2/47 support. Well, if that, the very inexpensive guys offer web-based tickets only. No phone, email, or live chat.

Rackspace has folks that know how to fix a complicated issue on RHEL stack at 3am, which is nice. And, unlike a cheap host who has an SLA that guarantees 100% uptime but only refunds you for time lost, Rackspace's SLA incentivizes them to fix things ASAP. Things like a dedicated box having a hardware failure will be restored in an hour and they credit you 5% of your monthly fee for every hour over that. Or 5% for each 30 minutes of downtime due to data center issues (power, network, HVAC, etc). And they do make good on it.

Chat support is extremely helpful when it comes to minor issues. Sure, if there's a core networking issue in the datacenter that's strangely impacting my servers I want to be on the phone with a well-informed tech.

Rackers are a smart bunch, their first-level chat support is great for the million minor issues I need solved. ("We've got a noisy neighbor, can you check it out?", "Can you move this VM to a new host?", etc.)

That's 10 seconds of divided attention required from me vs 10 minutes of dedicated attention for a phone call.

Same happened to us. Took away live chat around the same time.

I phone called a Racker on Christmas Day for support. Attentative and helpful. I was impressed.

Given that, maybe one of the big players who want an entry in to the hybrid cloud/enterprise cloud space could use Rackspace's popularity as an entrypoint.

I am a huge fan of Rackspace. They're a bunch great people who sure have a refreshing view on how to take care of their employees, their community, and their visitors.

Comparison with SoftLayer re: dedicated servers?

I know Rackspace does fully managed dedicated servers at a much lower pricepoint. SoftLayer charges $299 for managed on top of what you already pay and you must be billing at least $2500 a month to get that. Plus you need to add a dedicated firewall at $1,998 a month in order to be eligible for managed. (Source: I just spoke with a SoftLayer sales agent via live chat as I was looking into them for hosting.)

If your whole business relies on staying in step with giant competitors with huge piles of money thrown off from other successful ventures to lower their costs and prices more aggressively then you can, it's going to be an ugly business in the long haul.

Price is a terrible competitive advantage because unless you have a revolutionary cost structure to go with it, you're hosed once someone does something reckless, like lowering below cost to drive you out of business.

Google and Amazon aren't going anywhere because they own search and ecommerce. Hosting and infrastructure are nice businesses for both companies, but they are fine without it. Rackspace without hosting and infrastructure revenue is not a company.


I love Rackspace. I was looking forward to being a happy Rackspace customer until I was old and gray. And all the things I love about them would be the first things to go after an acquisition.


Which speaks to another risk of cloud computing: business continuity of your cloud provider.

* Store your application/source code/etc in multiple object stores (S3/Rackspace Cloud files)

* Abstract away from specific computing/storage APIs

* Test to ensure you can always deploy to a different provider

Twilio does this well, as they run in AWS and Rackspace Cloud, based on availability and cost.

Yeah, I hope Geekdom isn't affected. Best startup co-working space in SF IMO.

As a Geekdom member. I agree.

I wonder what would be a good acquirer.

Ten cents on the dollar would be about $470 million cash. Define "good"

edit: $430 million between when the story broke and now.

GoDaddy probably has the cash.

Please, no. Just, no.

We have 80+ servers with Rackspace. Would go to AWS before enduring a GoDaddy-owned Rackspace, on general principles.

And I think has improved since the Bob Parsons days.

Verio might be a good match... NTT could afford it... and make them a player.

Verio was a player. The largest by some measures. Then they exercised an option to force NTT to buy them out when the tech stock market tanked and have barely been heard from since.

* I was in the first wave of NTT/Verio lay-offs.

You generally don't see announcements like this.

Are they having a hard time selling that's why it is out there? You would think some of these companies you read saying things like "we missed the cloud" would jump at this.

Really nobody left, RAX is too big and requires another public company, mainly a blue blood to acquire them. IBM got Softlayer. Google, Amazon, and Microsoft obviously have their own clouds. RedHat has its own PaaS OpenShift. Awkward spot really. Perhaps Facebook wants to join the cloud hosting business, but I doubt it, since they've just coughed up insane amounts of cash with Oculus and whatsapp.

Smart play though, Morgan Stanley will figure out the details and likely find a buyer eventually. MS is kind of like `The Wolf` from Pulp Fiction or Mike Ehrmantraut from Breaking Bad, no questions asked problem solvers.

HP would be my bet. They have "HP Cloud" which is OpenStack, and they're trying to get more into services in general.

OTOH, kind of a clusterfuck in general, and presumably if HP had any interest they would have just done the deal rather than this customer-terrifying announcement.

Maybe someone from Asia?

I would put my money on Cisco. They have been trying to reinvent themselves as a cloud company and clearly their financials show declining margins on hardware as the market shifts to cloud. Their intercloud announcement is interesting but not real yet and I think a Rackspace acquisition would give them a serious boost just as the SoftLayer acquisition by IBM has really accellerated IBM's move into cloud services.

The other possible buyer could be EMC -- for similar reasons -- but I would definitely think Cisco would be more likely.

Most likely to be private equity. IBM got SoftLayer after GI Partners rolled them up with a couple of other acquisitions.

Does Oracle still have whatever fragments remain of Sun's cloud service that nobody ever used?

Another possible option could be one of the big consulting firms - Accenture, Deloitte, CGI, etc.

Facebook has Parse, maybe if that demo matures to having RAX needs then it's worthwhile.

Parse was on AWS, at least before the acquisition, if I recall correctly.

It actually happens a lot. 8-K says they've been approached by multiple parties: http://www.sec.gov/Archives/edgar/data/1107694/0001107694140...

I really hope Mailgun will survive any acquisition or merger Rackspace goes through. I love the quality of service they provide.

Mailgun cofounder checking in: we will, and yes - we will. ;-) Rackspace has been a great home for our team, we continue to grow nicely, we're funded very well and plenty of exciting things are on the roadmap.

Corollary - customers look for exit options...

Glad we moved everyone off to AWS... pricing is an issue - everyone is lowering prices dramatically... tough market.

So, current RS customers, the history of these kinds of actions tell us that right now is the best that Rackspace will ever be in the future.

Rackspace over-bet on managed services, and under-bet on physical plant.

Rackspace should have invested more in PaaS. Its only offering that could it semi-accurately call PaaS, Cloud Sites, is lacking - it supports few runtimes, without things like git-based deployment that would enable it to fit into a CI Pipeline, and it seems intended to host static websites with some dynamic features rather than full-fledged web applications.

I think they are also failing by trying to differentiate themselves in a business that will end up being much like a utility. When your business acts like a utility it's kind of a race to the bottom on prices. Furthermore, in attempting to differentiate themselves, they failed to characterize their primary customer properly - the kind of person who interacts with RackSpace directly is not the kind of person who calls support a whole lot, and yet the quality of their managed support seems to be their sole differentiating factor. My company did take advantage of managed support a few times, and when we did so it was enormously helpful, but it wasn't enough to keep us there when we saw lower-cost offerings elsewhere, because we have enough expertise in-house to solve 99% of problems that come our way.

That said, I own RAX and I would very much like to see the stock stop tanking. An acquisition proposition could send the price back up to near where I bought it - and who knows? Maybe I'll end up trading it in for some more AMZN ( a stock that has also been tanking, by the way.)

Contemplating moving from RS to Linode. Anyone done the same? Was it worth it for the savings?

For myself, I greatly appreciate having a service like Mailgun available to Rackspace customers - does Linode (or another company) have a similar e-mail service?

If you're using it for outbound mail, you might look at using Mandrill. They're much bigger -- it's MailChimp's backend, used by 5M companies. That means mail is their primary business, their ISP relationships are solid and you can count on them to have 24/7 staff if anything does go wrong. They're also quite competitive: 12K free e-mails per month, then cheaper than both Mailgun and Sendgrid.


I'm pretty sure you can use Mailgun regardless of where you host at, FWIW.

Yeah, we use mailgun without Rackspace.

You don't need Rackspace to use mailgun, but Sendgrid also works nicely and is independent. Just like you don't need to use EC2 to use S3 (or Route 53, etc).

Lots of competitors - Mandrill, Sendgrid, Postmark, Amazon SES, etc.

Why? Stock price seems to be completely independent from actual performance; and even then, This is just a consequence of speculation, not any actual change in anything. Basic financials look tip-top. OpenStack infrastructure means you're probably not locked in.

Seems like a lot of work for something that may, incredibly hypothetically, be a bad thing. Based on a single news item, you're betting on not only a one-sided partnership, but one that somehow destroys your ability to use the company, in a bet that only makes sense to hedge against now if somehow in the future any of the things that make it easy to step away from a hypothetically-future-toxic-Rackspace are no longer true.

This is a good thing, not a bad one.

We moved an analytics web service we had on Rackspace to Linode the other day, and the results were fantastic.

We've been able to lower prices by 75% due to actual lower cost as well as requiring fewer machines because of the increased performance.

You should also consider the growing number of platform (PaaS) providers that make it super easy to manage the infrastructure yourself, and save you lots of money on the way. I believe that this is where most hosting providers are heading. Gone are the days that we should be dealing with infrastructure at the element level. While this is the wrong forum to list who to look at, if you have a Ruby on Rails app, look at Heroku or Ninefold

I wonder what this means for the future of OpenStack?

Same thoughts... hopefully HP wants to play ball.

In the last few releases, HP has overtaken Rackspace in a number of development metrics.

Poking around here is interesting: http://www.stackalytics.com

uhh, the Stack Stacks have almost nothing to do with RackSpace at this point.

Since stock price seems to be independent of actual company performance these days...

Is Rackspace actually in financial trouble? Or is it a case of shareholders moaning that their returns aren't good enough?

They're fine financially. >$300M Cash, $70M of debt (most of which are capital leases). They say they've been approached by "multiple parties" so it's just a matter of trying to get the best offer. http://www.sec.gov/Archives/edgar/data/1107694/0001107694140...

Ok, so assume I am an idiot on this (not far wrong). Why is their stock price not high? Just because they are not satisfying shareholders / wall street analysts?

Are the slowly losing customers or see somethign in the future that will cause trouble?

Thanks, that does.

"inbound strategic proposals"?

god/alternative-deity help them.

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