Rackspace president: Amazon whupped us. But now we've got a plan

Taylor Rhodes wasn’t afraid to say it.

For about 18 months, cloud and hosting provider Rackspace stumbled, after doing well on public markets for four years, Rhodes, Rackspace’s president, said in an interview with VentureBeat today.

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The company pushed its cloud with an emphasis on its OpenStack, thanks to its use of OpenStack open-source cloud software, and tried to go up against public cloud market leader Amazon Web Services. But things didn’t work out.

“We got disrupted by Amazon’s model,” Rhodes said. “And even though we were in the the cloud game, they played it at such a scale that it really disrupted.”

The disruption concept, which entails an upstart gradually gaining ground with basic services and then challenging the biggest players, is apt. Rackspace initially became a leading hosting business that worked with big enterprises and emphasized its “fanatical support” — but then watched Amazon take hold of the market with basic low-cost services.

Now Rackspace has come forth with a new strategy and pricing model that, in theory, could stop people from comparing it directly with commodity cloud providers Amazon, Google, and Microsoft — and get people to stop talking about how Rackspace is open to partnerships or even an acquisition.

The strategic shift is one of many examples of cloud infrastructure providers seeking distinction in a dynamic competitive market.

As that drama has unfolded, Rackspace has seen some people leave and has shown others the door. It hasn’t exactly been easy.

“Anytime a company gets disrupted and you have leadership change, you are absolutely going to go through a period where people are going to say, ‘Should I stay or should I go?’ And, man, I will tell you that we have had a job on our hands this year,” Rhodes said.

The turnover in employees wasn’t seasonal or just business as usual.

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“Our core turnover rates have always been about 10 percent a year, some of that voluntary, some of it involuntary,” Rhodes said. “We bumped up to about 12 percent per year run rate here in Q1 and Q2, some of that because we decided to get rid of some people, some frankly we lost some good folks who had lost faith. But now that attrition rate is trending back down toward the norm.”

As for how things have gone since the shift, Rhodes wouldn’t say, citing the company’s upcoming quarterly earnings call in a couple of weeks. But press on the move was generally upbeat.

“You can assume we feel positive about the traction from the launch,” Rhodes said.

And he took heart from the less then stellar Amazon earnings last week. For him, the latest progress at Amazon Web Services suggests that people might be open to different approaches. Including, possibly, the one at Rackspace, which provides infrastructure at a price comparable with other providers — but also offers the service and support that companies can’t or don’t want to have in house.

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Still, a company shouldn’t be defined by its competitors. Rackspace will need to go along its own path, one different from the whole “open” thing. And that’s exactly what Rhodes is trying to help the company do.

“We are getting our act back in shape internally,” Rhodes said. “And now it’s just time to put numbers up on the board and prove to the market that the managed-cloud strategy is a good strategy for a profitable portion of the market.”