Rest in peace, Rackspace of yore.
The obituary for the hosting startup that San Antonio came to know and love after its 1998 founding by three Trinity students with the financial backing and business acumen of real estate investor Graham Weston, should have been written long ago.
There is still a company in San Antonio named Rackspace Technology, but no one should mistake it for what it once was. Customers learned that the hard way in the early morning hours last week Friday when their email accounts went dark, while evasive company executives acknowledged a “security incident” forced them to take down its Hosted Exchange business.
As the hours grew into days, and the weekend came and went, there was little said about what really happened or when service would be restored. Finally, on Tuesday, the company acknowledged it was a ransomware attack that the company stated could cost it $30 million, in an SEC filing, although little else was disclosed as lawsuits began to be filed.
One outcome the company has not acknowledged is the possibility of a permanent loss of email archives for customers.
Rackspace, under its latest CEO, Amar Maletira, has responded to the attack with a lack of transparency, timely communication and credible customer service. Longtime customers and others in San Antonio were left shaking their heads at the continuing demise of a once-celebrated brand that — from 1998 into a new century — signaled all that was good, innovative and promising about San Antonio’s fledgling tech sector.
Remember the old Rackspace and its famous commitment to “Fanatical Support?” Highly trained people handled the company’s incoming telephone and online inquiries, priding themselves on quick responses and fast solutions. Other hosting companies already known for poor customer service eliminated U.S-based customer service employees and installed computerized response systems that often left customers on indeterminate hold or without a lifeline to a helpful human being. Others moved jobs offshore to countries where wages were low and so were customer service outcomes.
Social media outrage this past week told the story of how thousands of Rackspace customers here and across the country were left in the dark for days. People who lost all access to their email accounts reported waiting hours on hold for a person to respond, only to be disconnected. Executives hid from the media and public behind infrequent and meaningless online statements. Business schools should study the Rackspace meltdown as a textbook example of executive ineptness and corporate obfuscation.
The wife of one former senior Rackspace executive who helped build the startup into a nationally recognized tech company awakened Friday to the news and her missing email, and opted to call Rackspace and register for a callback without having to spend hours on hold. Five days later, she was still waiting for that promised callback and a resumption of email service. Perhaps it’s time for Rackspace to update its self-congratulatory website with a new catch-phrase: Fanatical Anger, words that better capture current customer sentiment.
Next to the sudden departure of AT&T for Dallas in 2008, I rank the slow and steady demise of Rackspace to be San Antonio’s second saddest corporate story.
Founders Richard Yoo, Pat Condon and Dirk Elmendorf met at Trinity University in the mid-1990s, but their cash-poor hosting business needed a business-savvy investor and that’s when they met Weston, who intended to hire them to install affordable high speed internet in the Weston Centre. That project was set aside when Weston learned of their hosting venture and brought much-needed capital and acumen to the table.
All the founders are now engaged in building other companies while often investing in other promising startups. All except Yoo were early supporters of the Rivard Report.
San Antonio’s storied tech startup’s commitment to over-the-top customer service spurred meteoric growth. Thousands of good-paying jobs were created here, in Austin, London, Hong Kong and beyond. That growth made its founders and many other early investors wealthy (or wealthier), and introduced the city to a new work culture where “Rackers,” as employees were known, operated with unusual independence in a casual workplace environment that featured lots of perks and performance rewards.
“Fanatical Support” quickly became the company’s defining profile, not just here in San Antonio, but across the tech sector nationally at a time when website and email support was notoriously bad across the board.
As the company quickly grew, the former Windsor Park Mall was bought by Weston and magically transformed into The Castle in 2008, the same year the company went public on the New York Stock Exchange. First-time visitors felt like Dorothy and friends arriving at the gates of Oz to see the Wizard.
Rackspace evolved, entered the cloud space and acquired other fast-growing companies that brought new tech talent to the city and kept the company competitive. New startups spun out of The Castle as Rackers embarked on their own entrepreneurial quests. Weston and his cohorts encouraged that startup culture and founded Geekdom, the startup incubator and coworking space, in 2012, the same year my wife Monika and I launched the Rivard Report with Weston’s encouragement and support.
We actually began at The Castle and moved to Geekdom when it first opened in the Weston Centre. Two years later it moved to the historic Rand building on East Houston Street, where I am once again officing and writing this column now after retiring from the San Antonio Report.
For six years now, Rackspace has been in the hands of private equity group Apollo Global Management, which acquired Rackspace for $4.3 billion in 2016 and took the company public again at $21 a share in 2020. Ever since, Rackspace Technology, as it was renamed in 2020, has become an ever-shrinking shadow of itself, its value and future hard to glean, its once celebrated work culture a mere memory.
Don’t expect Rackspace to ever fully recover from Friday’s meltdown. The 1.2 million-square-foot headquarters in Windcrest is now for sale. The remnants of the company will soon decamp to less than 10% of that space, in a smaller office building near Stone Oak.
A company stock that soared to about $80 a share in early 2013 fell from about $5 a share Dec. 2, when the meltdown hit the wires, to $3.23 as of Friday’s market close.
Yet the positive echoes of Rackspace will be audible for decades to come as the tech companies it birthed continue to operate and grow here, with new ventures developing all the time. The company of Fanatical Support will be remembered as San Antonio’s unicorn. While San Antonio looks forward, it’s worth remembering how Rackspace helped the city become what it is today.