In this article, we are going to review Rackspace Technology inc's (RXT) history and the big shifts in its business over the last few years.
We will then look at the impact of these changes on its business processes and its customers before examining the alternatives available to Rackspace's cloud hosting & cloud support offerings for AWS & Azure.
Rackspace Technology is a managed hosting and cloud computing company. They offered dedicated servers, managed hosting, and cloud computing services. The company was founded in 1998 and its headquarters is located in Windcrest, Texas. As of 2013, Rackspace Technology had data centers operating in the United States, Europe, and Asia.
Rackspace Technology has been through multiple changes in leadership starting with Graham Weston stepping down as CEO in 2016 and being replaced by Taylor Rhodes. In early 2018, the board decided to replace Rhodes and appointed Joe Eazor as the new CEO. After Eazor's stint, he was replaced by go-to interim CEO Jim Lewandowski.
In 2016 it was announced that Rackspace Technology would be acquired by Apollo Global Management for $4.3 billion. The deal was completed in November of the same year.
From 2016 onwards its been an interesting journey, from being floated on the market and then part of a leveraged private buy-out in 2016 and then relisted in August 2020. After less than two years back on the market, the news was broken by Barrons & Computer Weekly that Rackspace Technology is for sale again and might sell off business units.
“As we completed this strategic review, and also based on the inbound interest for one of our businesses, we concluded that a sum-of-the-parts valuation of Rackspace Technology could be greater than our current enterprise value,” CEO, Kevin Jones
Returning to the public market with an IPO priced at $21 a share, the initial float was a rocky one, with prices debuting as low as around $16 per share. Before the markets opened on 13 June 2022 the price per share had fallen to $6.69 per share with a year high of $19.99 and a year low of $6.00. This shows a drop of over 68% in the share price from the original IPO price of $21.
Rackspace's market cap has dropped from an initial valuation of over $4.3 billion to today's $1.42 billion.
According to an article on Seeking Alpha, a well-known market news source, this is mainly due to "concerns over operating margins". (Rackspace Technology: Deep in busted IPO territory 3 June 2022)
This article highlights the concerns the markets have over Rackspace's operating margins. Mainly that their move away from data centres to cloud providers (Microsoft Azure / Amazon AWS) will not increase margin as they are swapping one third-party cost for another.
The seeking alpha article also highlights the level of long term debt in the balance sheet as an ongoing concern for investors. For the financial year 31/12/2021 long term debt was reported at over $3.3 billion.
When considered against reported cash and cash equivalents of just over $272 million and net receivables of $554 million this starts to paint a picture of a business burdened by debt that will need to take drastic action. Firstly to prop up its short to medium-term profitability and also to service its mountain of debt.
The Microsoft Commerce Platform Operations Agreement for Cloud Solution Provider program has been updated starting July 1, 2020. Cloud Solution Providers are concerned about two specific changes:
1) The requirement to maintain a reserve fund
2) The increased liability for operational problems
These changes come at a time when many CSPs are already struggling to maintain profitability and could force some providers to exit the market. It is clear that Rackspace is in a precarious position and these latest changes from Microsoft along with others that have been announced are piling on the pressure and eroding margin.
Rackspace support has been in the news for all the wrong reasons this year, with multiple rounds of layoffs. The first set of layoffs was in March 2021 with over 500 employees being let go
The latest round of layoffs comes as a direct result of the COVID-19 pandemic and has seen another 700 staff lose their jobs. This now takes the total number of job losses at Rackspace to over 1,200 in just over 12 months. These job losses have come across all departments and geographies with no one area being spared.
The effect on morale must be extremely tough for those still employed by Rackspace, especially given that these are not the first round of layoffs in recent years. In 2019, Rackspace also went through a series of layoffs which saw around 7% of their workforce being given notice.
Rackspace is not the only company to have been hit hard by the pandemic, while many others are in the same boat. The difference being that most other companies have not gone through multiple rounds of layoffs in such a short space of time and with such a high proportion of the company let go.
These different rounds of layoffs have been well documented in online articles each time they have happened:
This raises questions over the long-term viability of Rackspace as a business and whether they will be able to weather the storm and come out the other side. Only time will tell but for now, it looks like Rackspace is in for a rocky ride.
The short answer is, not well. With on-going concerns over profitability, margins and debt levels, Rackspace has been forced to make some tough decisions. One of those decisions has been to offshore its technical support function to save costs.
It is alleged that this has had a profound effect on the quality of support that customers have received. And there are now numerous reports of customers being kept on hold for extended periods of time, only to be disconnected or transferred to another department.
In an age where customer service is key, this is a huge problem for Rackspace. Customers have made their feelings known about the poor quality of support they have received by taking to social media to vent their frustration.
A quick search on Twitter throws up a litany of angry tweets from customers who have been left frustrated by the poor quality of support they have received from Rackspace.
It is clear that Rackspace has a problem on its hands. Not only is it losing talented and experienced employees but it is also alienating its customer base with its offshore strategy. This is a dangerous combination and one that could spell disaster for the company in the long run.
One of the most damning reviews of the poor level of service received by customers was published in a column on computer world on the 9th February 2022 by Evan Schuman. The piece was entitled "Rackspace is now the roach motel of cloud platforms".
"Ever since its layoffs last summer and a plunge in quality, Rackspace Technology lets customers in — but won’t let them out. A cautionary tale of a business that had to fight like heck to escape." Evan Schuman, Contributing Columnist, ComputerWorld
This piece breaks down a customer's experience of ongoing support problems with increased call waiting times, longer ticket resolution times and a disconnect within the support teams in Rackspace.
The Rackspace support team has been hit hard by these changes and there is concern that it is no longer able to provide the same level of service as it once did. This has led to frustration among customers who are now forced to wait longer for issues to be resolved.
Rackspace's business issues are impacting customers, and they are looking for alternatives. There have been multiple articles published online about the direction Rackspace Technology have taken over the last few years. These range from decimating the workforce with layoffs to the slump in the share price despite reaching targets.
CloudOps offers unified cloud management and is plug and play with AWS & Azure, meaning you don't need to move cloud providers to start getting the benefits.
We have had strong feedback from our customers who have come over from Rackspace and they have been quite open about the support problems and the ongoing cost of that poor support from Rackspace.
Reasons for Switching to CloudOps (Why I left Rackspace): "Rackspace have undergone a structural change and sadly the service is pathetic for the high service charges they apply to their accounts. We instantly went from paying over £2.2k for a manager and operate solution down to under £1k a month" - Gary P. Managing Director of a software company
Another point raised by Gary in his review on Capterra is the monthly saving that CloudOps was able to recommend and implement. This was an ongoing saving of over £300 per month ongoing on his Azure subscription.
Part of this is due to how Rackspace implement monitoring and cost management on their client's Azure deployments. This involves using "Log Analytics Workspace" with a number of alert-type queries. Log Analytics workspaces are changed based on the data they ingest and process. This can result in a significant ongoing part of your Azure spend just for this which is bundled into most cloud management solutions.
So by moving your cloud management and support to CloudOps you can save on your spend with Rackspace and mitigate their degraded support function.
Take a CloudOps test drive and find out how we can accelerate your cloud.
If you are stuck with Rackspace Technology and need to find a new cloud provider for your AWS & Azure services then contact us. We can help you map out a plan to get away from Rackspace and move to a new provider with minimal disruption, often this is with the public cloud provider direct. Then our CloudOps software allows you to make sure you have control of your cloud infrastructure.
We have also written two white papers to help you review and plan the steps involved which are available on our site:
Or get in touch to discuss how we could help you move your business away from Rackspace.
Rackspace's issues are impacting customers now, and they are looking for alternatives. There have been multiple articles published online about the direction Rackspace Technology has taken over the last few years and its impact on service / customer satisfaction.
These range from decimating the workforce with layoffs to the slump in the share price despite reaching targets. As a result of these changes, the Rackspace support team has been hit hard and is no longer able to provide the same level of service that it once did.
CloudOps provides an alternative for customers who are looking for a new cloud management and support solution. We offer a plug-and-play solution for AWS & Azure that is cost effective and provides the features and support that Rackspace customers need.
Or speak to us today on 0203 697 0302 we operate 24 hours a day 7 days a week.