Rackspace – titan or tweenie of tomorrow?

The recent article about the latest figures from Rackspace, and the thoughts of CEO Taylor Rhodes on where the company goes next, have once again stirred thoughts on an old topic - just what is it that service providers, and especially Cloud Service Providers (CSPs), are selling and why are they trying to sell it?

This is an issue that affects the future of all CSPs, not just Rackspace, but Stuart Lauchlan’s coverage of the company gives a good foundation for considering some of the wider generic issues.

As Lauchlan's story showed, Rhodes has a good understanding that the company needs to do much more than attempt to sell more racks, but there are still question marks over what constitutes the `more' in question.

He expressed his concern about slowing growth rates, particularly around public cloud revenues, with growth remaining `slow' during its second quarter. He has identified four areas where he feels the company needs to up its act. In practice, his selections identify issues that point to a core, on-going issue with the CSP business - understanding just what it is they are selling, and why.

Marketing, sales and talent

These three of his issues are really related to that one fundamental problem. If CSPs are not clear in their understanding about what it is that customers are seeking from them then it will be difficult to find the right marketing approach, the right messages, that create a customer mindset which makes them feel compelled to make an approach to a CSP sales department.

That sales department, given the chance, is likely to try and sell them something that the company provides, which probably won't map onto what it is that the customer is actually looking for. This can be seen in action from a couple of statements from Rhodes, culled from Stuart Lauchlan's piece:

We see the market opening up for us as large traditional players struggled to adopt cloud business models, and as mainstream businesses demand multiple options for cloud infrastructure along with high value managed services.

And then there is this one:

We create additional value by providing customers with a choice of the world’s leading technology, including soon multiple public and private clouds, e-commerce platforms, data services and productivity suite. We serve customers on the technologies that are best for their needs.

There is absolutely nothing wrong with either of these as statements from a technology company, selling technology to technology users. But the time has come for any CSP to stop viewing itself as a technology company. That is the equivalent of Beethoven viewing himself as a great applied mathematician. In practice indeed he was just that, but the vast majority of those listening - his 'customers' - view him as a stunning composer and musician.

Rackspace intends to focus on a strategy of third-party management of cloud services from the likes of Amazon Web Services and Microsoft Azure but not the likes of Accenture, and that suggests a strong tech-oriented culture is still driving the company. Arguably there is a strong need to head at least some way down that collaborative consultancy route, helping customer businesses transform themselves into whatever it is that their marketplace is seeking.

This is because the technology is now a utility: it is dead easy to just get it. What you do with it, however is a different argument. History has examples that make the point. Forty or so years ago, many major manufacturing businesses had their own electricity generating stations to ensure continuity of supply; now I doubt you'd need the fingers of one hand to count examples in the UK.

In just the same way, selling cloud as a technology service to technology-savvy businesses is a self-limiting market that will dwindle over time. The vast majority of the total available marketplace want to get on with their own business, not invest in understanding what is increasingly a basic tool of the trade. People know how to write with ballpoint pens, and they don't need to understand ink delivery technologies to do it.

With reference to the Accenture type of business, Rhodes said:

Accenture and the other global SIs have a very different business model obviously. [It’s a] very, very different business for us, right? We have never really focused on getting into the professional services business because we value sticky recurring revenue models.

This may just be exactly the diametric opposite of what the company – indeed any CSP – should be thinking now.
That, of course, leads straight into the issue of talent, both choice and management. It means hiring consulting talent, and targeting market sectors where there is both demand for full service support and a supply of available talent to hire. That means also having marketing talent that can research potential market sectors and understand what the responses from them actually mean.

It also means restricting the size of the total available market this approach addresses and balancing that with the potential of significantly increased revenues from each customer.

Public Cloud product take up

Rhodes also singled out the relatively poor take up of Public Cloud services by potential customers as a driver of the slowing up of the marketplace. That does, obviously, beg the question as to why they don’t want it, and there are two obvious answers.

The first is that it is just plain wrong for them. Yes, a Ferrari 458 would be nice but the business needs to deliver farm produce.

The second, however, is more likely – they like the top level idea behind it but…….. while the pitch storyboard looks great the actual movie is unintelligible. What makes it worse is that `the critics’ are then telling the customers it is their fault for not understanding.

But with the commoditisation of whole systems - both hardware and software - now well underway the users no longer need to understand how they use the tech to set about achieving their business goals. Instead it is down to the service providers to understand what it is the users want to achieve in business terms, and why they want to achieve it.

In the same way that most businesses throw themselves on the mercy of their bankers, accountants and solicitors, they should now be able to throw themselves on the mercy of a CSP that understands not only the technology but also their business and marketplace issues as well – and not one that just wants to sell them another rack of resources.

This does leave one Rackspace-specific question: is the company a bit between a rock and a hard place? It is quite a big company and obviously wants to get bigger. The trouble is there are already much bigger players out there. Rhodes obviously knows this because he is now targeting the provision of management services for those mega resource providers.

Sadly I suspect that might be a relatively short-term market as well, especially if lots of smaller CSPs target the provision of a full-service, consultancy and collaboration approach tailored to the specific needs of a few broadly vertical market sectors. That would give users a choice between just having reasonably low-priced infrastructure management services or more expensive DIFY (Do It For You) services by a business that covers just about all the bases a business needs covered.

Many business customers would, I suspect, find the extra cost worth the investment.

My take

It is still very early days for CSPs, but there is a danger that some will end up as 'tweenies’ between the titan infrastructure providers and the specialist full-service CSPs. It could be that providing cloud services may become the ultimate small business playground: the new VARs and SIs.