Businessmodel of Rackspace

Customer Segments

Rackspace has a niche market business model, with a specialized customer segment. The company targets its offerings at businesses of that want another firm to host their applications.

Value Proposition

Rackspace offers four primary value propositions: accessibility, performance, risk reduction, and brand/status.

The company creates accessibility by offering a wide variety of options. Many web hosting firms only provide cloud computing services for public cloud form factors, while others only offer them for private or dedicated ones. Rackspace provides managed services for all major cloud form factors and technologies, including public, private, dedicated, and hybrid.

The company has demonstrated strong performance through tangible results. It offers a 100% Network Uptime Guarantee, meaning that its data center will be available 100% of the time in a given month. If this promise managed to be broken, it would offer a 5% credit of the monthly fee to the client for each 30 minutes of downtime. The firm also provides an Infrastructure Gurantee, stipulating that data center HVAC and power will be functioning 100% of the time (with a credit also provided for any downtime). Lastly, Rackspace offers a 100% Production Platform Uptime Guarantee. High-profile examples of specific positive outcomes for customers include the following:

• Xero, a provider of cloud-based accounting software, used Rackspace’s solution to improve development, testing, and quality, resulting in the doubling of its customer base in a year
• Dubizzle, a consumer-to-consumer classifieds portal, used Rackspace’s solution to scale its hybrid platform, resulting in a reduction in web latency and an increase in site responsiveness
• Six Flags, an amusement park corporation, used Rackspace’s solution to improve the performance of its infrastructure, resulting in zero lost revenue from online ticket sales

• ArcherDX, a developer of software solutions for sequencing, used Rackspace’s solution when it switched to a hosted environment, resulting in saved time and gained agility The company reduces risk through high safety and security standards. It has built multiple layers of redundancy into its system at every level, including the following:

• Physical Security – All of its data centers are restricted by keycards, biometric authentication, and 24x7x365 surveillance. Only authorized engineers have access to switches, routers, and servers.
• Power – Its power systems provide conditioned power while protecting against surges, sags, and spikes, and its uninterruptible power supplies provide instant failover for continuity during outages.
• Cooling - Its N+2 redundant chiller configuration uses a mix of centrifugal chillers, chilled water loop pumps, cooling towers, and condenser water loop pumps, with redundant water sources.
• HVAC – Its Heating, Ventilation, and Air Conditioning environment includes HEPA-equipped air handling units that eliminate dust and contaminants.
• Network – Its network includes nine backbone providers, enabling it to shift traffic as needed. This configuration protects against single points of failure at the shared network level. The company has established a strong brand due to its success. It touts itself as the world’s largest managed cloud provider, with over $1.9 billion in annual revenues and 6,000+ employees working on four continents.  It serves over 300,000 customers in more than 120 countries, including two-thirds of the Fortune 100 and 62% of the firms that advertise during the Super Bowl. Specific customers include Razorfish, Under Armour, Redhat, and Yeti. It provides support for technologies developed by leading firms such as AWS, Microsoft, Google, VMware, and OpenStack.

Lastly, it has won many honors, including recognition as a “Leader” in the Gartner Magic Quadrant for Cloud-Enabled Managed Hosting, North America two years in a row (2014 - 2015) and recognition as one of the best firms to work for by Forbes *and by *Fortune (for six out of seven years).

Channels

Rackspace’s main channels are its direct sales teams, third-party channel partners (software application providers, technology integrators, web developers, and consultancies), and online orders through its website. The company promotes its offering through its social media pages, paid/natural search marketing, online/e-mail/print advertising, and participation in trade shows and conferences.

Customer Relationships

Rackspace’s customer relationship is primarily of a personal assistance nature. The company provides 24x7x365 customer support through phone, e-mail, and live sales chat. Support teams are structured based on clients’ service and form factor choices (public, private, dedicated, and hybrid). They consist of specialized experts who can handle a wide range of technical and business issues.

Despite this orientation, there is a self-service component. The company’s website features a “Support Network” section that includes “how-to” articles, troubleshooting resources, and answers to frequently asked questions. There is also a community element in the form of a forum.

Key Activities

Rackspace’s business model entails maintaining a robust cloud-based platform for its customers.

Key Partners

Rackspace maintains the Rackspace Partner Network, which includes the following programs:

• Reseller Program – Includes firms that earn revenues by integrating and reselling the company’s cloud services, including applications, infrastructure, hosted e-mail, and associated support. Program benefits include access to marketing/sales resources and tiered discounts.
• Referral Program – Includes consultants or firms that refer leads to Rackspace in the form of potential clients, earning commissions in the process. They receive access to support teams.
• Strategic Partnerships – Include firms that provide Rackspace’s solutions to their customers. Specific partner types include digital agencies, master agents, systems integrators, VAR/solution providers, and venture capital/private equity partners. Partners receive training and marketing support. Rackspace also maintains partnerships called Technology Alliances through which it works with leading providers of software, hardware, business, and cloud solutions. It joins with them in joint marketing and go-to-market sales initiatives. Specific partners are EMC, VMware, Microsoft, Intel, NetApp, and Redhat.

Key Resources

Rackspace’s main resource is its proprietary software platform, which serves over 300,000 clients.  It depends on its human resources to maintain the platform and provide services. These individuals have significant expertise, and include the following:

• 3,000+ cloud engineers
• 250+ Microsoft-certified professionals
• 165+ Cisco-certified professionals
• 160+ Red Hat-certified engineers
• 149+ VMware-certified professionals
• 400+ AWS-certified professionals Rackspace has important physical resources in the form of enterprise-grade data centers located in Dallas, Chicago, Northern Virginia, London, Sydney, and Hong Kong. Lastly, as a startup it has relied on funding from outside parties, raising $17.8 million from five investors as of March 2000.

Cost Structure

Rackspace has a value-driven structure, aiming to provide a premium proposition through significant personal service and frequent product enhancements.

Its biggest cost driver is cost of revenue, which includes employee-related costs for its customer support and data center teams. Other major drivers are in the areas of administration, sales/marketing, and research/development, all fixed costs.

Revenue Streams

Rackspace has two revenue streams: revenues generated from the subscription fees it charges customers for monthly access to its cloud platform, and fees based on usage for various services.