HOSTSEARCH: Patrick - first of all thanks for meeting us again, it is great to catch up with people like this. For the handful of people who haven't heard of Rackspace and haven't read your 2004 interview, perhaps you could once again give us an overview of Rackspace and your products and services.
PATRICK CONDON: Sure, no problem. Rackspace Managed Hosting is a recognized leader in the global managed hosting market, and delivers enterprise-level managed services to businesses around the world. Serving more than 13,000 customers in eight data centers worldwide, Rackspace integrates the industry's best technologies for each customer's specific need and delivers it as a service via the company's award-winning Fanatical Support. We serve as an extension of our customers' IT departments, enabling them to focus on their core business. We got started in 1998 and since then Rackspace has grown more than 50 percent a year. There are currently 1800 Rackers around the world serving our customers.
Rackspace has two service-level offerings, Intensive and Managed. Both offer customers a dedicated account manager and support team that is available 24/7/365 and customizable configurations running on their operating system of choice. Rackspace Intensive and Managed hosting services include the server and device administration, backup and recovery, managed storage, monitoring, reporting, security, deployment and scaling planning, managed email services and database administration services.
HOSTSEARCH: What are the fundamental differences between dedicated and the managed hosting you provide? Isn't colocation an alternative to both?
PATRICK CONDON: Yes, colocation is an alternative to managed hosting but is one we do not support nor recommend. It is really a do-it-yourself option leaving the administration and management of systems up to the customer's internal IT staff. Colocation is really more of a real estate deal and not a managed service. If something goes wrong, the burden is on the customer to send one of its IT staff to the data center, sometimes hundreds of miles away, to solve the problem. This really doesn't remove much burden or headache from the customer's IT team.
With managed hosting, the customer doesn't have to have an IT staff dedicated to servers and infrastructure. The service provider (Rackspace in this case) is responsible for owning and managing the datacenter, network, device, operating system, and application framework layers of the stack. In our case we have a support team that is available 24/7/365 helping our customers when something goes wrong. The team is also responsible for proactively monitoring and managing the 5 layers of the aforementioned stack to ensure that issues are addressed before they ever become problems for customers.
Dedicated hosting, while similar to managed hosting, typically doesn't include the management of the top two layers of the stack (operating system and application framework) by the hosting provider. Dedicated hosting providers typically only manage the datacenter, the network, and the device layers. Dedicated hosters generally operate as "remote hands" only, so most of the system management burden still falls on the customer's internal IT team.
HOSTSEARCH: You were one of the founders of Rackspace, but what do you do for the organization now? How as your role changed since 2004, if at all?
PATRICK CONDON: I think when we last talked I was running the Customer Care group, the part of the company that delivers Fanatical Support to our customers every day. Today I spend most of my time with customers. Learning about the things we do well, the things we could improve, and the opportunities we have to expand our product set to better serve our customers. While we started as a web hosting company, we are rapidly becoming the back office IT department for many of the customers we serve. We host much more than just our customers public web properties. Today we host more of our customers file servers, payroll servers, email infrastructure, and other back office systems than ever before. We see this trend accelerating and I spend a great deal of time trying to figure out how to better match our product set up with the changing IT landscape.
HOSTSEARCH: So, what have been the highlights for Rackspace since we last spoke? What have been your main initiatives, and what sort of impact have they had on the company, or indeed, the industry?
PATRICK CONDON: Well most recently, Rackspace was named the 2007 Worldwide Hosting Service Provider of the Year by Microsoft. This is the third time we have taken home this honor and it shows our continued commitment to be the top Microsoft partner delivering market-leading, Microsoft-based solutions. We've recently launched our hosted Microsoft Exchange product which has become the fastest-growing part of our mail portfolio. Our various mail products currently serve more than 100,000 users, and we're excited about what a big piece of that is fulfilled by our hosted Exchange product.
Also, we were recognized as the best customer service organization by the American Business Awards in 2007 for the second time. This is a direct link to our mission of becoming one of the world's greatest service companies. We feel that being honored with this award validates our belief that we're continuing to set the bar with great service.
Most of all, our record growth and profitability has not slowed. We continue to post record revenue numbers, hire hundreds of new Rackers and are sign up hundreds of new customers per month. Our 1800 Rackers currently serve more 13,000 customers all over the world.
HOSTSEARCH: I noticed in some of the recent news stories generated about Rackspace that you have 'gone green'. What exactly has Rackspace done to help the environment? Honestly speaking, is the idea of environmentally friendly hosting just a PR or marketing exercise, or can the industry make a difference?
PATRICK CONDON: We are very excited about our green initiatives. We realize that we are part of an industry that consumes an enormous amount of energy, and while we don't claim to have the answer, we are committed to doing our small part toward the larger goal of energy efficiency.
We have entered into partnerships with groups like NativeEnergy and The Green Grid, and are diligently working toward a goal of being a greener company. We know it's not something that can happen overnight, but by addressing the problem and educating our customers and employees, we are taking the first step toward a cleaner tomorrow.
We are focusing our efforts in three categories: Company Conservation, Customer Offerings, and Employee Education.
Company conservation includes designing all of our data centers with power conservation in mind and leveraging energy efficient hardware and equipment. We recently unveiled a new UK data center that will operate on renewable energy. We have always leveraged energy efficient hardware and equipment in the data center, including the Dual-Core AMD Opteron Series processors, which consume less electricity than prior processor models. By joining The Green Grid, a consortium of information technology companies and professionals seeking to improve energy efficiency in data centers around the globe, we can have direct contact with our vendors to help them understand our data center power and efficiency and work with them on better products for the environment. We also has a handful of internal programs in our corporate offices including recycling, mulching and using non pesticide based chemicals for lawn maintenance, replacing all non-biodegradable products used in the break rooms like foam cups and plates to more biodegradable ones, and we uses one of the only green certified office cleaners in the San Antonio area for our corporate headquarters (we use recycled products in restrooms and kitchens and also use environmentally friendly cleaning chemicals).
Our second focus is Customer Offerings, which includes our partnership with NativeEnergy, a leading national marketer of renewable energy credits and carbon offsets. Through our partnership with NativeEnergy we will begin offering carbon-neutral web hosting to all new customers. Currently, Rackspace adds hundreds of new servers a month to its US-based data centers, and Rackspace will offset the carbon emissions for each new customer server brought online. These projects will support the Owl Feather War Bonnet Wind Farm project to bring wind turbine power to the Rosebud Sioux Tribe in South Dakota and also helps the Wanner Family Dairy Farm Methane Project in Pennsylvania. Another example is what our UK team does. UK Rackers plant a tree for every new server brought online!
And our third focus is Employee Education. On June 7th, 2007, Rackspace held its first "Green Day," a company-wide fair aimed at educating Rackers about conservation, recycling
HOSTSEARCH: During your last interview, you told us, "Our vision is to build Rackspace into one of the world's greatest service companies striving to offer world-class service alongside organizations like Nordstrom, the Ritz Carlton and Federal Express. These companies are known for their unique customer service experience and we want Rackspace's Fanatical Support to be similarly recognized." How far along the way have you gone to achieving this, do you think? It certainly appears that for a lot of big name companies you are the first choice.
PATRICK CONDON: As I mentioned before, we were recently recognized by the American Business Awards as the best customer service organization in 2007. Also, the Harvard Business Review recently came to Rackspace and shot video footage for an HBR video case study. The focus of the case study is customer service. For years, Southwest Airlines had been the model for customer service case studies, but now it will include Rackspace, so we are very excited that future business leaders will be familiar with Rackspace and Fanatical Support.
Part of our vision of being "one of the world's greatest service organizations" requires us to constantly push ourselves to raise the service bar. Service levels that were good enough 2 years ago are simply average today. Customers continue to expect higher levels of service, more personalized care, and more predictive help with their problems. We continue to build our service delivery philosophy, our systems, and our culture to support this continued need for even higher levels of Fanatical Support. We're in the business of providing our customers a pleasurable experience, and we're constantly pushing ourselves to do this.
HOSTSEARCH: I understand that you are expanding into other regions - Asia is one place that has been talked about. What are your expansion plans?
PATRICK CONDON: We're still solidifying our plans for Asia. Along with our office in London and our data centers in the UK, we have opened an office in the Netherlands to support the Benelux region. This is an important step for us as we continue to serve more and more customers in continental Europe.
HOSTSEARCH: Do you see a time when everyone with a website of any size will utilize managed hosting like Rackspace provides, or will there always be a need for shared, dedicated, colocation, etc.
PATRICK CONDON: I don't think hosting is a one size fits all industry. As industries mature they tend to divide into smaller sub-categories. In the 1960s there really was only one kind of device in the computer industry: the mainframe computer. As the computing industry matured, however, many sub-segments of computers emerged. Micro computers, midrange systems, personal computers, workstations, PDAs, laptops, etc. The same thing has happened in the hosting space. When we started, there really were only three options for hosting a website. Virtual hosting, colocation, or hosting in-house. We feel like we were pioneers in the managed hosting space back in 1998. Since then even more sub-categories of hosting have emerged. Things live VPS and discount dedicated servers - not to mention the latest wave of web services available today. These sub-categories emerge because users needs get more well defined. This is happening in hosting and will continue to happen as the industry matures. While Rackspace will not have an offering addressing every sub-category of hosting, we will continue to fund efforts at serving certain market segments. One recent example of this is our new Mosso brand serving web designers and web developers.
HOSTSEARCH: How would you describe the web hosting industry per se, and what are your thoughts and hopes for the future?
PATRICK CONDON: Lots of growth. As the IT back office gets more complex and more critical, IT departments are looking at specialized service providers to help them get more done faster. I think there is an argument that outsourcing to specialty service providers can help reduce overall costs, but I believe the driving factors tend to revolve more around ability to execute quickly as the IT department is asked to do more and more by the core business. These increased demands on the IT department will only continue and will drive more demand for external specialty IT hosters like Rackspace.
HOSTSEARCH: Incidentally, congratulations on being awarded Hosting Solutions Partner of the Year in Advanced Infrastructure Solutions by Microsoft. That's the third time in six years you have won this award - well done. What prompted your decision to partner with Microsoft and how has it benefited you?"
PATRICK CONDON: About 50% of our customers run on the Microsoft platform with the remaining 50% running on various open source platforms. Microsoft has been a great partner to work with and they've created a great platform that is in high demand by businesses all over the world. We have expert Rackers in all areas of the Microsoft stack which allows us to give our customers access to extraordinary resources that help them manage their applications better than ever before.