Interview with Patrick Condon of Rackspace Managed Hosting

CPU Review recently sat down with Mr. Patrick Condon, co-founder of Rackspace Managed Hosting ( http://www.rackspace.com) to talk about the changing face of the dedicated server market, the strategies and success that Rackspace has experienced, and what the future may hold.

CPU Review: What is the relative size of the company, and where are you located?

Patrick Condon: Rackspace has been in business for about 5 years now, and a lot has happened in 5 years! We currently have 345 employees, and we’re a little north of 9,000 servers now. We have a sales and marketing office in London, there is a data center there as well. There are 2 data centers in Texas, and then 1 (data center) in Herndon, Virginia.

CPU Review: How did you get the company going?

Patrick Condon: We realized early on that this business was not about technology. You can fool yourself into thinking that it is – the Internet, and bandwidth, and servers, and data centers which are all cutting-edge technology – but at the end of the day anybody can build an awesome data center with a couple million dollars, anybody can buy bandwidth from the same providers that we buy bandwidth from, and anybody can buy Dell servers, or Compaq, or build their own.

The part that really makes Rackspace special and has allowed us to flourish at a time when most hosting companies have filed for bankruptcy is our continued focus on service and support – and our commitment to it.

CPU Review: What about your data centers – is there anything that sets them apart from other data centers?

Patrick Condon: Yes. One of the things that I have just realized about data centers is that, first of all, data centers are ‘power plants’. Getting the proper amount of power to the equipment is important. Because we control everything in the data center, we are able to maximize the ‘servers per cubic foot’ in the data center. That sets us, and maybe other managed hosting providers apart – we have a standard and we’re able to stick to it because it’s all our own equipment.

CPU Review: Since you’re focused on ‘servers per cubic foot’ does that mean that you manufacture your own servers to enhance this metric?

Patrick Condon: We do, and that’s part of our business. Although an even bigger part of our business is a tight partnership with Dell – we deploy a lot of Dell PowerEdge servers.

CPU Review: What is the core strategy of Rackspace?

Patrick Condon: It focuses on service and support. This is something that we were founded upon – the principle of serving customers properly – being a company that is easy to deal with and do business with. Anytime that customers talk about experiences with service providers – whether it’s the Internet, or telcos, or cable companies – it’s usually a bad experience. We spent a lot of time thinking about all the things that we hate when we call the phone company – and told ourselves “We’re never going to do it like that.” That is one of our core values.

In terms of our strategy, I think that it’s understanding our customer base - and tailoring our service and support for different types of businesses that do their business at Rackspace.

CPU Review: You have several different brand offerings now - Intensive Hosting, Rackspace and Server Beach – tell us about those.

Patrick Condon: Intensive hosting is the division of Rackspace that specializes in selling to the enterprise – and in particular the enterprise running complex Microsoft web applications. So the service and support of the Intensive division is very focused on specific Microsoft technologies such as: Active Directory, SMS, and even Microsoft applications like PeopleServer. So it’s a higher service level, and a higher level of expertise in Microsoft technology.

Intensive Hosting is good when a customer wants to hand off even more of the administrative tasks in managing a hosting environment such as: patching, or security issues – so that they can really focus on their applications and on their customers – and not on the day-to-day management of the infrastructure.

The Rackspace brand has traditionally offered managed hosting and managed services – patching and managed security, load balancing, SSL accelerators, even routers – depending on the size of the cluster – and many of these managed services are on demand.

So as customers grow and need them, and need to scale – we have expertise in complex environments with multiple-servers working together to manage an application. That’s Rackspace’s expertise – complex hosting environments.

Server Beach is an separate entity that one of my original partners, Richard Yoo, started. He is technically very brilliant at coming up with ways to automate things. He saw a great opportunity to build a hosting company that could compete at that low price point, and still make money. That is very tough to do, given the economics of the discount dedicated market. So Server Beach has automated as much as possible, to make that low margin business profitable.

CPU Review: How does a small to medium sized business know when they are a candidate for dedicated hosting? Are there some “Top Reasons”?

Patrick Condon: I think that the number one thing is probably the amount of resources needed to run that particular web site – so resource usage is one of the “Top Reasons”. By resources here I mean: bandwidth, disk space, processing time, RAM, and the amount of memory the site requires.

If you simply have a “brochure-ware” web site, then virtual hosting is for you. When you have a site that is more than a brochure – whether you are selling something on the Internet, or you have a very popular site and you get more and more traffic – a shared site may not be able to keep up with that. If your site has a number of visitors in the low-thousands per day, you probably want to think about getting a dedicated server.

Another reason revolves around security. Whether you have data that you really want to protect, or if you happen to have a high-profile site that is a target of hackers, dedicated is preferable. Typically sites on a shared environment are less secure for a variety of reasons. So as you start to get more and more serious about security, the dedicated environment makes more sense for you.

Additionally, when you’re in a shared environment you are in many ways at the mercy of all the other customers in that shared environment. So if there’s another customer on that box that’s doing something bad - that may be using up all the resources of that server – your customers and your site is effected by that.

CPU Review: Hosting prices in general seem to be falling, and there is increasing ‘commoditization’ of both the shared and dedicated products. How do you see this effecting Rackspace?

Patrick Condon: I don’t anticipate that this will have much of an effect upon Rackspace. Our customers are businesses with mission critical needs. They are willing to pay for great service.

A good way to think about is: what are you going to do when it’s your job on the line? Our customers are typically the ‘CYA’ buyers. These are IT managers, or CTO’s – people who could lose their job if they made a bad hosting decision.

This is in contrast to who I believe are the core buyers for the discount dedicated products – more of an ‘owner/operator’. That is, the person making the decision is the owner of the company – they probably won’t get ‘canned’ if the web site goes down for a week.

CPU Review: There’s another web technology company out there that had been private and is now apparently going public, Google – what are the current plans for Rackspace with regard to outside investment?

Patrick Condon: The whole Google thing is just amazing to me. In turns of Rackspace, we did file to take Rackspace public back in March of 2000. This was just right on the cusp of when the bubble burst. It was also just after Interland and Data Return got out there.

Looking back, it was probably the best thing for us that we did not go public. It forced us to think about the things that really matter – the first of which is making money. We are now fully funded, and free cash flow positive. Therefore, we don’t have a great need to take it public until the time is right. So when the time is right it is certainly an option.

CPU Review: What trends or developments do you see as likely to emerge in your industry?

Patrick Condon: I think that you’re going to find more and more people moving from virtual hosting to an entry level dedicated box. I think that you’re going to see tremendous demand for ease of use and ease of management tools. On the managed services side, I think that many more companies are going to continue to outsource IT infrastructure, and certainly the hosting environment, to managed hosting providers like Rackspace. We’re now seeing a shift where more and more companies are feeling comfortable about outsourcing.

Editor’s Note: To learn more please visit Rackspace Managed Hosting at http://www.rackspace.com.