Rackspace's plan to beat Amazon: "Fanatical support"

December 2, 2011: 7:00 AM ET

The much buzzed about cloud computing provider is planning to take on industry giants not with pure technology, but radical customer service.

FORTUNE -- Rackspace Hosting is one of the most buzzed-about players in cloud computing. The Texas-based company recently hit the $1 billion mark (in annualized run rate revenue), and has signed on more than 160,000 customers. Last year it unveiled OpenStack, an open source cloud platform also backed by NASA.

While giving away your software for free may not sound like the best strategy, Rackspace (RAX) believes it will help accelerate the industry in the long run. The company also believes its dedication to customer support -- not pure technology -- is what gives it an edge over the growing pool of much-larger rivals, which include giants Amazon (AMZN) and Verizon (VZ).

I recently caught up with Graham Weston, chairman and co-founder of Rackspace, to find out how the web-hosting provider has made customer support a core part of its business. Here's an excerpt from our conversation, which took place at the company's new office in San Francisco:

Why did you decide to focus on customer support?
In the original business plan there were very few people involved. But after six months we started to realize that we were getting angry calls from customers. We were getting a lot of customers but piling up angry people in the wake. That's when the turning point happened. We decided to embrace support. The first thing we started to do is answer the telephone. We took the fancy phone system offline and answered every call. That was the beginning of what we call "fanatical support." It took years to build it to what it is today.

How did you make support a core part of the business?
We said we are not a technology company, we are a service company. We see our whole reason for being is for customers to absolutely trust us and rave about our support. We used a customer satisfaction metric called the Net Promoter score. We made helping people who know less than they do the prize for our employees. We made sure everyone would buy into it. It sounds cliché but the key to it is teams -- dedicated support teams for our customers. Support sounds really fluffy until you have a problem. So the question is do things break? Yes, they break all the time. Software breaks. Things go wrong. But when they go wrong, how long does it take to get them fixed? You notice Google never goes down? It's not because of their servers—it's their people.

But is support enough to compete with Amazon and other rivals?
Yes. There are different kinds of cloud computing approaches emerging. Amazon is a flavor that is totally hands off and raw. There's no support involved -- they will not log on to your machine and fix it for you. They are trying to build a computing resource like electricity that needs no interaction with them. We're building a management resource. If you don't want the management and expertise that we give you wouldn't come to us. In the same way that Apple (AAPL) said we're not going to make a commodity laptop, we're an expertise business. That's the right place for us. The question is, is the cloud about a new way to buy servers or a new way to buy a computing service?

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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