As Rackspace Sells to Apollo for $4.3B, Locals and Cloud Feel Impact

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answer the phone, show customers they care and are passionate, and be committed to the customer, according to Miller, the investor who also served in multiple executive roles at the company.

In October 2014, Rackspace announced an agreement to offer support to customers of Google Cloud, specifically its workplace productivity suite Google Apps for Work. That was followed in 2015 by deals with Amazon Web Services and Azure, and others this year. The work it does with competitors like Google and Amazon allows Rackspace to make money on its customer support side, even if isn’t on the hosting.

Rackspace believed that its customer service offering could stem declining revenue growth; its revenue increased by only 11.5 percent in 2015 over 2014, while it increased by 16.9 percent in 2014 over 2013. While Apollo didn’t provide any clear indication that the support side of the business would necessarily remain a focus, Sambur said the investment firm has respect for the Rackspace employees’ ability to “deliver expertise and exceptional service for the world’s leading cloud platforms.”

Miller, meanwhile, says that Rackspace’s success shows that customer service still matters, even in the modern era.

”Service, commitment, and going above and beyond is something that the buying public wants and is willing to pay for,” Miller wrote in an e-mail to Xconomy after the acquisition was announced. “This successful sale of the company is a reflection of [Rackspace employees’] daily work and commitment to delivering and extraordinary experience through Fanatical Support.”

Rackspace has a substantial footprint in the tech community and the broader startup scene, both in Texas and nationally. The company astutely observed that if it provides free hosting services to companies that qualify for nationwide incubator and accelerator programs—from Y Combinator to Techstars—it might be able to hook those startup founders to its hosting and customer service offerings. (Wade Roush explored the Rackspace Startup Program, which was developed in 2011, for Xconomy in 2013.) The approach also led to some of Rackspace’s most notable startup acquisitions.

In San Antonio, the company’s presence has changed the landscape of the workforce and business culture. Multiple former Rackspace employees have moved on from the company to lead or start other businesses, including coding schools, business services for software developers, affordable housing projects, and social media service offerings.

That’s not to mention the various other services Rackspace helped establish, such as a training program for people considering a career in IT, called Rackspace Cloud Academy. Weston, the chairman, helped launch Geekdom, the downtown co-working space that houses many of the burgeoning tech and healthcare startups that are beginning to spring up throughout the Alamo City. It is run by another former Rackspace employee, Lorenzo Gomez.

Rackspace also provided funding and people to help launch Tech Bloc, a local tech advocacy organization. Former Rackspace president Lew Moorman was a co-founder of Tech Bloc. Rackspace has had a similar impact on San Antonio to the one that Dell had on Austin in the 1990s, says Tech Bloc CEO and co-founder David Heard. Dell recruited high-caliber tech talent to the city, and it resulted in many workers eventually leaving to found their own startups, he says.

“A lot of those companies have become a big deal,” Heard says, referring to the Austin startup scene. “That’s already happening in San Antonio due to Rackspace, and a lot more is yet to come.”

Because many Rackspace shareholders are locals, there is potential that some of the cash windfall from the sale will be reinvested into local startups, says Blake Yeager, the managing director of the Techstars Cloud accelerator program in San Antonio. And because deals like this often result in changes in the acquired company, it may also mean that trained, talented workers will be looking for opportunities outside of Rackspace, Yeager says.

“These factors may provide two of the much needed ingredients to continue to grow a successful startup ecosystem, capital and talent, which bodes well for the future of San Antonio,” he wrote in an e-mail.

The sale is a conclusion to a long journey, which started in 1997 when the idea for a company was developed by Yoo, Elmendorf, and Condon, who all attended San Antonio’s Trinity University, according to Miller, who served as president, co-CEO, and co-chairman during his time at Rackspace.

After the deal was announced, Elmendorf tweeted: “What an amazing ride…”


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David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at [email protected] Follow @xconholley

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