Rackspace vs. Amazon Cloud: Like Nordstrom vs Wal-Mart?
Rackspace (RAX) is locked in a nasty cloud services price war vs. Amazon Web Services (AMZN), Microsoft (MSFT) Windows Azure and Google Compute Engine (GOOG). Each time Amazon slashes AWS cloud prices, Rackspace responds in kind. How can Rackspace break out of that potential death spiral? Simple: Start acting like Nordstrom (JWN) rather than Wal-Mart (WMT). Here’s why.
Question: What is Rackspace’s greatest asset? Some pundits may say OpenStack — the public and private cloud software standard. But The VAR Guy’s opinion is vastly different. The real differentiator is Rackspace Fanatical Support. When it comes to customer support, the cloud services provider is known for (A) rapid response (B) and call centers that are staffed with true experts.
The VAR Guy has used a range of Rackspace hosting services since around 2009. And the Fanatical Support commitment is real.
In stark contrast, Amazon is not very well known for customer support. Like an electric utility, Amazon tries to keep the power on. But if the power goes off, you’re basically in the dark (for the most part) until Amazon restores service. Moreover, neither Amazon nor Windows Azure have particularly strong reputations for small business customer support.
You can bet Amazon will offer rapid response to Netflix — one of its largest cloud customers. But will tiny video service providers receive that same level of support on Amazon? Doubtful.
In stark contrast, Rackspace phone support picks up super-fast no matter how large or small your business is. Those operators typically route customers to experts who understand and troubleshoot database, network, storage, compute and cloud issues.
Most impressive: Rackspace Fanatical Support is essentially free with the company’s cloud and hosting services.
This Makes No Sense
And therein lies the rub: For some strange reason Rackspace is trying to compete with Amazon on price — the Wal-Mart model. Instead, Rackspace should compete on customer service — the Nordstrom model.
Surely, there’s a class of cloud customer that’s willing to pay a price premium for Rackspace Fanatical Support. Go find those premium customers, Rackspace. And stop trying to compete with Amazon on price — which is no-win scenario for you and your long-term investors (including The VAR Guy, who remains long on RAX shares).
i completely agree, Rackspace
i completely agree, Rackspace cannot beat Amazon on price. With giants like Amazon and Microsoft in the market, the best Rackspace and others do is aim for the market in which these giants do not focus on i.e. the Small businesses. these markets can be segmented either on business size or value adds like customer support.
If Rackspace continues to lower its prices then it can start losing its long term investors and eventually customers too as there is simply no way that Rackspace can match the prices of Amazon in the long run.
I haven’t been at all
I haven’t been at all impressed with the Rackspace support. We have a server which was originally with Slicehost. In my opinion the transition of Slicehost customers to Rackspace was handled very badly, and our situation is now much less secure than it was before, all for more money. In particular, whereas Slicehost allowed separate login creditials for, say, billing and designers, the equivalent Rackspace offering requires a single set of login credentials!? I was truly astonished at this degree of lack of security and when I asked them about it they were not the least bit concerned. They said we would just have to “share” the login information with the people who needed to access the various functions to manage the website (across financials and conent). Who believes this is a good idea? Rackspace, apparently.
Interestingly enough, as a
Interestingly enough, as a Racker, that is precisely how we see ourselves. Not only do we strive to be one of the worlds greatest service companies, we want our employees to love where they work. Win-win for customers and the Rack. Of course, as Norstrom will say about Walmart, it’s hard to ignore how low they drop their prices and, kudos to AWS and their proprietary offerings, organizations quickly become victims of vendor lock-in on Day 1 unless they are savvy/careful/aware. Nordstrom, Lexus, Rackspace = Service leaders. Walmart, AWS and McDonald’s = Low Price leader.
Why isn’t AT&T mentioned in
Why isn’t AT&T mentioned in this article? We have a competitive Cloud offering that leverages our existing MPLS network for existing customers as well as through the internet.
You make a great point,
You make a great point, Rackspace should focus on keeping their excellent support model as well as develop Business SLA’s for their products. That would position Amazon as the cheap solution for consumers/SMBs and Rackspace would take over the commercial / enterprise space.
Fanatical Support is great,
Fanatical Support is great, but it isn’t their greatest asset when it comes to cloud services. Rack Connect (the ability to use both cloud and managed services together) is a key differentiator that AWS simply cannot do.