Hockey great Wayne Gretsky offered insightful business advice in explaining his scoring success. He said, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”
San Antonio, Texas’ Rackspace Hosting understands Gretsky’s model for success. Now twelve-years old, Rackspace designed its business model and value promise around a basis of competition – exemplary service – that will undoubtedly become more important going forward. Its Fanatical Support®, provided by 3,200 Rackers, is a high-touch offense in a rapidly changing industry in which participants often compete on technology capabilities.
Rackspace delivers enterprise-level website, e-mail and application hosting services to 130,000 customers around the globe, most of whom buy Rackspace’s cloud computing solutions. Its value proposition is working. Since 2007, Rackspace’s revenue growth has averaged 30% per year. With $70M net income expected in 2011, the company’s stock valuation has risen to $5.6B.
About industry evolution
Technology changes in today’s economy eliminate most barriers to entry, creating a shifting landscape of competitors. Nowhere is this more apparent than in the Information Technology environment where rapidly changing technology also leads IT departments large and small, not just to switch hardware and software suppliers, but to reconsider what they do internally versus what they outsource. In these tumultuous seas, technology usually divides the winners from the losers.
As industries mature, however, the basis of competition changes because what was once unique becomes more broadly available. Competitors copy what’s working and suddenly an industry’s competitors appear more and more similar.
A number of things happen at this juncture: Industry boundaries can collapse as companies outside that industry pursue adjacency moves. New entrants carve out niches not well served by the giants. The industry consolidates as companies seek to gain efficiencies that only scale offers and giant competitors scramble for ways to show revenue growth. And finally, the basis of competition usually changes with service becoming more important. Enter Rackspace.
Rackspace is anticipating an industry evolution during what some still consider the early stages of cloud computing. It is carving out “best service” as its differentiator, today. Certainly, there are risks. For instance, its hands-on, live voice business model is more expensive than competitor Amazon’s largely automated model. Rackspace has less money in the bank than many of its competitors, a critical gap as technology continues to change. Plus Rackspace is not as feature-intense as some of its competitors according to Gartner, Inc., a technology research services company.
Yet, focused on exemplary service, Rackspace is building at its core a culture that will be hard for others to copy. We are all experienced enough with technology to know the frustration when problems arise from being unable to tap a live person. Kiosks and on-line services are great when things are working smoothly (airplane check-in on a normal day) or the issue is not that relevant to our productivity and effectiveness (resolving a bill pay issue with Citibank). But a company’s e-mail, applications and website are mission central no matter what the company’s size. The ease in finding a live voice that can solve a problem without 22 phone prompts is a Godsend that Rackspace believes people will pay for and to which they will remain loyal.
In many industries, including manufacturing, service is a competitive advantage as the best customer experience differentiates increasingly commodity-like physical products. Service is about a lot more than friendly people, like you find at Zappo’s, the on-line shoe retailer renowned for its friendly people. Stellar service also requires systems and processes that make it easy for the company’s front lines to deliver great service, as I commented in critiquing AT&T. These systems and processes require both investments and a customer-focused (versus efficiency-focused) culture to succeed.
I am not surprised about the growing value of service. In today’s 24-7-365 world, immediacy impacts revenue and profitability in B2B markets. Great service delivers desired solutions when and where you want them.
Rackspace is forward looking in another respect – like other 21st century companies. It’s creating social value, not just customer value. For example, it located a new facility next to a low-income neighborhood so it can make a difference in the lives of students-in-need, not just customers-in-need. Altruism? Perhaps, in part. But by doing meaningful things in the community at large it will attract and retain top talent in an industry in which talent separates the winners and losers.
Is your business focused on where your markets are today or where they are headed?