Cloud Seeding: Rackspace’s Soft Spot for Startups

There are at least three good reasons for a startup to apply to an accelerator or incubator program: the mentorship, the networking connections, and the money (around $100,000 if your company gets into a top-tier accelerator like Y Combinator). But at most accelerators, there’s another, lesser-known benefit: the swag—as in the free, or virtually free, stuff.

If you join any of 75 accelerator programs in the U.S. and abroad and your business depends on cloud-based software or storage, you can expect an offer of free or deeply discounted hosting and support from San Antonio, TX-based Rackspace (NYSE: RAX). More than that, you’ll get free advice from “Rackers” about how to build your application so that it can handle big crowds if your business really takes off.

It’s all part of the two-year-old Rackspace Startup Program. “There are two or three people in most early stage startups, and the last thing they need to do is spend time worrying about their server infrastructure when they could be using that time building a business,” says Graham Turney, a Rackspace strategic marketing manager who helps run the program from the company’s Austin, TX, office.

Not only do accelerator participants get discounted hosting, but they’re “funneled through a separate support mechanism that helps them architect their applications and prevent issues with their infrastructure before they arise,” Turney says.

There’s an obvious element of self-interest to Rackspace’s startup outreach efforts. The more entrepreneurs and developers who get hooked on Rackspace’s services early, the fewer will be attracted to competing cloud platforms like Amazon Web Services—and the more chance that Rackspace will end up hosting the next Airbnb, Udemy, or SendGrid.

But the program is also a reflection of Rackspace’s relative youth. Richard Yoo, Dirk Elmendorf, Patrick Condon, and Graham Weston co-founded the company in 1998, and while it’s not exactly a startup anymore—it has nearly 5,000 employees and reported revenues of $1.3 billion last year—“there are a lot of Rackers who have been around since we were a much smaller company, and they all have war stories,” Turney says. “Working with startups is in our DNA.”

For startups who are building cloud infrastructure technology, not just using it, there’s yet another layer to the Rackspace program: it can be an audition for a much closer relationship down the road. Last August, Rackspace acquired Mailgun, a Y Combinator startup that built software for cloud-based e-mail inboxes. Other recent purchases include Object Rocket, a database-as-a-service startup, and Exceptional Cloud Services, which tracks errors in Web-based applications.

“People have to recognize that we’ve acquired five or six companies that are all focused on infrastructure-type stuff,” says Dan Di Spaltro, one of the co-founders of Cloudkick, another Y Combinator-backed company that Rackspace acquired in 2010. “So I’m sure it’s on people’s minds” when they join the startup program, he says.

Rackspace introduced the startup program at the South by Southwest interactive festival in March 2011. At first the program was limited to startups in four places: Mountain View, CA-based 500 Startups, Boulder, CO-based TechStars, Mountain View-based Y Combinator, and General Assembly, a New York-based networking of coworking campuses. But the program has expanded rapidly, and now includes many types of startup programs, including venture-based accelerators at firms like Charles River Ventures; university-based accelerators like Berkeley Skydeck and Stanford’s StartX; sector-specific accelerators such as Rock Health; and pure startup coworking spaces such as Founders Den.

Restricting the program to startups that have already been admitted to an organized accelerator or incubator was mostly a matter of manpower, Turney says. “We don’t have the staffing capability to vet the thousands of startups out there and decide which ones could most benefit from our help,” he says. “It takes an army of people to do that—and that army already exists in the marketplace in the form of all these incubators and accelerators.”

Startups that join the Rackspace program get a big discount on cloud hosting—the exact amount varies, Turney says. They also get a call from what Rackspace calls its “Cloud Launch” team. “They set up a time to have a discussion with the technical person on the startup team to learn about their application and advise them about how they can architect it so that it’s built to scale on our cloud,” Turney says. “Then there is always somebody available by phone, 24/7. We try to serve as an extension of the startup team.”

Startups at Geekdom, a San Antonio coworking facility started by Rackspace’s own Graham Weston, get even more personal service. “We have an office there and somebody from the startup team is there, typically, multiple days a week,” Turney says. Geekdom is also home to TechStars Cloud, a Rackspace-funded “thematic” accelerator just for cloud infrastructure startups. Startups presenting at TechStars Cloud’s April 18 demo day included Cloud Options, which lets people pre-book cloud usage at lower prices, and Postmaster, a cloud system that helps e-commerce companies integrate with FedEx, UPS, and the U.S. Postal Service.

And there’s one more potential perk for lucky Rackspace startup partners: the opportunity to meet, and potentially be featured by, uber-blogger Robert Scoble. The former Microsoft technology evangelist joined Rackspace as a “startup liaison officer” in 2009, and with his crew of video producers and his hundreds of thousands of Twitter followers, he has the power to vault obscure startups to stardom overnight.

Scoble chooses his interviewees without Rackspace’s oversight, but “we introduce companies from the program to him frequently,” Turney says. “To be able to provide that exposure to companies in our startup platform is a huge benefit that we can offer. There is only one Robert Scoble, and he happens to work for Rackspace.”

Di Spaltro—a former Rackspace power user who became an employee—serves as a different kind of ambassador to the startup community. Cloudkick introduced its first product, a dashboard that helps companies manage cloud applications, in January 2010. Rackspace acquired the company just 11 months later and put the dashboard to use in its own hosting services, while using the Cloudkick team as the nucleus for its downtown San Francisco operation, which now counts some 90 employees.

Di Spaltro says he spends part of his time going to meetups and other startup events in the Bay Area, “giving talks about my experiences and the things we’re learning at Rackspace.” Alma mater Y Combinator is one of the places where Di Spaltro regularly pitches the company’s story. “We are at such a unique point in time, where there is all of this power to get stuff done faster,” Di Spaltro says. “We’re trying to empower entrepreneurs to not have to worry about hosting, in exchange for being on our platform and giving us feedback.”

Absent an incentive like the startup program discounts, why would an engineer at an early stage startup pick Rackspaces’ cloud servers over Amazon’s EC2, Microsoft’s Windows Azure, GoGrid, or the other big “infrastructure as a service” (Iaas) providers? Prices don’t differ much between the leading services, so other factors come into play.

One, clearly, is customer service. Rackspace makes a big deal about providing what it calls “fanatical” support. “We’ve got people who are laser-focused on helping our customers, and you’re not going to get that elsewhere,” says Di Spaltro. “We all love technology, and we all love products, so we love letting the experience speak for itself.”

Then there’s portability. Unlike Amazon or Microsoft, the company has built its whole hardware and software infrastructure around OpenStack, a set of open-source IaaS tools. That means startups that use Rackspace can easily switch their applications and data over to other OpenStack-based systems, if they ever need to.

“Where a startup thinks they are going and where they end up can be two different things,” says Turney. “With Rackspace they have the flexibility to change their infrastructure in myriad ways without being locked into one vendor or one proprietary way of doing things.”

In many ways, offering a startup a big discount on cloud services is like offering a college student a big discount on a computer: if you can get ‘em while they’re young, you may just have them for a lifetime. (It worked on me—I got my first Mac in 1987 and I’m still an Apple customer today.) But at Rackspace, there’s also a more human element. A lot of its employees remember what it’s like to work for a startup.

“We try to treat startups as if they are going to be the next big company,” Di Spaltro says. “It’s probably self-identification. We want them to succeed as much as they want to succeed, so we do what we can to help them.”

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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