Rackspace outage continues with no immediate plans to restore service

As an outage of email services provided by Rackspace Technology Inc. spanned a fourth day Monday, customers had questions, but the San Antonio-based company didn’t offer many answers.

This left some on their own as they looked for alternative ways to communicate with customers and do business. Others complained about waiting in queues for hours for customer service and the difficulty of migrating accounts to alternative platforms without assistance.

That’s what Bandera business owner Stephanie Atkinson did after she and her husband discovered their email systems weren’t working Friday. She spent the weekend transitioning her business accounts to GoDaddy.

“Monday I work, but not thanks to Rackspace — thanks to myself,” said Atkinson, who runs a technology research firm. Her husband runs a helicopter business.

Rackspace told customers early Friday that it was experiencing issues with its hosted Microsoft Exchange platform, which provides email services. By Friday night, it had traced the issue, which it described as a “significant bug,” to an unidentified security incident. Sunday said there were no immediate plans to restore service.

Previous story: Rackspace blames “security incident” for outage that shut down customer email services

Instead, the company is advising its customers to switch to a competitor for email services — cloud-based Microsoft 365 — which it says it offers for free. On Sunday, it said at least 1,000 employees were working to answer customer questions and take calls for assistance with migrating accounts.

Rackspace didn’t respond Monday to questions about the nature of the security incident, the number of customers affected, or whether service could be resumed. The company also declined to provide an executive for an interview about the situation, instead referring a reporter to its website where it posts updates.

“We have successfully restored email service to thousands of customers on Microsoft 365 and continue to make progress restoring email service to each affected customer,” the company said Monday morning. “Currently, moving to Microsoft 365 is the best solution.”

Rackspace shares fell more than 15 percent Monday to close at $4.10 a share.

angry customers

Angry customers continued to blast the company on social media. Some complained of hours in customer service queues and difficulties moving to Microsoft 365 without support.

Atkinson, Bandera’s businesswoman, said she and her husband are longtime Rackspace customers and have never had any problems before. She said Monday she hadn’t canceled the service because she hopes to be able to access her old email when service is restored. If her recovery isn’t possible, she said, she’s “done with Rackspace.”

“It was a terrible thing,” Atkinson said. “They serve a lot of small businesses around the world and not everyone is as tech-savvy as I am.”

Glen Phillips, a Californian whose business is managing music artists, said he too spent hours this weekend trying to figure out how to access his email.

“This whole thing is just ridiculous,” he said.

Once, after waiting on hold for four hours for customer service, Phillips said his call simply got disconnected.

“It’s the unknown factor,” he said of concerns about his business. “It’s the fact that people have tried to reach me and have been unable to, and then you have to make them aware of the disruption.”

Phillips eventually made progress and spoke to a Rackspace representative Monday morning, who reassured him that his emails would not be lost.

“I just want to get those emails back,” he said.

Not uncommon

Some small and medium business owners are struggling because they don’t have an IT staff and don’t understand how to migrate their accounts to Microsoft 365, said Bryan Hornung, CEO of Xact IT Solutions, based in Marlton, New Jersey.

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“The frustration is very high,” he said in a LinkedIn video.

Such security incidents are not uncommon, said Hornung.

“We’re seeing these third-party cloud providers under attack all the time,” he said.

In a Medium blog post, security researcher Kevin Beaumont said the problems could be caused by a threat actor exploiting known vulnerabilities in Microsoft, including those known as ProxyNotShell.

“I anticipate continued attacks on organizations via Microsoft Exchange through 2023,” he wrote.

Rackspace said Sunday it was working both internally and with “external experts to determine the full scope and impact of the issue.” It also said it expects the recovery work “could take several days”.

Rackspace fights

Rackspace has a long history in the San Antonio area, where it remains the largest technology company.

It was founded in 1998 by Trinity University students and originally hosted websites for clients. Known as Rackspace Hosting Inc., it first went public in 2008 when it also converted the former Windsor Park Mall into its headquarters.

Later, Rackspace changed its business model in the face of competition from well-funded companies like Amazon, Microsoft, and Google, which caused its market value to plummet. It began increasing its focus on providing cloud-based services — including through partnerships with its competitors.

In 2016, New York-based Apollo Global Management acquired the company in a $4.3 billion deal. Since then, the company has acquired several companies, including Onica, a cloud services and management company, and Datapipe, a managed services provider for public and private cloud customers.

Apollo took the company public again in 2020, but its performance was lackluster. Although revenue has increased, the last profitable quarter was in early 2019.

Rackspace has cut hundreds of jobs in recent years, including in 2021 when it laid off about 700 employees, or 10 percent of its global workforce. The company said the majority of the vacancies will be filled at its offshore customer service centers.

Earlier this year, Rackspace announced it was planning a reorganization aimed at increasing profitability by splitting the company into separate business units that offer public and private clouds.

In late September, the company appointed a new CEO to oversee the reorganization. President and Chief Financial Officer Amar Maletira succeeded Kevin Jones as CEO, while Jones moved to a position at Apollo, Rackspace’s largest shareholder.

The company also announced that it is giving up its longtime headquarters and downsizing its office space.

The company will move to a 75,000 to 90,000 square foot office building north of Loop 1604 at US 281 near Stone Oak next year. Its current headquarters covers approximately 1.2 million square feet.

Last month, Maletira said Rackspace was making “good progress” on the reorganization set to roll out in January.

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