It’s been only a handful of months since my fellow Forbes pundits Mike Kavis and Ben Kepes bemoaned cloud provider Rackspace’s troubles competing in the cutthroat public cloud marketplace. “Companies like Rackspace simply cannot compete,” opined Kavis in July 2014. Back in May, Kepes snarkily pointed out that “Rackspace has long been something of a bridesmaid,” as they unsuccessfully explored selling themselves to the highest bidder.

Yet, just as reports of Mark Twain’s death were exaggerated – or perhaps Monty Python’s “not dead yet”? – just so with San Antonio-based Rackspace Hosting, Inc. In the intervening months they have doubled down on their “fanatical support” strategy, shifting from a pure public cloud offering to managed cloud – a hybrid managed services and public/private cloud combination that differentiates them in the marketplace.

Managed services are wonderful to be sure – fanatical or not – but this strategy presents two significant challenges for Rackspace: will such handholding scale? And can they remain competitive with the likes of Amazon Web Services (AWS) from Amazon.com, Microsoft Azure, and others, who take turns driving down cloud pricing?

Scaling Fanatical Support

Because the quality of customer support depends primarily on the expertise of available support personnel, it's essential that Rackspace choose its battles wisely. To this end, Rackspace's goal is to leverage "economies of expertise," according to CEO Taylor Rhodes.

By focusing on essential core competencies, Rackspace has been able to staff up their support effort cost-effectively.

Their roots are as a Linux shop, and their position as one of the creators of the OpenStack open source cloud infrastructure effort positions them well for OpenStack Deployments. They have also built a sizable Microsoft infrastructure offering as well. These essential areas of expertise cover a sizable portion of their customer base.

Supporting core infrastructure, however, isn't the fanatical support sweet spot, but rather a means to an end. According to Rhodes, the Rackspace support strategy is to "start where you add value and keep moving up." Linux, Microsoft, and OpenStack are the starting point - put the real value is in digital.

Supporting digital technologies, namely the systems of engagement that enterprises use to automate interactions with customers, has become an essential core competency for Rackspace, what Kyle Metcalf, Director of Rackspace's Digital Practice calls "digital polygamy."

Rackspace has focused its digital efforts on supporting five popular enterprise platforms: Adobe Systems ADBE -0.45% Experience Manager, Magento ecommerce platform, Oracle ATG Web Commerce, SAP hybris Commerce Suite, and Sitecore web content management platform. These five platforms are leaders in supporting the retail industry's move to digital.

Tria Foster, VP of Ecommerce and Loyalty at jewelry designer and retailer Kendra Scott, sings Rackspace's digital praises. "Kendra Scott works closely with Rackspace," Foster says. "They are proactive with Magento, which is very important to me. We can pick up the phone and call them, even for Magento-specific issues."

This support of individual packages is a key differentiator for Rackspace, even though sometimes such support goes above and beyond the contracts Rackspace has with customers. "‘Fanatical support' leads to a gray area, above and beyond the formal contract," explains Metcalf.

While such support is a plus in customers' minds, it would be for naught if it weren't for the robustness of the cloud infrastructure. "We added four additional Magento web servers for Cyber Monday," continues Kendra Scott's Foster. "It was our first million dollar sales day, with zero downtime."

The Systems of Engagement Cloud Paradox

Amazon has been able to drive down cloud prices due to a combination of immense economies of scale and high levels of automated self-service. Their goal was to make their interfaces so dead simple that customers didn't need human support.

Now, however, Amazon continues to add more complex technical services, pushing the boundaries of effective customer self-service and driving their offering toward increasingly technical users. Rackspace, on the other hand, supports all kinds of users, from very technical to purely business-focused. As a result, digital has become their new cloud battleground.

"There's a trend toward systems of engagement - the new place you're fighting the war," Rackspace CEO Rhodes explains. "You're talking to the CMO about their cash register."

The reason Rackspace's fanatical support is especially critical for their large retail customers is because such brands must differentiate themselves at the user interface - which often means customizing the underlying software.

Ironically, this need for customization makes such software unfriendly to the cloud Software-as-a-Service (SaaS) model, because SaaS works best when customization options are limited primarily to simple user interface elements. Today's digital consumers, however, require more sophistication from retail brands.

Rackspace is showing they're adept at riding this wave. "Having an opinion on digital is crucial for us," claims Metcalf. However, Rackspace draws the line at handling the customization tasks themselves, as they rely heavily on partners.

In fact, about 90% of their retail digital business comes through partners like advertising agencies, according to Metcalf. In many cases, the partner brings Rackspace to the table, as digital professionals may not even know what questions to ask a managed cloud provider.

People frequently compare Rackspace's fanatical support mantra to department store Nordstrom JWN +0.09%, who has similarly made exemplary customer service an important differentiator. "Rackspace wants to be a great service company, like The Ritz-Carlton [division of Marriott International], Lexus [division of Toyota Motor Corporation], or Nordstrom," John Engates, Rackspace CTO, points out.

The problem with identifying with such quintessential service-oriented brands is the suggestion of high price, an association Rackspace wants to avoid. "Rackspace wants to be approachable, not a ‘premium' brand, not a luxury," Engates continues.

Perhaps, then, the similarities to Nordstrom are the strongest of the three, as people don't expect to pay more simply for the Nordstrom brand as much as they might for The Ritz-Carlton or Lexus. This comparison also contrasts nicely with Amazon's position as the Wal-Mart of cloud, being the low cost leader in the cloud space.

In the digital realm in any case, Rackspace's comparisons to Nordstrom are justified, as they've built a solid reputation for fanatical service among leading retail brands. Their challenge now is to extend this reputation to other vertical industries without losing their focus. Happy customers are a great place to start.

Read the entire article at http://www.forbes.com/sites/jasonbloomberg/2015/01/21/is-rackspace-the-nordstrom-of-cloud/.

Intellyx advises companies on their digital transformation initiatives and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers. Rackspace covered Jason Bloomberg’s travel expenses for recent briefings at Rackspace headquarters, a standard industry practice.