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Rackspace’s San Francisco Outpost Fights for Dot-Com Talent

Rackspace Enters San Francisco
With camouflage netting draped over the end of his desk row, Dan Di Spaltro, director of business operations, works at Rackspace's newly opened San Francisco office. Photographer: Noah Berger/Bloomberg

Rackspace Hosting Inc., the Texas-based operator of data centers, is heading west in a search of dot-com talent. The company has added a San Francisco office replete with a game room, video studio and bike-repair shop.

The 15,000-square-foot space, enough for about 100 employees, opened this month in the area south of Market Street, known as SoMa, home to hundreds of Web startups, including Zynga Inc., Twitter Inc. and Square Inc.

The move is part of an evolution for Rackspace, which is shifting from a manager of server farms to a cloud-computing developer vying with Inc. With the new office, the company aims to compete in a thriving labor market that is bucking national unemployment trends and has the likes of Facebook Inc. and Google Inc. fighting over promising recruits.

“We want to have equal footing as those guys,” John Engates, Rackspace’s chief technology officer, said in an interview at the San Francisco office. “Having a permanent footprint here helps us with recruiting and visibility within the tech community.”

Its location 1,700 miles from the Bay Area had made it harder for Rackspace to hire away developers from technology hotbeds. Still, the company may face challenges vying with Silicon Valley giants on their turf. Google has vowed to hire more than 6,000 employees this year. Facebook, meanwhile, was named the best place to work by career site, and it can entice employees with the prospect of an initial public offering next year.

Legos, Foosball

To attract software programmers and keep the ones they already have happy, Rackspace made its San Francisco office space reminiscent of startups in the area. Bicycle racks are installed on the walls inside, near the bike-repair area. The office is filled with games and toys, such as a giant cardboard Lego set and speed chess boards, along with the classic startup fare: ping-pong and foosball tables.

There’s also a studio for technology blogger Robert Scoble, who runs Building43, a Rackspace-sponsored website that creates and posts videos of emerging technology companies. The office will accommodate 50 employees from Cloudkick and Anso Labs, two Web companies that Rackspace acquired within the past year. Previously they were located in separate offices.

Cloud computing lets businesses keep their data and software on remote servers, rather than having to maintain their own hardware. Last year, Rackspace introduced OpenStack, an open-source project that helps companies build their own clouds using Rackspace’s code. The effort has the backing of the U.S. space agency NASA, and it’s being used by such companies as Dell Inc., EBay Inc. and Citrix Systems Inc.

Big Bet

“We were really handed the key to the kingdom in terms of technology and building the latest and greatest stuff,” said Alex Polvi, who is serving as general manager of Rackspace’s new office. The 26-year-old co-founded Cloudkick in 2009. “At Rackspace, they’re really betting on this stuff hard.”

Rackspace was started 13 years ago as an operator of data centers. The idea was to let customers buy server space and pay to have it managed. In 2008, the year of Rackspace’s IPO, it began offering new software for servers -- an effort to make them faster, customizable and cheaper for clients to use.

In the cloud-hosting business, the San Antonio-based company is second to Amazon Web Services, which has leveraged its position as the world’s largest online retailer to expand into the market. Total spending on cloud computing may reach $241 billion in 2020, up from $40.7 billion, according to Cambridge, Massachusetts-based Forrester Research Inc.

Higher Pay

While many of Rackspace’s 3,500 employees are in customer support, the San Francisco office is primarily for engineers. That means the company will have to pay up to compete for talent. The average salary for computer programmers in San Francisco last year was about $94,310, 18 percent higher than in Texas, according to the Bureau of Labor Statistics. That doesn’t include stock options and perks that emerging startups are offering.

The unemployment rate for Americans in computer and mathematical jobs was 4.6 percent last month, about half the total rate.

“The Bay Area is a crazy-hot countercyclical marketplace,” Rackspace Chief Executive Officer Lanham Napier said in an interview.

The company’s multitude of customers in San Francisco and Silicon Valley adds pressure to hire locally, he said. Bay Area companies using Rackspace’s technology include EBay, Electronic Arts Inc. and the Bay Area Rapid Transit system.

“Having that office serves as an umbilical cord for our company in the valley and into our customers there,” Napier said. “That’s a place where we’ll be making more investments.”

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