Wednesday, February 8, 2017

Can San Antonio Salvage the Tech Jobs Shed by Rackspace?

Posted By on Wed, Feb 8, 2017 at 1:11 PM

click to enlarge Let's hope the Castle stays this fun... - VIA YOUTUBE
For much of its history, Rackspace was the catalyst behind San Antonio's nascent — and, now, increasingly organized — tech industry.

It was Rackspace co-founder Graham Weston who, hoping to goose the local tech startup industry, founded Geekdom and gave the "co-working space" a floor of his downtown Weston Centre tower (that is, before the billionaire developer's company bought another downtown building to give Geekdom a new, permanent home). Those startups and entrepreneurs and techies would ultimately organize under the banner of Tech Bloc, a local nonprofit founded in part by people like Weston, two other Rackspace co-founders, and a few other top company leaders. Tech Bloc co-founder David Heard (who works for the SA tech firm SecureLogix) says the closest parallel to Rackspace's outsized local impact is how Dell Computer exploded Austin's tech scene in the 1990s.

“Nothing has been more empowering to the growth of our tech industry here than the big deal Rackspace became," Heard says. "Tech Bloc, and all it represents, has deep roots with Rackspace."

But this week we got a reminder of just how much things have changed for the pioneering San Antonio tech giant, which was the city's largest publicly traded company until investors sold it to New York private equity firm Apollo Global Management last year. Considering Apollo's mixed reputation as a "controversial vulture fund" with a history of saving companies the slash-and-burn way, most people suspected, but barely talked about (at least publicly), layoffs coming down the pike. On Tuesday, it finally happened: Rackspace announced a 6 percent cut to its U.S. workforce, the bulk of which — about 200 jobs — came out of the company's Windcrest "castle" headquarters. It's the company's largest round of layoffs in its near two-decade history.

The layoffs underscore a company that's been in deep transition for years. Even before its sale last fall, Rackspace had been shedding dead weight — or, as the company put it, “non-core” businesses with stagnant growth — as it struggled to shift its business model away from data-center hosting toward that of a cloud services company. The idea was that Rackspace's future could be in supporting, rather than competing with, tech giants like Amazon and Microsoft in the cloud computing game (Forbes called the novel strategy “coopetition”).

According to SEC filings from around the time of the Rackspace sale, Apollo wanted to cut about $100 million from the company's annual operating expenses and capital expenditures this year. In his blog post announcing this week's layoffs, Rackspace CEO Taylor Rhodes called the cuts "personally painful" but necessary for the company's future growth.

Before the layoffs were even made public, however, Rackspace and Tech Bloc leaders were trying to triage a solution that would use taxpayer money to forestall a brain-drain out of the local tech sector. Tech Bloc's Heard says the company approached the nonprofit weeks ago warning that layoffs were on the way, hoping Tech Bloc could do something to help shunt the jettisoned Rackers into other local tech jobs. "These are people who have already chosen to make tech careers in San Antonio," Heard told the Current. "We don't want to lose them to another city."

In fact, before Rackspace even publicly confirmed the layoffs Tuesday, Heard was appearing before Bexar County Commissioners Court asking officials to speed up an initiative that Tech Bloc has apparently been shopping for some time now. As Heard explained it, the nonprofit is seeking government money to fund what he calls a "chief talent officer," basically a hybrid HR-like position that would connect tech companies with tech-trained workers looking for jobs in San Antonio. Heard says the idea became even more pressing with news of the looming Rackspace layoffs.

It's clear why local officials would want to salvage the kind of jobs Rackspace just shed: It's good-paying work. According to the most recent federal labor stats, the median salary in 2014 for computer and information-technology jobs stood at $79,390 (compared to $35,540 for all other occupations). And on Tuesday, as the Express-News first reported, commissioners earmarked some $20,000 from the county's "innovation fund" for Tech Bloc's "chief talent officer" idea. Heard says the details — like where all the money will come from or where the new "chief talent officer" will office — are still being ironed out. According to the Rivard Report, the money commissioners approved Tuesday is part of a $300,000 initiative (with equally murky details at this point).

We'll have to wait and see whether government, non-profit and private sector jockeying can somehow find local homes for the tech workers Rackspace just axed. But this week, we saw the company that in many ways built the local tech industry turn to it for help.

Which, as people continue to question what exactly Rackspace's sale could mean for San Antonio, seems like a role-reversal worth paying attention to.


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