Rackspace stock plunges as courier outage caused by 'security incident' persists

Rackspace stock plunges as courier outage caused by ‘security incident’ persists

As an outage in courier services provided by Rackspace Technology Inc. stretched into a fourth day on Monday, customers had questions, but the San Antonio company didn’t offer many answers.

This has left some to fend for themselves as they look for other ways to communicate with customers and conduct business. Others have complained of spending hours waiting 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 realized on Friday that their email systems weren’t working. She spent the weekend transferring her business accounts to GoDaddy.

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

Rackspace told customers on Friday it was having trouble with its hosted Microsoft Exchange platform, which provides email services. On Friday night, he attributed the problem, which he called a “significant failure”, to an unidentified security incident. On Sunday, he said there were no immediate plans to restore service.

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Rackspace blames ‘security incident’ for outage that knocked out email services for customers

Instead, the company is advising customers to switch to a competitor’s service for email services – cloud-based Microsoft 365 – which it said it provides for free. On Sunday, he said at least 1,000 employees were working to answer customer questions and respond to support calls during the account migration.

Rackspace did not respond to questions on Monday about the nature of the security incident, the number of customers affected or when service could resume. The company also declined to make an executive available for an interview about the situation, instead directing a reporter to its website, where it posts updates.

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

Rackspace stock plunged more than 15% on Monday to close at $4.10 per share.

angry customers

On social media, angry customers continued to blast the company. Some have complained about hours spent on hold with customer service and difficulty switching to Microsoft 365 without support.

Atkinson, Bandera’s businesswoman, said she and her husband have been longtime Rackspace customers and have never had any issues before. She said on Monday that she had not canceled the service as she hopes to access her old emails when the service is restored. If their recovery isn’t possible, she said, she’s “done with Rackspace.”

“It’s been a horrible 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 California man whose business manages music artists, said he too spent hours over the weekend trying to figure out how to access his emails.

“It’s all just ridiculous,” he said.

At one point, after being put on hold for four hours while waiting for customer service, Phillips said his call was simply disconnected.

“It’s the unknown factor,” he said of concerns about his business. “It’s the fact that people were trying to reach me and couldn’t, and then you have to let them know about the disruption.”

Phillips finally made some progress and spoke to a Rackspace representative on Monday morning who assured him that his emails would not be lost.

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

Not uncommon

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

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

Such security incidents are not uncommon, Hornung said.

“We see these third-party cloud providers being attacked all the time,” he said.

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

“I expect 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 scope and impact of the issue.” He also said he expected the recovery work “could take several days.”

Rack space struggles

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

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

Rackspace then changed its business model in the face of competition from deep-pocketed companies such as Amazon, Microsoft and Google, which had caused its market value to plummet. It began to focus more on providing cloud-based services, including through partnerships with its competitors.

In 2016, New York-based Apollo Global Management took the company private in a $4.3 billion deal. It has since acquired several businesses, 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 it performed poorly. Although revenues have increased, its last profitable quarter dates back to the beginning of 2019.

In recent years, Rackspace has cut hundreds of jobs, including in 2021 when it laid off around 700 employees, or 10% of its global workforce. The company said the bulk of the cut jobs would be filled at its offshore customer service centers.

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

At the end of September, the company appointed a new CEO to oversee the reorganization. Chairman and CFO Amar Maletira replaced Kevin Jones as CEO, while Jones moved to a position at Apollo, Rackspace’s largest shareholder.

The company also announced that it was leaving its longtime headquarters and downsizing its offices.

The company will move into a 75,000 to 90,000 square foot space in an office building just north of the 1604 loop along 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” with the revamp, which is expected to roll out in January.


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