DigitalOcean CEO Yancey Spruill, left, speaks at the Web Summit in Lisbon, Portugal, on November 6, 2019.
Sam Barnes | Sportsfile for web Summit | Getty Images
The market for cloud computing infrastructure to power applications has grown enormously since Amazon introduced its first cloud services in 2006, but US investors have not had a great way to invest exclusively in the cloud.
This will change in the coming weeks, when a company called DigitalOcean starts trading on the New York Stock Exchange under the symbol “DOCN”.
Buying shares of Amazon – or Alibaba, Google, IBM, Microsoft or Oracle – meant getting a small percentage of exposure to the public cloud. DigitalOcean is different because it does nothing else.
The company will start with a much lower valuation than those other companies. In a Monday update of the prospectus for the initial public offering, DigitalOcean said it expects to sell shares for $ 44 to $ 47 per share, which would give it a market cap of about $ 4.8 billion in the middle. gamei. DigitalOcean also said that Tiger Global and an entity linked to existing Invest Industries investors want to buy up to $ 175 million in company shares at the time of the IPO.
Unlike the public cloud market leader Amazon Web Services, DigitalOcean is not profitable. It lost almost $ 44 million in 2020, compared to a loss of $ 40 million in 2019. DigitalOcean is also growing slower than AWS, despite the fact that AWS generates revenue 142 times higher. AWS revenues in 2020 totaled $ 45.37 billion, up 29.5%, while DigitalOcean reported revenue growth of 25%.
It might be okay, because DigitalOcean has a specialty: simplicity. It is not overwhelming for new users, who end up increasing the amount they spend on DigitalOcean services over time.
Simplicity is one of the four principles that the founders chose when DigitalOcean began in 2012. “We take infrastructure technology and simplify it in all aspects of the product experience,” wrote Yancey Spruill, former chief operating officer and chief financial officer at SendGrid. in a letter to prospectus investors.
A handful of products
Since 2006, AWS has introduced a wide range of services that software developers can adopt, and its list of customers has grown long, with big names like Apple paying hundreds of millions a year.
This is not the DigitalOcean path. It has only a handful of products, including customizable Linux-based virtual machines that it calls drops, data storage options, network tools, and three databases. Unlike Amazon, there are no machine learning services, implementation tools, database migration technologies, or media transcoding systems. It maintains 6,000 tutorials designed to help people get started.
DigitalOcean also tries to stay simple with the prices and invoices it sends every month to its nearly 600,000 customers.
DigitalOcean has hit the big public cloud providers in its prospectus, saying their products aren’t intuitive enough for sole developers and small businesses and “suffer from almost infinite feature complexity and have opaque pricing and billing practices.” which are often accompanied by significant hidden costs. “As a result, the company said, small businesses are often unable to enjoy the benefits of cloud computing.
“Companies often need dedicated employees, price analysis tools or even specialized consultants to understand the price of products and how to manage invoices,” he wrote.
If DigitalOcean has found a sweet spot, it is with small businesses, rather than large ones, that big clouds have struggled with in recent years. It’s a self-service business that doesn’t rely heavily on a large group of salespeople. In this way, it will be like the website construction company Wix and the e-commerce software manufacturer Shopify.
The New York-based company also has external coverage. Instead of presenting the S&P 500 customers in its prospectus, DigitalOcean presents customers such as Bunnyshell from Romania, Cloudways of Malta, Jiji from Nigeria, Vidazoo from Israel and Whatfix from India. In 2020, 38% of DigitalOcean’s revenue came from North America; by comparison, 68% of Amazon’s revenue for 2020 came from the US
DigitalOcean has not yet taken a major lead in the cloud infrastructure market, but some of its customers could reach more comprehensive cloud providers as their needs evolve.
But DigitalOcean is full of hope. In the prospectus, the company said it expects to create more than 14 million small and medium-sized enterprises each year, and their founders do not necessarily come with clear technical skills. “These individuals are able to leverage simple and reliable development tools and widespread availability and significantly reduce the initial cost of cloud computing to start companies,” the company said.
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