DigitalOcean CEO Yancey Spruill, on the 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 immensely since Amazon launched its first cloud services in 2006, but American investors don’t have a great way to invest exclusively in the cloud.
That 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 in 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 rating than other companies. In a Monday update of the prospectus for its initial public offering, DigitalOcean said it expects to sell shares for $ 44 to $ 47 per share, which would give it a market capitalization of around $ 4.8 billion in the middle of the track. DigitalOcean also said that Tiger Global and an investor related entity Access Industries want to buy up to $ 175 million in company shares at the time of the IPO.
Unlike Amazon Web Services, the market leader in the public cloud, DigitalOcean is not profitable. It lost almost $ 44 million in 2020, compared to a loss of $ 40 million in 2019. DigitalOcean is also growing more slowly than AWS, although AWS generates 142 times more revenue. AWS revenue in 2020 totaled $ 45.37 billion, an increase of 29.5%, while DigitalOcean reported 25% revenue growth.
This can be good, because DigitalOcean has a specialty: Simplicity. It is not oppressive 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 started in 2012. “We take infrastructure technology and make it simple in all aspects of the product experience,” wrote CEO Yancey Spruill, former chief operating officer and chief financial officer of SendGrid. a letter to investors in the prospectus.
A handful of products
Since 2006, AWS has introduced a wide range of services for software developers to adopt, and its list of customers has grown long, with big names like Apple paying hundreds of millions a year.
This is not the way of DigitalOcean. He has only a handful of products, including customizable Linux-based virtual machines that he calls droplets, data storage options, networking tools and three databases. Unlike Amazon, there are no machine learning services, deployment tools, database migration technologies or media transcoding systems. It maintains 6,000 tutorials designed to help people get started.
DigitalOcean also tries to simplify the prices and bills it sends out each month to its almost 600,000 customers.
DigitalOcean has approached major public cloud vendors in its prospectus, saying that its products are not intuitive enough for individual developers and small businesses and “suffer from almost infinite resource complexity and have opaque pricing and billing practices that are often accompanied by for significant hidden costs. “As a result, the company said, small businesses often fail to enjoy the benefits of cloud computing.
“Companies often need dedicated employees, price analysis tools or even specialized consultants to understand how products are evaluated and how to manage their accounts,” he wrote.
If DigitalOcean found a sweet spot, it is with small companies, rather than large companies, that big clouds have been fighting for the past few years. It is a self-service business that does not rely heavily on a large group of salespeople. That way, it will be like the website building company Wix and the e-commerce software maker Shopify.
The New York-based company also has an international reach. Instead of praising S&P 500 customers in their prospectus, DigitalOcean features customers like Bunnyshell from Romania, Cloudways from 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 in 2020 came from the U.S.
DigitalOcean has not yet captured a larger share of the cloud infrastructure market, and some of its customers may end up switching to more comprehensive cloud providers as their needs evolve.
But DigitalOcean is hopeful. In the prospectus, the company said it expects more than 14 million small and medium-sized businesses to be formed each year, and its founders do not necessarily come with refined technical skills. “These individuals are able to leverage simple and reliable development tools and wide availability and significantly reduce the initial cost of cloud computing to start businesses,” said the company.
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