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 cloud computing infrastructure market for powering applications has grown tremendously since Amazon introduced its first cloud services in 2006, but US investors haven’t had a great way to invest exclusively in the cloud.
That will change in the coming weeks when a company called DigitalOcean begins trading on the New York Stock Exchange under the symbol “DOCN.”
Buying Amazon stock – whether Alibaba, Google, IBM, Microsoft or Oracle – meant a small percentage of the exposure to the public cloud. DigitalOcean is different because it doesn’t do anything else.
The company will start with a much lower valuation than those other companies. In a Monday update of the prospectus for its first public offering, DigitalOcean said it expects to sell stock at $ 44 to $ 47 a share, which would give it a market cap of about $ 4.8 billion in the mid-range range. . DigitalOcean also said Tiger Global and an entity associated with existing investor Access Industries are looking to purchase up to $ 175 million worth of the company’s stock at the time of the IPO.
Unlike Amazon Web Services, the market leader in the public cloud, DigitalOcean is not profitable. It lost nearly $ 44 million in 2020, compared to a loss of $ 40 million in 2019. DigitalOcean is also growing more slowly than AWS, despite AWS generating 142 times more revenue. AWS revenues in 2020 totaled $ 45.37 billion, up 29.5%, while DigitalOcean reported 25% revenue growth.
That might be okay, because DigitalOcean has a specialty: simplicity. It’s 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 chosen by the founders when DigitalOcean started in 2012. “We take infrastructure technology and make it simple for all aspects of the product experience,” wrote CEO Yancey Spruill, a former chief of operations and finance chief at SendGrid. a letter to investors in the prospectus.
A handful of products
Since 2006, AWS has introduced a wide variety of services that software developers can use, and the customer list has grown, with big names like Apple paying hundreds of millions a year.
That is not the path of DigitalOcean. It only has a handful of products, including customizable Linux-based virtual machines it calls droplets, data storage options, network 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 get people started.
DigitalOcean also tries to stay simple with pricing and the bills it sends to its nearly 600,000 customers every month.
DigitalOcean took a swipe at the major public cloud vendors in its prospectus, saying their products are not intuitive enough for individual developers and small businesses and “ suffer from an almost infinite complexity of features and have opaque pricing and billing practices that often involve significant hidden costs. As a result, the company said, small businesses often cannot reap the benefits of cloud computing.
“Companies often need dedicated employees, price analysis tools or even specialist consultants to understand how products are priced and how to manage their invoices,” he wrote.
If DigitalOcean has found a good place, it is with small businesses, rather than large corporations, that the big clouds have been fighting for in recent years. It is a self-service business that does not rely heavily on a large group of sellers. In that way, it will be like the website building company Wix and ecommerce software maker Shopify.
The New York-based company also has a foreign reach. Rather than promoting S&P 500 customers in its prospectus, DigitalOcean shows clients such as Bunnyshell from Romania, Cloudways from Malta, Jiji from Nigeria, Vidazoo from Israel and Whatfix from India. In 2020, 38% of DigitalOcean’s revenues came from North America; In comparison, 68% of Amazon’s 2020 revenues came from the US.
However, DigitalOcean does not yet have a large share of the cloud infrastructure market and some of its customers could eventually switch 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 businesses to be created each year, and their founders do not necessarily have sharp technical skills. “These individuals can take advantage of simple and reliable development tools and the widespread availability and significantly lower initial cost of cloud computing to start businesses,” the company said.
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