Yancey Spruill, CEO of DigitalOcean, left, speaks at the Web Summit on November 6, 2019 in Lisbon, Portugal.
Sam Barnes | Sports file for Web Summit | Getty Images
The market for cloud computing infrastructures for powering applications has grown tremendously since Amazon first launched cloud services in 2006, but US investors haven’t had a great opportunity to invest solely in the cloud.
That will change in the coming weeks when a company called DigitalOcean trades under the symbol “DOCN” on the New York Stock Exchange.
Buying stakes in Amazon – or Alibaba, Google, IBM, Microsoft, or Oracle – has resulted in a small percentage of exposure to the public cloud. DigitalOcean is different because it doesn’t do anything else.
The company will start out with a much lower rating than these other companies. In an update to its prospectus for its IPO on Monday, DigitalOcean announced that it expects its shares to sell at a price of $ 44 to $ 47 per share, giving a market cap of about $ 4.8 billion at the mid-point Range. DigitalOcean also said that Tiger Global and a company affiliated with existing investor Access Industries are planning to buy up to $ 175 million in shares in the company at the time of the IPO.
Unlike the market leader for public clouds, Amazon Web Services, DigitalOcean is not profitable. The company lost nearly $ 44 million in 2020, compared to a loss of $ 40 million in 2019. DigitalOcean is also growing slower than AWS, despite AWS generating 142 times more revenue. AWS revenue was $ 45.37 billion in 2020, up 29.5%, while DigitalOcean revenue grew 25%.
That might be okay, because DigitalOcean has a specialty: simplicity. It’s not overwhelming for new users who spend more money on DigitalOcean services over time.
Simplicity is one of the four principles the founders chose when they launched DigitalOcean in 2012. “We use infrastructure technology and make it easy in all aspects of the product experience,” wrote CEO Yancey Spruill, former head of operations and finance at SendGrid, in a letter to investors in the prospectus.
A handful of products
Since 2006, AWS has introduced a wide range of services for software developers, and the customer list has grown. Big names like Apple pay hundreds of millions a year.
That is not the way of DigitalOcean. It only comes with a handful of products, including customizable Linux-based virtual machines known as Droplets, data storage options, network tools, and three databases. Unlike Amazon, there are no machine learning services, provisioning tools, database migration technologies, or media transcoding systems. It contains 6,000 tutorials designed to help people get started.
DigitalOcean also tries to keep the prices and bills it sends out to its nearly 600,000 customers every month simple.
In its prospectus, DigitalOcean took a look at the major public cloud providers and stated that their products are not intuitive enough for individual developers and small businesses and “suffer from an almost infinite complexity of functions and have opaque pricing and billing practices that are common there are significant hidden costs. “As a result, small businesses are often unable to take advantage of cloud computing.
“Organizations often need a dedicated workforce, pricing analysis tools, or even specialist consultants to understand how products are priced and how their invoices are managed,” she wrote.
If DigitalOcean has found a sweet spot, it is more with small companies than with large companies, which the big clouds have been fighting over in recent years. It’s a self-service business that doesn’t rely heavily on a large group of vendors. In this way, it will be like website company Wix and ecommerce software maker Shopify.
The New York-based company also has overseas reach. Instead of advertising S&P 500 customers in its brochure, DigitalOcean presents customers such as Bunnyshell from Romania, Cloudways from Malta, Jiji from Nigeria, Vidazoo from Israel and Whatfix from India. In 2020, 38% of DigitalOcean’s sales came from North America. By comparison, 68% of Amazon’s sales in 2020 came from the United States
However, DigitalOcean does not yet have a large share of the cloud infrastructure market and some of its customers may move to more comprehensive cloud providers as requirements change.
But DigitalOcean is hopeful. In the prospectus, the company expects that more than 14 million small and medium-sized enterprises are founded each year and that their founders do not necessarily have strong technical skills. “These people can leverage simple and reliable development tools, widespread availability, and dramatically reduce the up-front cost of cloud computing to start businesses,” the company said.
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