Yancey Spruill, CEO of DigitalOcean, speaks on November 6, 2019 at the Web Summit in Lisbon, Portugal.
Sam Barnes | Sports File for Web Summit | Getty Images
The market for cloud computing infrastructure for power applications has grown tremendously since Amazon launched its first cloud services in 2006, but US investors have not yet had an excellent way to invest exclusively in 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 – means you get a small percentage of exposure to the public cloud. DigitalOcean is different because it does nothing else.
The company starts with a much lower valuation than the other companies. In a Monday update of the prospectus for the initial public offering, DigitalOcean said it expects to sell shares at $ 44 to $ 47 per share, giving it a market capitalization of about $ 4.8 billion in the middle of the series will give. DigitalOcean also said Tiger Global and an entity affiliated with existing investor Access Industries want to buy up to $ 175 million in the company’s shares at the time of the IPO.
Unlike Amazon Web Services, a public cloud market leader, 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 revenue in 2020 is $ 45.37 billion, an increase of 29.5%, while DigitalOcean has a revenue growth of 25%.
This can be good, because DigitalOcean has a specialty: simplicity. This is not overwhelming for new users, which over time increases the amount they spend on DigitalOcean services.
Simplicity is one of the four principles the founders chose when DigitalOcean launched in 2012. “We take infrastructure technology and make it simple in all aspects of the product experience,” writes Yancey Spruill, CEO, former chief operating officer and chief financial officer at SendGrid. a letter to investors in the prospectus.
A handful of products
Since 2006, AWS has introduced a wide range of services that software developers can use, and its customer base has grown, with big names like Apple paying hundreds of millions a year.
This is not DigitalOcean’s path. It contains only a handful of products, including customizable Linux-based virtual machines that call it drops, data storage options, network tools, and three databases. Unlike on Amazon, there are no machine learning services, deployment tools, database migration technologies or media coding systems. It contains 6,000 tutorials designed to help people get started.
DigitalOcean also tries to stay simple with prices and the bills it sends to its nearly 600,000 customers each month.
In the prospectus, DigitalOcean took a look at the big sellers of public clouds and said that their products are not intuitive enough for sole developers and small businesses, and that they have an unlimited complexity of features and that they have opaque pricing and billing practices. which is often accompanied by significant hidden costs. “As a result, the company said, small businesses can not take advantage of cloud computing.
“Companies often need dedicated employees, price analysis tools or even specialized consultants to understand how products are priced and how to manage their accounts,” it says.
If DigitalOcean has found a good place, it’s with small businesses, rather than large businesses, that the big clouds have been fighting over the past few years. It is a self-employed business that does not rely heavily on a large group of sellers. That way, it’s going to be like website builder Wix and e-commerce software maker Shopify.
The company in New York has also reached overseas. Instead of considering S&P 500 customers in its prospectus, DigitalOcean displays customers such as Bunnyshell of Romania, Cloudways of Malta, Jiji of Nigeria, Vidazoo of Israel and Whatfix of India. By 2020, 38% of DigitalOcean’s revenue will come from North America; by comparison, 68% of Amazon’s 2020 revenue comes from the US
However, DigitalOcean will not yet take a large share in the cloud infrastructure market, and some of its customers may 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-sized businesses to emerge annually, and their founders do not necessarily have technical skills. “These individuals can start with simple and reliable development tools and the widespread availability and significantly lower cost of cloud computing for businesses,” the company said.
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