Filing an IPO on DigitalOcean improves usability compared to Amazon and Microsoft

The market for cloud computing infrastructure to power applications has grown dramatically since Amazon launched its first cloud services in 2006, but U.S. 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 shares of Amazon – or Alibaba, Google, IBM, Microsoft, or Oracle – has meant getting a small percentage of public cloud exposure. DigitalOcean is different because it does nothing else.

The company will start with a much lower valuation than other companies. In a Monday update to the prospectus of its initial public offering, DigitalOcean said it plans to sell shares between $ 44 and $ 47 per share, which would give it a market capitalization of around $ 4.8 billion as of today. middle of the fork. DigitalOcean also said that Tiger Global and an entity related to existing investor Access Industries were keen to buy up to $ 175 million of the company’s stock at the time of the IPO.

Unlike Amazon Web Services, the market leader in public cloud, DigitalOcean is not profitable. It lost nearly $ 44 million in 2020, up from $ 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, up 29.5%, while DigitalOcean saw 25% revenue growth.

That could be good, 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 launched in 2012. “We take infrastructure technology and simplify it in all aspects of the product experience,” wrote CEO Yancey Spruill, former COO and CFO of SendGrid. a letter to investors in the prospectus.

Since 2006, AWS has introduced a wide range of services for software developers to embrace, and its customer list has grown long, with big names like Apple paying hundreds of millions a year.

This is not the way of DigitalOcean. It only has a handful of products, including customizable Linux-based virtual machines that it 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 keep it simple with the pricing and invoices it sends each month to its nearly 600,000 customers.

DigitalOcean took a look at large public cloud providers in its prospectus, saying their products are not intuitive enough for developers and small businesses alone and “suffer from almost endless complexity of functionality and have practices. opaque pricing and billing that often comes with significant hidden costs. As a result, the company said, small businesses are often unable to reap the benefits of cloud computing.

“Businesses often need dedicated employees, pricing analysis tools, or even specialist consultants to understand how products are priced and how to manage their invoices,” he writes.

If DigitalOcean has found a great place, it is with small businesses, rather than big companies, that the big clouds have been arguing in recent years. It’s a self-service business that doesn’t depend much on a large group of salespeople. That way, it will be like website builder company Wix and eCommerce software maker Shopify.

The New York-based company also has a foreign reach. Rather than touting the S&P 500 clients in its flyer, DigitalOcean features 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 revenue came from North America; by comparison, 68% of Amazon 2020 revenue came from the United States

However, DigitalOcean has yet to capture a significant share in 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 optimistic. In the prospectus, the company said it expects more than 14 million small and medium-sized businesses to be created every year, and their founders don’t necessarily have sharp technical skills. “These people are able to take advantage of simple and reliable development tools, the widespread availability and the considerably lower initial cost of cloud computing to start businesses,” the company said.

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