Amazon May Own the Skyscrapers of Cloud Hosting, But DigitalOcean Is Looking to Own Main Street

By Trevor Gilbert , written on August 14, 2012

From The News Desk

As big and important as the cloud hosting market is to the global startup ecosystem, a giant part of it is being underserved and ignored. At least, that’s the story coming from DigitalOcean, a recent TechStars grad.

The current cloud hosting market is dominated by companies like  Amazon and Rackspace, with a number of smaller providers dotting the fringes of the market. But the problem with these companies, which DigitalOcean is looking to address, is that Amazon and Rackspace are geared towards bigger, enterprise-level needs. This means smaller businesses are left in the dark.

According to the company, the fact that this market is being ignored provides a big business opportunity. Some companies have tried to tackle the problem before, like SliceHost and Voxel. But once the companies reach a certain size and level of success, they are acquired by Amazon or Rackspace. This then leaves the mid-tier of the market underserved again.

Initially, I was a bit skeptical about how big of a difference there is between a large institution and small business, in terms of product needs. But as the company explained, small businesses don’t want to have to worry about hiring system administrators to deal with Amazon’s complicated product and pricing structure.

For example, a mid-size company that is looking to grow fast may want to use Amazon because it allows them to scale quickly by the flip of a switch. This means they can use specially tailored tools to prepare them for quickly scaling the infrastructure. It may not make sense to have all of the tools and the confusion around the features in the beginning, but it pays off when the company is much larger. But for a smaller company that isn’t high-growth, it doesn’t really make sense to prepare for a scaled future that may never happen.

Then there are the pricing problems. If you’ve ever been on Amazon Web Service’s payment page, there are hundreds upon hundreds of options for pricing. It’s customizable and can be tailored for very specific problems, but it’s also incredibly confusing.

Simplifying the pricing and the product is the key to DigitalOcean’s strategy in the long-run. Small businesses need reliable technology, like Amazon’s and Rackspace’s, but they don’t want to have to hire some specifically to manage an AWS account. Which is where DigitalOcean comes in.

DigitalOcean’s pricing and product is designed from the ground-up to be straightforward and simple. The pricing structure is clear-cut, and it’s immediately obvious what technology you are getting in return for your payment. There aren’t spreadsheets of thousands of cells detailing information, there are just quick synopsis of the product.

It may seem like a fairly simple business model and product, but that’s really the key advantage of the company. The more focused on the mid-tier they are by simplifying the product and pricing, the less they compete with Amazon and Rackspace, and the more customers they can bring on board.

As part of this customer acquisition strategy, the company decided to not stay in Boulder following the end of the TechStars program. Instead, the company is returning to New York City, from whence it came. The reason behind this, according to the company, is because the startup ecosystem in the City has been incredibly receptive, and it will provide a good customer base to focus on in the beginning.

[Image courtesy Cliff 1066]