Digital Ocean raises $3.2M, stakes its claim on developer-friendly cloud hosting

By Cale Guthrie Weissman , written on August 7, 2013

From The News Desk

The cloud hosting marketing is becoming increasingly saturated. There's Amazon Web Services, Rackspace,, to name just a few big ones. At the same time, if there's a booming market (and this one does seem to be doing pretty well), there's always room for a new take on it. Or, at least, someone believes that there's room for their take on it.

Well, cloud hosting startup Digital Ocean offers SSD-based cloud hosting services that caters primarily to developers and non-enterprise level companies. Does this make them unique? Well, smaller businesses are taking notice. So perhaps. The company has seen an escalating user base with this business model over the last six months and is now announcing a $3.2 million seed round led by IA Ventures and with participation from CrunchFund (an investor in PandoDaily) and TechStars.

A 2012 TechStars graduate, Digital Ocean has spent the last year marketing its product and building a growing customer base. While there are a number of cloud-hosting companies out there, CEO Ben Uretsky explained Digital Ocean's unique emphasis: "We focus on developers and we focus on their needs first."

What does this mean? Well, it means that instead of focusing on bigger, enterprise-level companies, Digital Ocean caters primarily to developers and smaller businesses. Businesses can start with a hosting service that's as little as $5 per month and can purchase larger, more in-depth packages from there. In contrast, cloud heavyweights like Amazon and Rackspace have pricing plans built for big enterprises, meaning endless choices that aren't necessarily germane to smaller businesses.

I checked out the three companies' pricing pages and, indeed, Digital Ocean's was much more straightforward. For instance, Amazon had a million and one choices depending on platform and whatnot, and I was seriously confused after just 30 seconds into the page. Digital Ocean's pricing page offered five different choices, and you could toggle between monthly pricing and hourly pricing.

That's all well and good, but have others taken notice? Well, that actually seems to be the case. According to Netcraft, Digital Ocean had the "fourth largest growth in web-facing computers" over a six month span of time. This statistic is based on the number of companies who adopted the service (6,996), but, according to Netcraft's numbers, the percent change in growth of Digital Ocean was pretty astounding (5084.64 percent). At the same time, Digital Ocean, as of June 2013, only hosted 7,134 web-facing computers. Compare that to Amazon's 165,438. So it's still got some growing to do.

Despite this, the company is growing rapidly. And, according to Uretsky, that's precisely why it is taking this seed funding. Last June, TechCrunch wrote that the company was profitable even without any funding. Uretskey confirmed the report. At the same time, with no external funding, the company found itself frequently in a crunch due to heightened demands for backup capacity and servers. This funding is used to help the company scale as it continues to grow: "by taking on this investment it frees up operating month to month cash-flow." In addition, this allows the company to grow its infrastructure and hire more people for its New York office.

Does this mean that Digital Ocean is trying to be another contender for cloud-hosting stardom à la Amazon? Not really. Instead, the company is focusing on those smaller companies are left out of those Web giant's cloud offerings -- people who just want an easily deployed cloud server.

According to, the cloud computing services market will reach $35.6 billion by the end of 2013. Uretsky, however, sees Digital Ocean's emphasis on the developer market to be at $1 billion. Given these lesser numbers, he doesn't see enterprise-focused cloud companies changing their business model anytime soon.

The real question is if Digital Ocean will be able to continue its growth. While its percent growth over the last year is quite impressive, it still needs to get many more Rackspace and Amazon defectors in order to really make a dent in the market. It is hoping that this funding will help accelerate this, and make them a developer-known cloud service.

And if the company continues to do well in the developer market, will it pivot and try to capitalize on enterprise-level companies? Uretsky doesn't see that happening. As he put it, "We've really figured out this [developer] segment." So, in his eyes, why change?