DigitalOcean launches Singapore data center, continues simplicity-based assault on Amazon’s cloud dominance

By Michael Carney , written on February 11, 2014

From The News Desk

The cloud may seem ubiquitous today, but it’s a relatively new concept. But this relative youth belies the fact that hardware and software technologies powering the cloud have changed dramatically over its short lifespan. This shift means that some industry latecomers may have an advantage over the current cloud services market leaders by virtue of their ability to build systems entirely out of the latest physical and digital components – or so these market entrants hope.

DigitalOcean is one of these relative newcomers to the cloud hosting game. The less-than-three-year-old New York-based company has its sights set on infrastructure-as-a-service (IaaS) category giants like Amazon, Rackspace, Google, IBM, and Microsoft. It’s easy to argue that its eyes are bigger than its proverbial stomach, but early results suggest that DigitalOcean may be onto something.

Today the company announced the launch of its first Asian data-center, opening up a co-located facility in Singapore to both better serve its existing customers’ global needs and attract users from an entirely new geographic market.

DigitalOcean is taking a simplicity-based approach to cloud hosting, much like Stripe did with payments, and hopes that this will be the key to attracting up-and-coming, developer-lead companies that can grow along with the service. As an example of this simplicity-first design, spinning up a new server or taking one offline can be accomplished with as little as two clicks and will be executed a matter of seconds – something that is significantly more complicated with the company's competition. It’s a strategy that seems to be working thus far, but which may have its limits at the upper end of the market.

“The existing solutions are great for companies operating complex systems and who have the resources and knowledge to get the most out of them,” says co-founder and CEO Ben Uretsky. “We want to simplify things and offer an intuitive interface – really focusing on user experience – and offer straightforward pricing that’s the lowest in the industry.”

DigitalOcean has become popular among Web developers and has been growing this segment of its user base faster than Amazon, according to a recent Netcraft report.

One thing that separates DigitalOcean from its legacy competitors is the way it measures and prices its computing power. Amazon still measures its platform access in terms of EC2 compute units, a measurement that dates back to 2007-era hardware. This is despite the fact that much of its system has since been updated. It seems to be a strategy aimed at more at not cannibalizing existing business and not obsoleting legacy hardware, than it is at offering customers fair and transparent pricing.

DigitalOcean, on the other hand, has purchased all of its infrastructure in the last few years (and mostly in the last 12 months), meaning that it uses only solid-state storage and the latest silicon and networking gear. Uretsky guarantees every customer access to the latest hardware, and prices the service according to real usage, not some legacy compute unit benchmark.

DigitalOcean’s basic package, aka a “droplet,” costs $5 per month and gives the user access to 512 MB of memory, one core, one 20 GB SSD disk, and 1 TB of transfer. On the other end of the pricing spectrum, the premium package costs $960 per month and includes 96 GB of memory, 24 cores, 960 GB of SSD, and 10 TB of transfer. Unlike most major hosting providers, DigitalOcean maintains region independent-pricing, meaning that what’s a good deal in the US is often a exceptional deal internationally.

DigitalOcean has more than 150,000 customers today, an astounding figure given that it began 2013 with just 1,000, and it continues to add more than 700 customers per day. Just as important is the fact that no single customer makes up more than 2 percent of the company’s revenue, Uretsky says, a figure he hopes to maintain going forward. The company also administers more than 500,000 websites and operates more than 7,000 physical servers today. In addition to its new Singapore data center, DigitalOcean operates similar facilities in New York City (2), San Francisco (1), and Amsterdam (2).

Each of the above figures is orders of magnitude smaller than Amazon’s respectively, but the fact that DigitalOcean has attracted such a sizable and still growing audience suggests that there’s demand for a simpler alternative to existing IaaS platforms. Uretsky and his co-founders have more than a decade of experience working in the the dedicated server sector, giving them an intimate appreciation for the needs and challenges currently facing the hosting industry today.

While DigitalOcean is courting developers and early-stage companies, the hosting service has attracted some marquee brands as well. DigitalOcean hosts Beyonce’s website and didn’t blink when the site attracted 15 million visitors on the day of her latest album release – including an online-only collection of tracks and videos – according to Uretsky. DigitalOcean also hosts a Nike microsite chronicling the company’s journey of innovation. Managed Wordpress hosting service Flywheel also uses the platform, as does news aggregator NewsBurner. More than 50 percent of all new customers are coming from word-of-mouth referrals, Uretsky says.

DigitalOcean is a TechStars Boulder grad and has raised just $3.2 million in Seed funding to date in a round led by IA Ventures, with participation from CrunchFund (a PandoDaily investor). It’s a paltry sum given what the company, which grew from 12 to 40 employees over the last year, has accomplished to date. But DigitalOcean is already profitable and growing its infrastructure using debt financing, rather than equity. The company entered into a critical equipment partnership with Dell under which the computer manufacturer pre-builds hardware and holds it on demand. It’s a game-changing supply chain relationship that Uretsky says finally allows DigitalOcean to keep up with demand from its customers.

“Last year we struggled with finding credit and hardware production delays, but we have since solved both problems,” he says. “Now, we have it down to two days from phone call to having the hardware online. We’re ordering several million dollars worth of new equipment each month and have the ability to spin up a dozen or more racks overnight.”

Despite its growing infrastructure, DigitalOcean has regularly struggled to meet user demand. Uretsky is confident that with the addition of its new Singapore data-center and its improved supply chain and equipment financing status, delivering the required computing capacity should no-longer be an issue. Whether that’s just founder optimism remains to be seen.

DigitalOcean’s number-one requested expansion market is actually Brazil, but poor infrastructure and high import duties make it a challenge. Following its Singapore launch, the next markets to launch will most likely be the UK followed by India. At the rate it’s growing, DigitalOcean will eventually have to expand its physical infrastructure even further, but that’s no longer the primary focus for the company, according to its CEO. With a beachhead in the Asian market and a growing roster of global customers, the focus must now shift to building out the product and attaining feature parity with incumbents like Amazon, he says.

First on the list of must-add features is load balancing, Uretsky says. Shortly thereafter plans call for the addition of object storage, a CDN, and one-click installs of common frameworks. The company also plans to switch from IPv4, a legacy IP address standard, to the more modern IPv6. The company recently tweaked its security settings to address data storage concerns raised by a researcher. While beefing up its product offering is a priority, Uretsky is adamant that maintaining simplicity will remain central to everything DigitalOcean does.

Reaching feature parity with Amazon and offering simpler and more transparent pricing is a good place from which to attack the cloud-hosting market. But unseating giants is a brutal task, especially when those giants are run by men like Jeff Bezos and Larry Page.

As we discussed recently with Stripe, sometimes it’s not enough to merely offer the best product or service. Particularly in the enterprise, familiarity, trust, and even inertia can play disproportionate roles in purchasing decisions. At the same time, betting your business on the ability to onboard thousands of small customers and hoping that some will grow into giants is a risky strategy. It’s also an inefficient one. DigitalOcean may be precluded from closing large enterprise clients today due to its limited feature-set, building a sales force and tackling these whales will be a major priority in the next phase.

Two years ago it would have been near impossible to find anyone in Silicon Valley that thought a startup had any business taking on Amazon, et al in the storage and hosting game. Such a notion was more than simply David vs. Goliath. It was David versus an arm of Goliaths. And yet here we are and DigitalOcean has made a real dent in the hosting universe. The company remains barely a pimple on Amazon’s ass, but the fact that they’ve managed to become such a blemish is already a major accomplishment.

We’re still in the early innings of the cloud era, which means that the market is more dynamic than it may seem from the outside. With deft execution and a bit of luck, DigitalOcean may one day represent a meaningful threat to Amazon’s dominance – the threat that simplicity built.