DigitalOcean’s IPO presentation plays with ease of use compared to Amazon and Microsoft

The market for cloud computing infrastructure to power applications has grown enormously since Amazon introduced its first cloud services in 2006, but U.S. investors haven’t had a great way to invest exclusively in 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 exposure to the public cloud. DigitalOcean is different because it does nothing else.

The company will start with a much lower valuation than other companies. In a Monday update of the prospectus of its initial public offering, DigitalOcean said it expects to sell shares between $ 44 and $ 47 per share, which would give it a market capitalization of about $ 4.8 billion in mid-range. DigitalOcean also said Tiger Global and an entity linked to existing Invest Access Industries investors want to buy up to $ 175 million in shares of the company at the time of the IPO.

Unlike Amazon Web Services, the market leader in the public cloud, 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, although AWS generates 142 times more revenue. AWS revenue in 2020 amounted to $ 45.37 billion, up 29.5%, while DigitalOcean recorded 25% growth.

It might be okay, 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 the founders chose when DigitalOcean started in 2012. “We take infrastructure technology and make it simple in every aspect of the product experience,” he wrote to Yancey Spruill, CEO of SendGrid holding and chief finance officer a letter to investors in the brochure.

Since 2006, AWS has introduced a wide range of services that software developers could adopt and its list of customers has grown long, with big names like Apple paying hundreds of millions a year.

This is not the path of DigitalOcean. It only has a handful of products, including customizable Linux-based virtual machines called drops, data storage options, network 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 be simple with the prices and invoices it sends each month to its nearly 600,000 customers.

DigitalOcean took a look at the major public cloud providers in its prospectus, saying that its products are not intuitive enough for exclusive developers and small businesses and that “they suffer from almost infinite complexity of functions and have billing practices and opaque prices that are often accompanied by significant hidden costs. ”As a result, the company said, small businesses often can’t enjoy the benefits of cloud computing.

“Companies often need dedicated employees, price analysis tools or even specialized consultants to understand the price of products and how to manage their invoices,” he wrote.

If DigitalOcean has found a sweet spot, it is with small businesses, rather than large companies, that the big clouds have been struggling in recent years. It’s a self-service business that doesn’t depend heavily on a large group of vendors. This way it will be like the website creation company Wix and the e-commerce software maker Shopify.

The New York-based company also has an outside reach. Instead of introducing S&P 500 customers to its brochure, DigitalOcean features customers 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; in comparison, 68% of Amazon’s revenue for 2020 came from the U.S.

DigitalOcean has yet to have a significant share of the cloud infrastructure market, and some of its customers could end up switching to more complete cloud providers as their needs evolve.

But DigitalOcean is hopeful. In the brochure, the company said it expects more than 14 million small and medium-sized businesses to be created each year, and that its founders do not necessarily have strong technical experience. “These individuals are able to leverage simple and reliable development tools and widespread availability and significantly reduce the initial cost of cloud computing to start businesses,” the company said.

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