Author: Yinting Hou | Editor: Weber

Amid the global economic transformation cycle, Silicon Valley and major manufacturers worldwide have laid off employees one after another, even the cloud service departments that create the second growth curve have been unable to escape the cuts in costs and efficiency. In early April, Amazon officially confirmed that its cloud computing service department (AWS) is laying off its brick-and-mortar technology team, sales, and marketing departments, which will reduce hundreds of employees. Data shows that AWS is one of Amazon's most profitable departments, contributing 54% of Amazon's operating profit in the fourth quarter of 2023. However, as the industry's largest provider of computing power and data storage leasing services, AWS's sales growth rate fell to an all-time low last year, mainly due to companies cutting cloud spending amid rising interest rates.

With changing economic conditions and rising operating costs for enterprises, saving on cloud spending is a necessary decision, especially for small and medium-sized enterprises (SMEs), as the high cost of cloud services has become unsustainable. Beyond giants like Amazon AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud, enterprises urgently need to find economical and suitable cloud service platforms. Founded in 2012, the American cloud hosting provider DigitalOcean has become the preferred choice for SMEs, startups, and developers due to its ease of use and cost-effectiveness. Jiji, a leading e-commerce platform in Africa with millions of buyers, has been using DigitalOcean's cloud services for 10 years. The company's co-founder and CEO Nick Zorin chose DigitalOcean from the start, driven by three factors: user-friendliness, functionality, and affordability.

Nick Zorin said, "It's competitively priced and easy to use. For us, DigitalOcean is very approachable. We've been using it since our inception, and it's all working well." Listed on the Nasdaq in March 2021, cloud vendor DigitalOcean has become the "invisible king" of U.S. stocks. According to the latest financial report data released in February this year, DigitalOcean's revenue in 2023 increased by 20% year-on-year, and its net profit increased by 179.94% year-on-year.

DigitalOcean IPO

Unlike other large cloud vendors that are starting to face growth bottlenecks, DigitalOcean's focus on the SME segment still has tremendous growth potential.

Xia Guang She learned that DigitalOcean mainly provides four categories of hosting server products, with a global footprint expanded to 15 data centers in 9 regions, providing infrastructure and software solutions to over 620,000 customers in more than 185 countries/regions.

"In the early days of DigitalOcean, the target audience was developers like me, who might want to start a small project on the side or start a company with a team of only 2-10 people or 50-100 people. Often, such developers, startups, or SMEs are excluded from the cloud service market." DigitalOcean VP Apurva Joshi said in a public share. In 2012, DigitalOcean co-founder and former CEO Ben Uretsky believed that users needed a new cloud service solution. Cloud service providers on the market offered overly complex pricing plans, and the platforms were not always able to meet users' needs.

DigitalOcean co-founder and former CEO Ben Uretsky

At that time, Amazon AWS was already a market leader, and DigitalOcean stood out with its differentiated advantages. In 2012, the founding team launched its first product, Droplets (virtual private servers), initially starting with about 10,000 cloud service instances and signing up nearly 400 customers.

In 2013, DigitalOcean became one of the first cloud hosting companies to offer SSD-based virtual private servers. At that time, cloud hosting platforms that offered affordable virtual servers, such as Linode and Rackspace, had service starting prices of $20/month, while DigitalOcean's similar products had starting prices of $5/month and adopted SSD storage with better performance. According to third-party evaluations, Droplet boot time was only 55 seconds, while other large cloud providers generally required 1-3 minutes.

Even those without extensive backend experience can complete virtual machine startup within minutes based on the documentation. The pricing is low and transparent, and the features are simple and easy to use. The market has responded positively to DigitalOcean's products, from originally adding 2 customers per day to signing up over 2,000 customers per day, marking significant growth for DigitalOcean. From 2013 to 2015, the company received a round of financing every year. As its scale expanded, DigitalOcean also opened data centers globally. In December 2013, DigitalOcean opened its first European data center in Amsterdam. From 2014 to 2016, the company continued to expand, establishing data centers in Singapore, London, Toronto, Frankfurt, and Bangalore.

As its scale continues to expand, DigitalOcean remains focused on user experience, with "simplicity" as its core essence. "We won't satisfy every corporate requirement just to increase millions of dollars in transactions per month. If we encourage employees to do so, it will create 'complexity' and deviate from our core path. Our focus is on SMEs, and our core is to provide simple solutions," said Apurva Joshi. While adhering to the "simple" path, they also pay attention to user needs, continuously innovate, and launch more simplified products. In May 2018, the company announced the launch of a Kubernetes-based cloud container platform.

It is reported that the product eliminates many of the underlying complexities of running Kubernetes. Users can get an independent Kubernetes cluster and have full access to the Kubernetes API. Just on March 24, 2021, DigitalOcean went public on the New York Stock Exchange, with an initial public offering price of $47 per share. Through a successful business model, the company has achieved revenue growth of over 20% annually. In the new round of tests in the capital market, the company has also continuously expanded the boundaries of cloud services.

Image source: DigitalOcean community

In May 2022, the company launched DigitalOcean Functions, a serverless computing service based on open-source technology that allows developers to build and run applications without managing servers. In August of the same year, DigitalOcean acquired cloud hosting service provider Cloudways for $350 million.

It is worth mentioning that in July last year, DigitalOcean acquired Paperspace, a cloud computing and AI development startup, for $111 million, announcing the provision of GPU cloud services to help startups, growing digital enterprises, and independent software vendors (ISVs) continuously provide competitive AI experiences to their customers. It is reported that the starting price for renting each H100 chip is as low as $2.24 per hour. According to the latest financial report, DigitalOcean exceeded expectations in its 2023 fourth-quarter earnings, revenue, and performance guidance.

During that quarter, the company's earnings, excluding certain costs such as stock compensation, were 44 cents per share, far exceeding Wall Street's target of 37 cents per share. The company's annual revenue run rate increased by 11%, reaching $730 million at the end of the quarter. The average revenue per customer also increased to $92.63, up 6% year-on-year. Xia Guang She learned that DigitalOcean has now opened its business in China and provides technical support through its exclusive strategic partner in China, Zhuopu Cloud AI Droplet, providing professional cloud services and solutions for Chinese enterprises going global. Zhuopu Cloud AI Droplet was founded by Access Technology Venture to help DigitalOcean better expand in the Chinese market.

As DigitalOcean's largest controlling shareholder, Access Technology Venture is an investment company focused on emerging technology companies, having invested in Zhihu, Agora, Alibaba, Pinduoduo, and Pingcap in China. It is reported that the company is very optimistic about DigitalOcean's future, so it has continuously increased its shareholding and participated in the company's operations. From 100 customers to over 600,000 customers, DigitalOcean's unchanging vision has been to focus on serving its target audience, namely SMEs, startups, and developers, providing them with a simple yet high-performing cloud service platform, "helping them build businesses and pursue dreams simply, economically, and efficiently."

Focusing on the needs of SMEs and developers, DigitalOcean not only pursues simplicity in product user experience but also values creating happiness for developers' work in marketing. In a public sharing, DigitalOcean CMO Carly Brantz's view was memorable. She pointed out that marketing for developers is not about placing registration ads on websites but providing value and happiness for developers, "Happy developers can bring growth to companies, and DigitalOcean makes developers happy."

Starting from the user, DigitalOcean follows the PLG (Product Led Growth) business strategy, a user-oriented growth model. The PLG model places user experience at the core, attracting users by providing valuable products and services and driving growth through user engagement and sharing. The PLG model typically builds an active user community where users can share experiences and support each other, enhancing user stickiness and loyalty. DigitalOcean is no exception. In early 2012, it established a developer community on its official website, with internal authors (developers) writing and publishing 10 Linux tutorials, attracting 1,500 visitors in the first week.

Image source: DigitalOcean community

Carly Brantz shared that since joining the company in January 2020, she has witnessed many influential community activities during the pandemic that have gained the love and recognition of developers worldwide.

On DigitalOcean's developer community, over 8,000 tutorials, documents, and cloud education materials are provided free of charge to developers. DigitalOcean also hosts Hacktoberfest, an annual global "programming marathon" event aimed at supporting open-source projects and encouraging more people to contribute to the open-source community. By October 2023, this festival had been held for 10 years.

Image source: DigitalOcean community

According to foreign media reports, DigitalOcean brought 9 million unique visitors to its official website through a large amount of content in the first quarter of 2022.

The success of the developer community also comes from the company's keen insight into the developer community. "Developers typically have a strong technical mindset and want to solve problems on their own, rather than calling sales or customer service for help," Carly Brantz noted. Developers do not need marketers to communicate with them. They are more accustomed to going to the community to obtain resources, learn, and build trust in the website, registering accounts independently. "These customers are often business enthusiasts, early learners, and mature developers, or even startup owners. We need to provide them with value, such as content in the community, allowing them to use it simply, clearly, and develop their businesses."

In fact, the developer community has everything needed, and even non-technical personnel can easily set up Droplets and configure networks based on the tutorials in the community, significantly lowering the threshold for new users to use cloud services.

The developer community has become an important channel for DigitalOcean to acquire customers at a low cost, which is why the company's marketing expenses have consistently accounted for around 10% of revenue. Generally speaking, once developers get used to a platform, the switching cost is relatively high, so DigitalOcean has strong user stickiness, high loyalty, and high potential lifetime value (LTV). The cloud vendor's business model has always been considered B2B, providing cloud services to enterprises. However, one of DigitalOcean's founders once said that what the company is doing is B2D (developer). Always valuing developers' demands and enabling them to conduct business simply and efficiently is an important mission for DigitalOcean.

"DigitalOcean's cloud services are simple, economical, and flexible. For individual developers, high-growth startups, and independent software vendors (ISVs) and SMEs seeking alternatives to hyperscale providers, DigitalOcean is an attractive choice. It is a tailored cloud service for businesses - enabling growing companies to easily gain momentum and sustainably scale."

Dave McCarthy, IDC's Research Vice President, pointed out. Chinese enterprises going global are becoming an important international trend, with various industries, from social media, gaming, e-commerce to enterprise services, already forming a certain competitive landscape overseas. Mobile data analytics agency Data.ai pointed out in its "2024 Mobile Gaming Market Report" that Chinese-based game publishers accounted for one-third of global revenue, expanding into markets like Japan and the United States through high-quality production and localization. Chinese cross-border e-commerce platforms are also radiating globally. Temu has deployed in 50 countries/regions and acquired 467 million users, while SHEIN's revenue exceeded $30 billion in 2023. TikTok has become a global social media giant with over 1.6 billion users worldwide, and its e-commerce business has also grown significantly in 2023. Following the global trend set by Chinese platform vendors, SMEs are also joining the globalization wave.

However, from the initial stage of product globalization to today's expansion of global布局, the challenges faced by Chinese enterprises overseas are now vastly different. Amid complex geopolitics and soaring economic costs, the competition in technological strength has become an essential topic, and mature cloud service technology support is a crucial link in achieving digital globalization. SMEs cannot do without cloud services. The "2024 Cloud Status" report released by cloud management platform Flexera shows that half of organizations have data in public clouds, and it is expected to increase by 7% in the next 12 months. SMEs have the highest cloud adoption rate. For SMEs going global, compared with leading well-known cloud vendors, choosing a cloud service platform with streamlined features, ease of use, and low cost seems more practical.

Blub Blub has developed a speech therapy app called Speech Blubs for children, with over 100,000 subscribers. With fewer than 50 employees and only 3 backend engineers, the small team-operated Blub Blub chose DigitalOcean.

Image source: Blub Blub

Initially, Blub Blub relied on Heroku (a PaaS platform) to host its simple WordPress website and backend services. As the Speech Blubs user base grew, the development team felt limited by Heroku's functionality and wanted to find a cost-effective solution that provided a more complete infrastructure management method, while enabling easy deployment of updates.

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