While hyperscalers are off chasing the business barons of the world, DigitalOcean is busy carving out a growing niche for itself with a different clientele. Already the company has built a nearly $700 million business serving up a simplified cloud package to individuals and small businesses alike. And COO Jeff Guy told Silverlinings it thinks the $2 billion mark is well within its reach.
Founded just over a decade ago with an IPO in 2021, DigitalOcean currently boasts a global network of 15 data centers scattered across nine regions. These heavily skew toward San Francisco and New York in the U.S., but it also has locations in Amsterdam, Bangalore, Frankfurt, London, Singapore, Sydney and Toronto.
According to Guy, there are a few ways DigitalOcean is different from the big cloud providers. One is the aforementioned focus on smaller targets, including cloud hobbyists and small and medium businesses with under 500 employees. The second is a substantially smaller product set of 20-25 solutions for its users compared to the 350-plus cloud giants like Amazon Web Services provide. Guy said it curates these based on what offerings from the larger players gain traffic in the market.
“We are an industry follower and simplifier,” he said. He added the strategy of letting larger players do the heavy lifting when it comes to R&D “allows us to price effectively.”
Speaking of, the third differentiator is that it uses set pricing for packages which cover all the necessary storage, compute, network and IP addresses a client might need for a given droplet rather than requiring customers to buy those things separately.
To date, DigitalOcean has amassed nearly 700,000 customers in all but six countries across the globe, Guy said. The geographic breakdown is roughly a third each in APAC, EMEA and the Americas.
Guy said many of its customers will also use hyperscaler clouds, adding some of these might be developers who work for large corporations who want a space to tinker outside of the official network when they get home at night. Others are folks trying to build a business.
Currently, it has around 100,000 top customers who are paying over $250 per month for its services. “What we really want is 250,000 customers who are over $250 per month,” Guy said. “That’s an over $2 billion-dollar business. And you can kind of think around the other 4 or 500,000 customers, they’re in a customer journey to ultimately get there.”
As of the end of Q1 2023, DigitalOcean’s average revenue per user (ARPU) stood at $88.35, a figure up 16% year on year. Revenue overall was up 30% year on year to $165.1 million, giving it annual run-rate revenue of $669.1 million. However, the company said it expects to surpass that with total revenue of between $700 million and $720 million for the full year 2023.
CEO Yancey Spruill said during its Q1 earnings call that in order to help propel its continued growth, DigitalOcean is planning to revamp its go-to-market strategy and better target candidates for plan upgrades. It will also deploy new capabilities and product bundles to juice ARPU, including storage options and potentially GPU and AI/ML offerings.