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DigitalOcean Grows Alternative Cloud as Akamai Linode Looms Large

DigitalOcean builds its cloud business by starting with individual developers that can spend as little as $5 to get started and grow itself into a large business.

Alternative cloud provider DigitalOcean claims it has come up with a winning formula — enabling developers to spend as little as $5 on its platform and grow from there — that is paying dividends and is helping it increase revenue faster than such competitors as Linode, which Akamai acquired earlier this month.

Backing up these claims, DigitalOcean reported its fourth-quarter and full-year earnings for fiscal 2021 on Feb. 24 showing growing demand and revenue.

DigitalOcean went public in March 2021, nearly a decade after the company was founded in 2012 as an alternative cloud offering to Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform. From the onset, DigitalOcean has focused on smaller developers with an initial entry point of only $5 for a computing instance the company refers to as a "droplet," and it's a strategy that continues to pay off for the alternative cloud provider.

Fourth-quarter revenue was reported at $119.7 million for a 37% year-over-year gain, while full-year revenue came in at $428.6 million for a 35% year-over-year gain. DigitalOcean reported that it now has more than 609,000 customers, with 99,000 of them now paying $50 or more per month for cloud computing services.

"Our customers are demonstrating they have a long runway to evolve their ideas to businesses on our platform, in many cases growing from just $10 or $15 in their first few months to tens of thousands of dollars per month, as they scale an idea into a business," Yancey Spruill, CEO of DigitalOcean, said during his company's earnings call.

The DigitalOcean Model for Scaling Alternative Cloud Growth

DigitalOcean's model of having developers start small on its platform and then grow is a winning formula, Spruill said during the call.

The company's platform provides a self-service approach with access to documentation and tutorials to help customers be successful, he said. Over time as users build out applications and even businesses on DigitalOcean's cloud, inevitably they end up spending more as they consume more resources.

"Those customers spending less than $50 per month give us an incredible option on their future success as so many of these customers will launch an idea that they test on DigitalOcean and ultimately turn it into a thriving and rapidly growing business," Spruill said. "Our strategy works because we have an incredibly efficient customer acquisition model with a vast majority of our customers entering via self-serve onto the platform."

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New Services Set to Fuel Future DigitalOcean Cloud Growth

DigitalOcean's core business starts with virtual compute services, where users are able to get CPU and storage resources to build and run applications.

In recent years, DigitalOcean has been growing its offerings. In 2018, the company rolled out managed Kubernetes services, providing a container platform for developers. The managed Kubernetes services continued to grow in 2021, according to Spruill. That was also the year in which DigitalOcean launched a managed MongoDB database service.

"We have more than 3,000 customers actively using our managed MongoDB database services,'' he said.

In addition, DigitalOcean is developing a serverless computing service that will be available later this year. The company gained the serverless technology with its acquisition of Nimbella last year.

Growing Competition as Akamai Acquires Linode

The alternative cloud market that DigitalOcean inhabits took a big step forward earlier this month when Akamai acquired Linode for $900 million.

During the earnings call, Spruill was asked his view on how the Linode acquisition will impact DigitalOcean. When organizations invest in a sector, it always serves as validation for the opportunity the sector represents, Spruill said. That said, he emphasized that from where he sits DigitalOcean is growing its revenues faster than Linode is.

"We're growing faster in our segment of the market for cloud, and I think that it speaks to our strategy working to capture share in the heart of the cloud infrastructure markets where we operate," Spruill said.

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