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Protocol | Enterprise

Newly public, DigitalOcean still wants to be a boutique cloud

With Wednesday's IPO, DigitalOcean raised $775 million to expand its developer-focused cloud infrastructure services for smaller customers around the world.

DigitalOcean CEO Yancey Spruill (center) rings the opening bell at the New York Stock Exchange on Wednesday, March 24, 2021.

DigitalOcean CEO Yancey Spruill (center) rings the opening bell at the New York Stock Exchange on Wednesday, March 24, 2021.

Photo: New York Stock Exchange

If you can't beat 'em, do something they can't.

That might as well be the mantra for DigitalOcean, which competes against enormous companies like AWS, Microsoft and Google in the lucrative market for cloud infrastructure services.

The company, which made its debut on the New York Stock Exchange Wednesday, emphasizes simplicity, affordability and customer support tailored to the needs of smaller organizations that can get lost inside enterprise-oriented cloud providers, said Yancey Spruill, CEO of DigitalOcean.

"Our founders ... nailed the fact that small businesses, startups [and] entrepreneurs have historically been underserved by big technology solutions," Spruill said in an interview with Protocol. "They need a simple, narrow and easy set of solutions."

That group doesn't have nearly as much money to spend on information technology as the large enterprise customers of the world, but Spruill said DigitalOcean generated cash in the fourth quarter of 2020 and should also generate cash from its operations every quarter in 2021. On a GAAP basis, the company lost $43.6 million in 2020 on revenue of $318.4 million, a 25% jump in revenue compared to 2019.

DigitalOcean CEO Yancey Spruill on the floor of the New York Stock Exchange. DigitalOcean CEO Yancey Spruill on the floor of the New York Stock Exchange on the day his company's shares started trading.Photo: New York Stock Exchange

DigitalOcean didn't see the big first-day pop in its stock price that other enterprise tech IPOs over the last six months have gotten. The company sold shares at $47, but trading started at $44.15 and stayed below the offering price all day, closing at $42.50. That left the company worth around $4.5 billion, including some unissued stock compensation — about 10% short of the value it would have held at the offering price.

Whereas companies like AWS offer hundreds of cloud services, including many that those providers manage for customers, DigitalOcean keeps it basic, with virtual machines running chips from Intel and AMD, block storage and networking. The company added a managed Kubernetes service in response to demand for the container orchestration technology, Spruill said, and also offers three managed open-source databases, but that's mostly it.

As a result, DigitalOcean doesn't have to invest nearly as much in hardware — servers, hard drives and networking equipment — to serve its customers. For comparison, DigitalOcean spent just $98 million in computer equipment during 2020, according to its S-1 filing. AWS spends billions each quarter on new computing equipment.

"Our investment is narrow in the sense that we don't have to invest for a broad set of use cases that you have to do in the enterprise," Spruill said.

AWS itself started out life as a small, developer-oriented service 15 years ago and ballooned into one of the biggest providers of information technology services on the planet, with Microsoft and Google following suit. Spruill and DigitalOcean believe that there is plenty of demand from companies that want to test new ideas or build new lines of business on the internet, but can't get the level of support the Big Three lavish on their largest clients.

"Early-stage businesses or two-person startups, they don't have the expertise or the time to spend figuring things out on their infrastructure on their application; it needs to work." Spruill said.

Still, the big cloud providers spend a lot of time and energy courting startups, dangling credits for limited amounts of free services and recounting the stories of now-massive companies that have scaled on the back of their infrastructure. DigitalOcean's long-term bet is that as the cloud matures, the customer and developer experience offered by cloud providers will become just as important as the hardware and the services.

"They recognize that the silicon, network, and other components are commodities, and it is their ability to provide a simplified developer experience that differentiates them," Peter Levine, a partner with Andreessen Horowitz and early investor in DigitalOcean, wrote in a blog post Wednesday.

The metaverse is coming, and Robinhood's IPO is here

Plus, what we learned from Big Tech's big quarter.

Image: Roblox

On this episode of the Source Code podcast: First, a few takeaways from another blockbuster quarter in the tech industry. Then, Janko Roettgers joins the show to discuss Big Tech's obsession with the metaverse and the platform war that seems inevitable. Finally, Ben Pimentel talks about Robinhood's IPO, and the company's crazy route to the public markets.

For more on the topics in this episode:

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David Pierce

David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.

After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Over half of employees report working longer hours, and a quarter say they're unable to unplug from work.

The continued swell of reported burnout is a concerning trend for employers everywhere. Not only does it harm mental health and well-being, but it can also impact absenteeism, employee retention and — between the drain on morale and high turnover — your company culture.

Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably? Companies around the world are now taking larger steps to curb burnout, with industry leaders like LinkedIn, Hootsuite and Bumble shutting down their offices for a full week to allow all employees extra time off. The CEO of Okta, worried about burnout, asked all employees to email him their vacation plans in 2021.

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Stella Garber
Stella Garber is Trello's Head of Marketing. Stella has led Marketing at Trello for the last seven years from early stage startup all the way through its acquisition by Atlassian in 2017 and beyond. Stella was an early champion of remote work, having led remote teams for the last decade plus.

Facebook wants to be like Snapchat

Facebook is looking to make posts disappear, Google wants to make traffic reports more accurate, and more patents from Big Tech.

Facebook has ephemeral posts on its mind.

Image: Protocol

Welcome to another week of Big Tech patents. Google wants to make traffic reports more accurate, Amazon wants to make voice assistants more intelligent, Microsoft wants to make scheduling meetings more convenient, and a ton more.

As always, remember that the big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future

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Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

Protocol | China

China’s edtech crackdown isn’t what you think. Here’s why.

It's part of an attempt to fix education inequality and address a looming demographic crisis.

In the past decade, China's private tutoring market has expanded rapidly as it's been digitized and bolstered by capital.

Photo: Getty Images

Beijing's strike against the private tutoring and ed tech industry has rattled the market and led observers to try to answer one big question: What is Beijing trying to achieve?

Sweeping policy guidelines issued by the Central Committee of the Chinese Communist Party on July 24 and the State Council now mandate that existing private tutoring companies register as nonprofit organizations. Extracurricular tutoring companies will be banned from going public. Online tutoring agencies will be subject to regulatory approval.

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Shen Lu

Shen Lu is a reporter with Protocol | China. She has spent six years covering China from inside and outside its borders. Previously, she was a fellow at Asia Society's ChinaFile and a Beijing-based producer for CNN. Her writing has appeared in Foreign Policy, The New York Times and POLITICO, among other publications. Shen Lu is a founding member of Chinese Storytellers, a community serving and elevating Chinese professionals in the global media industry.

It’s soul-destroying and it uses DRM, therefore Peloton is tech

"I mean, the pedals go around if you turn off all the tech, but Peloton isn't selling a pedaling product."

Is this tech? Or is it just a bike with a screen?

Image: Peloton and Protocol

One of the breakout hits from the pandemic, besides Taylor Swift's "Folklore," has been Peloton. With upwards of 5.4 million members as of March and nearly $1.3 billion in revenue that quarter, a lot of people are turning in their gym memberships for a bike or a treadmill and a slick-looking app.

But here at Protocol, it's that slick-looking app, plus all the tech that goes into it, that matters. And that's where things got really heated during our chat this week. Is Peloton tech? Or is it just a bike with a giant tablet on it? Can all bikes be tech with a little elbow grease?

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Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

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