Digital Ocean gets $50 Million Credit Line

[drmike]

Yesterday, DigitalOcean announced it received a line of credit worth $50 million from Fortress Investment Group.

From the press release:

http://www.businesswire.com/news/home/20141209006143/en/Fast-Growing-DigitalOcean-Receives-50-Million-Expand

“A large line of credit makes sure we’re able to lease more equipment at more favorable rates and scale globally to keep up with international demand.”

“We plan to triple our employee count before the end of next year,” said Ben Uretsky, CEO of DigitalOcean. “With more engineering talent comes quicker feature releases. We are taking steps every day to become a more complete cloud solution, and we need the best engineering talent in the world to help get us there.”

The summary:

1. Leasing is costly.

2. In order to better reduce leasing costs, they needed more liquidity to dump more cash up front on leases.

3. DO is intending on branching out to other international locations.

4. Not said therein, but Asia.

5. Employees are being hired at insane pace.

6. Employees cost a fortune vs. the income side of servers to cover such.

7. Engineering more development is going at slow pace and more fresh minds are needed and management that can drive the hot development spikes.

8. VC cash and credit lines are directly and indirectly bankrolling employee costs.

and...

Recently Netcraft said DigitalOcean was the 3rd largest hosting company.

 

[DomainBop]

To put this week's DO financing in perspective, that $50 million is pocket change compared to the $327 million financing OVH received this week for its "global cloud" ambitions .  OVH has now raised $500 million in the past 1 1/2 years (they raised $181 million early last year).  OVH IPO rumored in the future.

cloud prediction #1: I'm placing my bets on DO being gobbled up by a larger player eventually because it is up against much larger players with much deeper pockets (...and I'm going to question Netcraft's ranking methodology that puts DO at #3)

cloud prediction #2: Aliyun will pass AWS within the next couple of years and there will be a lot of blood among smaller players in the cloud sector if it makes its rumored entry into the North American and European markets.

cloud prediction #3: sunny with no clouds this weekend.

 

[drmike]

So.... $50 million is a big chunk no matter what.  Especially these days as growth type investment (lots of deals are mergers lately).

OVH is big, how big though? Hard to get size on and lots of talk for a long time about French government being behind their money in funny ways.  

Aliyun?  Is that an Alibaba owned company?

Clouds need some real names, real brands.  So far things like Amazon, Google, etc. are limited by their own McMega store we do all oddness in branding.  Good sized companies, but niche sort of and cap on growth probably already happening.

DO is strong, real strong.  Unsure if 3rd like Netcraft said...  but growth is staight upwards.  

Notice Linode went out for some money recently.... Oh there was no press about it?  Yeah they are getting pummeled by DO no doubt about it.   Good luck to them trying to compete with DO's big deep pockets and investors.  If they want to, better attract workers for off site work, cause even with relocation assistance no sane person wants to relocate to New Jersey.

 

[raindog308]

The funny thing is that NO ONE is making money on the cloud.

Amazon certainly isn't.

Microsoft is not with Azure...and they're committed to matching Amazon prices.

For Google it's hard to say because it's mixed with everything else but I doubt their IaaS business is profitable.

IBM, HP, Oracle...all playing catchup.

 

[Francisco]

Said it once, i'll say it again.

DO's business model is to be bought out by a big player for something in the $X billion range.

If they have to invest $100M to get to that point? Then that's still leaving the potential for a good return on it.

I still figure within 2 years DO will sell. I'm not sure to who, though.

DO is strong, real strong.  Unsure if 3rd like Netcraft said...  but growth is staight upwards.

Right, they realized they could corner a market if they give away service. Sure, I'm sure they have a lot of people that pay a lot of large invoices every month, but don't you think there's a very large chunk of their userbase that is just abusing pre-paid credit cards and such just to keep getting the $30 - $60 free credit bonuses?

I dunno, maybe Dell would want them. There was talk a few years back that Dell wanted to get into the consumer cloud business but I don't remember anything coming of it. HP has theirs, IBM has Softlayer, MS has theirs, etc. Rackspace maybe, but they have their own fairly high priced offering already.

Francisco

 

[DomainBop]

OVH is big, how big though?

$292 million in revenue in 2013 and the latest predictions for 2014 call for around $340 million.  Their primary cloud focus right now is on enterprise dedicated private clouds.

Aliyun?  Is that an Alibaba owned company?

Yep, it's owned by that company that just raised $25 billion in an IPO.

some OVH and Aliyun reading links:

http://techcrunch.com/2014/09/23/after-25b-ipo-us-cloud-infrastructure-players-best-pay-attention-to-alibaba/

http://www.academia.edu/8754967/Chinese_public_cloud_business_can_Alibaba_overtake_Amazon_

http://dailycloud.info/european-web-hosting-giant-ovh-targets-us-growth-with-dedicated-private-cloud/

Rackspace maybe, but they have their own fairly high priced offering already.

Rackspace will probably eventually be another acquisition target...although they keep denying all of the rumors.  They're big, but they don't have the money behind them that some of their competitors do like Amazon, Google, Microsoft, Aliyun/Alibaba (in Asia), Softlayer/IBM, Savvis/CenturyLink, Terremark/Verizon

 

[drmike]

Rackspace will probably eventually be another acquisition target...although they keep denying all of the rumors.  They're big, but they don't have the money behind them that some of their competitors do like Amazon, Google, Microsoft, Aliyun/Alibaba (in Asia), Softlayer/IBM, Savvis/CenturyLink, Terremark/Verizon

Rackspace HAS been looking / in play for someone to acquire them.

DO's business model is to be bought out by a big player for something in the $X billion range.


I still figure within 2 years DO will sell. I'm not sure to who, though.


Right, they realized they could corner a market if they give away service. Sure, I'm sure they have a lot of people that pay a lot of large invoices every month, but don't you think there's a very large chunk of their userbase that is just abusing pre-paid credit cards and such just to keep getting the $30 - $60 free credit bonuses?

No doubt this is the DO model.  Look at who financed them.  They aren't in business to lose cash on external investments.  I mean their pet projects have been various fizzle, but investments externally are way more strict, profit maximum intent, etc.

DO two more years?   Yeah I agree.  Hard to peg real time with these finance folks, but two years more is a long time for vulture money sitting idle and not ROI'ing directly to the coffers.

Is DO still doing credit bonuses?  They seem to have slowed with such from my cat perch view.   I've long suspected their credit push would balloon subscribers then have those back to self-funding point where the consumer would be reducing services or shutting off their containers to avoid more billing.

DO's problem is once frugal bottom feeders taste cheap that actually works alright, they will seek out more of it.  Nothing stopping that customer from slashing costs more.   Their model is straight up $10 per gigabyte of RAM.  That's $120 a year for a single 1GB VPS... That's not cheap.  How will customers slash costs?   Obviously by choosing DO competitors who look-a-like and probably more commonly by going to VPS providers who offer better cost.

Do the math here on KVM with no oversell gimmicks based on $10 per gigabyte:

64GB  $640

128GB $1280

256GB $2560

Clearly per machine, that's a chunk of change.   Have to run bigger machines and figure out sweet spot, but 128GB looks like good starting point.

End of 2012, DO was running on dual Hexa cores with 32-64GB of RAM  Hard to believe they were trying something so small.

DO and others have this inevitable date with reasoning where customers growing things look at the cost and say, well, a dedicated server would make more sense.  The pricing model will work for some chunk of next two years absent some revolutionary market change.  Specifically, the model works rather well for small RAM / consumption users and specifically those 8GB of RAM and under.  I am semi-certain majority of their customer base is running 1GB or less.    Those are quick to move and easy to take customers.  DO got them with low prices and will lose them to others with lower prices.

 

[rmlhhd]

DO have announced their next location will be Germany

 

[Francisco]

Is DO still doing credit bonuses?  They seem to have slowed with such from my cat perch view.   I've long suspected their credit push would balloon subscribers then have those back to self-funding point where the consumer would be reducing services or shutting off their containers to avoid more billing.

Far as I know they have been doing smaller amounts but they still do fat offers during holidays and things like that. When they got that $30M injection earlier in the year they kicked out $50 credits to everyone, even current account holders I think?

Francisco

 

[kpmedia]

Said it once, i'll say it again.


DO's business model is to be bought out by a big player for something in the $X billion range.

EIG is dumb enoughto buy it.

It would fit the EIG MO, too -- DO lies about it being a "cloud". It's not.

EIG lies all the time.

 

[splitice]

DO lies about it being a "cloud".

You cant lie about a airy term that many people in the industry cant even agree on. Its a buzz word nothing else.

 

[Francisco]

You cant lie about a airy term that many people in the industry cant even agree on. Its a buzz word nothing else.

Airy? Booooooooooooooooooooooooooooooooooooooooooo.

It used to be 'grid computing' back when mediatemple spun that term. People didn't "get" it so that's when "services that you don't handle the physical layer of" turned into "cloud".

I still believe that DO, and many other hosts, are going to change hands within 2 years. I have a list in my head of them but again, I'll keep that to myself for now.

Francisco