We have written about the pricing models of infrastructure-as-a-service offerings for years, often with a air of mystery surrounding them. As companies such as Amazon Web Services, Google and Microsoft continue to drop prices, citing improved economies of scale and advances in their underlying infrastructure, industry watchers debate the size of their profit margins. A whole market has emerged around helping users navigate complex pricing structures and figure out what they’re actually paying.
On this week’s Structure Show podcast, Ben Uretsky, CEO of startup cloud provider DigitalOcean, explained how his company thinks about pricing and profits, and why it has developed simple, linear system — double the resources equals double the monthly cost (which starts at $5) — for cloud costs. Here are three quotes from the interview that get to the heart of the matter, but you’ll want to listen to the whole thing for Uretsky’s thoughts on everything from privacy to IPv6 to DigitalOcean’s growth strategy.
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Cost plus margin means profit
“At DigitalOcean, we decided to do something very unique. We calculated our costs of operating a droplet [the DigitalOcean unit of infrastructure], and then we set a fixed price point that starts at $5 a month, and we know that we’ve built in a fair amount of margin for us to be able to operate a a successful business and be able to grow as a company.”
Proudly not offering high-volume customer discounts … yet
“Actually, one of the interesting things that has come up, as larger customers have approached us, a huge part of the conversation is ‘What kind of a discount can you offer us?’. It’s weird, but I am actually proud to say that, to date, we have not provided any discounts to our customers because we feel that a one-price-fits-all — whether you use a single droplet in our cloud or you’re using several thousand — you should essentially pay the same price because it costs us the same amount to run the infrastructure.”
Why AWS and Google won’t kill DigitalOcean (like some of us have suggested)
“The simple … is, since you have so many entrants come into the field and they’re all still around today, it means the market is very healthy and there’s no reason DigitalOcean would fail as a company. To dive into some of the specifics, we have a tremendous amount of venture capital that’s helping to propel the business and accelerate our rate of growth. As I mentioned with our pricing plans, we’ve built in a profit margin directly into the products that we’re offering, so we’re not operating in kind of a fantasy revenue model — we are actually generating a profit every single month even though we are a price leader in the space.”