With a $50M line of credit, DigitalOcean will build more data centers

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DigitalOcean, the cloud provider that’s a hit with developers, said today that it’s landed a $50 million credit facility provided by the investment firm Fortress Investment Group. The new credit line follows the startup’s recent $37.2 million Series A funding round led by Andreessen Horowitz.

DigitalOcean’s co-founder and CEO Ben Uretsky told the Wall Street Journal that the startup plans to use the loan to build out new global data centers with one slated for Frankfurt, Germany. The startup said in a news release that the credit line will help it lease more equipment at better rates as it attempts to build more international facilities.

Data centers aren’t exactly the cheapest things to build out, so taking a credit line makes sense for DigitalOcean. For example, [company]Google[/company] is aiming to spend $772 million on a giant data center in the Netherlands and Facebook’s data center in Altoona, Iowa was supposed to be a $1.5 billion investment. While DigitalOcean will more than likely not build the type of data centers seen at Facebook and Google, the company will still be plunking down a good amount of cash.

The New York-based startup’s unique pricing model — which involves “droplets” of compute, storage and networking resources all bundled together — has helped it carve a niche among developers looking for an easier way to get into the cloud as opposed to studying the rosetta stone that is the Amazon Web Services pricing matrix.

For a more in-depth look at what DigitalOcean has been doing to distinguish itself in the highly competitive world of cloud providers, be sure to listen to Uretsky chat it up with Gigaom last July on The Structure Show.

 

2 Comments

David Mytton

The reporting on this has focused on the term “build”, which is easy to misinterpret. If you compare the $50m to Google, Amazon and Microsoft’s infrastructure spending in the $billions, the amount seems ridiculously small. And it would be if they were actually trying to build their own facilities. If you focus in on the statements by the CEO, you can see that this is actually funding so they can purchase equipment at better rates, which means co-location.

Cloud pricing comparisons are often done against constructing your own physical facilities. Only the largest of companies really have the resources to do this, and even then it’s usually not worth the expenditure when you can use the years of experience and optimisations the likes of Google and Amazon have implemented. Few people should be building their own facilities.

Co-location is different. This is buying equipment then installing it in a space you rent from a large data centre owner such as Equinix. They focus on building and running the facility and you configure and manage your own hardware. This is what I believe Digital Ocean are doing – finding local data centre partners, then installing their own equipment.

In this sense, DigitalOcean are more of a traditional hosting vendor. They’ve managed to figure out the unit economics to offer incredibly cheap instances that provision in seconds through an intuitive interface, making it a great environment for developers. This is a similar approach to how MongoDB became so successful with developers through its incredibly easy to run distribution – anyone could download it, then start building apps in seconds. Like Amazon Web Services, you build up the enterprise model from there.

Right now, comparing Digital Ocean to Amazon, Google and Microsoft is not comparing like for like. Digital Ocean only offer the most basic compute services but it looks like that may change in 2016. From the Wall Street Journal:

“…its cloud services have been lacking in features, something that the company has been eager to add. Once those become available, [the CEO] Mr. Uretsky said, “it’s game over for Google and Amazon.””

Aaron

Are they planning on building data centers from the ground up or creating colo’s in established centers?

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