The risks of competing on price. Digital Ocean tightens things another notch

DigitalOcean has, over the years, grown to be a huge cloud vendor, albeit one that isn’t known well outside of developer circles. The statistics are somewhat shaky, but Netcraft suggests that DigitalOcean is actually the world’s third largest cloud computing vendor, behind Alibaba and, of course, Amazon Web Services in the first place. To give an idea of customer numbers, DigitalOcean has around a million customers and, as of this month, just shy of 400,000 web-facing machines.

DigitalOcean has been, since its inception, a real hit with developers for a couple of key reasons. Firstly, it’s offerings are super simple, especially in comparison to the complex offerings of the big three North American public cloud vendors, AWS, Google, and Microsoft. And complexity, in particular, the eye-watering complexity of AWS’ rate card, is a real issue. Gartner found that 95% of organizations said pricing was the most confusing part of AWS (findings from a 7,500-organization survey at the firm’s Symposium this past October).

The second part of its differentiation, and the more tenuous one, is that DigitalOcean, in part because of the simplicity of its offerings, has always had very attractive pricing.’ Developers have loved the fact that DigitalOcean’s offering is cheap, cheap, cheap. But one thing that we all know about pricing in the cloud world is that it only goes in one direction: downwards. When AWS introduced its own lightweight and low-cost offering, Lightsail, a couple of years ago, many of us wondered how DigitalOcean would respond. interestingly, they responded (at least in part) by getting more complex. The company has introduced a few new services (cloud load balancers, for example) over the past year or so.

But another method of competing, albeit not a good one, is to compete on price. And with other vendors such as Linode, Scaleway, and Vultr doing cheap and cheerful, DigitalOcean is doing that as well and has both cut the costs and increased memory and storage (or, in a roundabout way, offered more, for less) for its customers. DigitalOcean’s Droplets (what it calls its compute instances) are getting ever-closer to zero.

DigitalOcean’s new pricing structure will now work as follows:

• Standard Droplets – Starting at $5 per month and designed for new applications that need a balanced amount of CPU and memory, the new Standard class will have upgraded memory and more local SSD storage.
• Flexible Droplets – Unique to DigitalOcean, the Standard Class also includes three new flexible plans for $15 with varying combinations of memory and compute power so customers can find the best resource fit for new applications.
• Optimized Droplets – Starting at $40 per month and ideal for compute-intensive production applications, this class will add more memory and local SSD storage to each Droplet. These high CPU Droplets are powered by dedicated hyper-threads from best-in-class physical CPUs.

Feeling confused. Handily, DigitalOcean offers a table to compare their old versus their new pricing on standard Droplets as well as information about the capacity of the different tiers:

As is often the case when it comes to pricing, I pinged my buddy and noted Cloud pricing analyst (indeed, many suggest the only cloud pricing analyst of note) Owen Rogers (PhD and Welshman, in that order) to get his perspective. Luckily Owen and I agree on most things and his response was that:

The price cuts from DigitalOcean are good news – its always nice to get more from your money, and considering users may be still reeling from performance losses as a result of Spectre and Meltdown, this might give some respite to those who need to shell out on my resources as a result.

Rogers indirectly opined on DigitalOcean’s increasing complexity which is anathema to its founding principles saying:

Then again, as I’ve been banging on about for the past six months, this is another increase in complexity. Fourteen new plans gives users flexibility, but now they have more options – so much for cloud being just like electricity!

MyPOV

Competing on price, while an unfortunate necessity sometimes, isn’t a way to create a long-term viable business. I’ve been staggered and, frankly, intrigued by DigitalOcean’s growth to date especially as it has come at the same time as all other cloud vendors are in a headfirst race to lower their own prices. DigitalOcean’s simplicity story is a good one, but a hard one to balance against customers’ calls for more options and more services.

I’m going to be fascinated to watch DigitalOcean into the future and see how they manage to compete and grow. I don’t see a very clear path for them and wonder what their end-game is going to be.