DigitalOcean revealed today that they’re tired of Cloudways fronting their panel, so they’re going to buy them for $350 million.
Cloudways has a fantastic business model: they buy a VM for $6, put their own panel in front of it, and sell the VM for $12. This is akin to opening Joe’s Hamburger Stand next door to a McDonald’s. When someone orders a cheeseburger, you charge them $5 and then walk over to McDonald’s and buy it for $2.50. Cloudways doesn’t even change the wrapper.
Someone must like the experience because they’re apparently selling enough of it to justify $350 million. And DO is paying all cash.
We don’t know what Cloudways is bringing to the table financially, but here are some facts to consider:
- DigitalOcean sells about $500-$550m of services each year.
- They’ve lost money since they went public.
- In November their stock was at $125. Today it’s around $43.
That last point is interesting because that does not match the “everything bubble” pop. DO stock hasn’t tanked because everything has tanked – though that is probably some of the story. DO stock is down because the market doesn’t like DO.
They’re a $4bn company that has 786 employees. This deal will add 30% to their headcount according to the press release. Whatever internal culture DO has now will be shredded in the process. I realize that’s a pessimistic view but that’s what I’ve seen, particularly in small companies.
It’d be interesting to know what that $350m amount means as a multiple of revenue. Consider that DO has 786 employees generating $550m of revenue per year, which is about $700K/employee. If DO paid 10x revenue for Cloudways (these tech deals are always stratospheric), that means revenue is $35m and each employee (235, calculated from DO’s stated 30% figure) is only $148,000 per person. Is there a lot of fat to cut or is the Cloudways business model just very different?
Stay tuned. Or drop DO and save 80% on your hosting bill in 15 minutes or less!
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I enjoy writing technical articles here on LowEndBox to help people get more out of their systems. You can find me on LowEndTalk @raindog308
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Ridiculous. Such a shameless business model.
AFAIK, Cloudways is multicloud with a single input interface. I believe that is their USP to their customers who have the money to pay. It definitely appears to be an enterprise segment rather than DO’s mass market customer base. I haven’t used it, so you can ignore my opinion, btw.
I use cloudways since last 1.5 year. I moved from dreamhost to cloudways. For my main site, I use cloudways, because it gives me peace of mind that there is someone maintaining my servers on top of that, they do some good optimization aswell. I pay 27$ per month, but I am happy with the overall experience.
You don’t need to do anything to maintain a VPS really. DO is already doing all the work maintaining the hardware.
The only real service they offer is that they migrate your software for you, which I suppose is valid.
The massive 50%+ upcharge for this is just wild. If it was a couple bucks, fine, it would be reasonable. But this is borderline scam.
This story is misleading, so it says they put a panel on Digital Ocean; one look at Cloudways website says they also provide other services, such as Auto backups, RT monitoring, etc ! Furthermore, Cloudway provides similar panels and services for Vultr, Linode, AWS, Google Cloud !!
Presumably buying Cloudway would include acquiring the customers on the other platforms too, not just DO.