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!

raindog308

Raindog308 is a longtime LowEndTalk community administrator, technical writer, and self-described techno polymath. With deep roots in the *nix world, he has a passion for systems both modern and vintage, ranging from Unix, Perl, Python, and Golang to shell scripting and mainframe-era operating systems like MVS. He’s equally comfortable with relational database systems, having spent years working with Oracle, PostgreSQL, and MySQL.

As an avid user of LowEndBox providers, Raindog runs an empire of LEBs, from tiny boxes for VPNs, to mid-sized instances for application hosting, and heavyweight servers for data storage and complex databases. He brings both technical rigor and real-world experience to every piece he writes.

Beyond the command line, Raindog is a lover of German Shepherds, high-quality knives, target shooting, theology, tabletop RPGs, and hiking in deep, quiet forests.

His goal with every article is to help users, from beginners to seasoned sysadmins, get more value, performance, and enjoyment out of their infrastructure.

You can find him daily in the forums at LowEndTalk under the handle @raindog308.