Its simple. It costs half as much as equivalent providers for their VPS. Or less than half in the case of AWS. And it actually works even though its so cheap. No matter how rich you are it just doesnt make sense to pay double or triple.
The question is, do you really make money on $5 a month servers? I don't know if they actually are. The costs are for support people and now large numbers of engineers.
The thing is with that much funding it doesn't really matter if their income is greater than expenses. They can continue for at least another few years regardless. During that time sane people who just need a VPS will take advantage of it.
My recommendation for DO's business model is simply to set a precedent and make it a policy that if you pay only $5 then you don't get any kind of free support. That is the only real cost that sticks. So I suggest having a few different monthly support options available starting at zero support for $0 and up. That is the main business issue a provider like this has is the conflict between the desire to provide good support and the need to keep unit costs low. And the solution is to separate support out. The main challenge to doing that is sort of a cultural/expectations/marketing issue.
Thanks for the great question. We are actually profitable on every virtual server that we sell.
The reason we raised our seed round is that our growth began to outstrip our ability to acquire hardware and grow the business at the rate at which our customers were spinning up more droplets.
The second round that we raised was again for the same reason. Growth has been completely unbelievable and we are humbled by the support that the community has given us. We thought that our initial Seed round would certainly be enough to cover our growth but quickly saw that growth was actually increasing so we made the decision to raise a second round in a rather short period of time.
We were immediately impressed by Peter Levine's knowledge of the space and we are super excited about having a16z on board as our partners. This round has certainly provided ample funding for us to continue to expand not worry that our growth is going to outstrip our ability to finance it.
I see from your site you're hiring for various positions, but currently all of those are listed as NY only.
I spent seven happy years working remotely as a system administrator, for a company listed in some of these comments, and wonder if this is something you've ever considered?
I know that payment issues and similar might complicate things, but I'm surprised there seem to be essentially zero remote-working positions advertised for a company that will have round-the-world clients/users/customers. (i.e. You're liable to get issues, tickets, and monitoring alerts round the clock.)
I suspect they make a fair bit of money from people like me, who are lazy and/or have full-time jobs, and have commissioned a server or three and never actually use them.
The question is, do you really make money on $5 a month servers? I don't know if they actually are. The costs are for support people and now large numbers of engineers.
The thing is with that much funding it doesn't really matter if their income is greater than expenses. They can continue for at least another few years regardless. During that time sane people who just need a VPS will take advantage of it.
My recommendation for DO's business model is simply to set a precedent and make it a policy that if you pay only $5 then you don't get any kind of free support. That is the only real cost that sticks. So I suggest having a few different monthly support options available starting at zero support for $0 and up. That is the main business issue a provider like this has is the conflict between the desire to provide good support and the need to keep unit costs low. And the solution is to separate support out. The main challenge to doing that is sort of a cultural/expectations/marketing issue.