Startup Digital Ocean lands $37m to take on Amazon in the Cloud

The company was founded three years ago by a group of executives who used to run a datacentre hosting company

There are a lot of big names in the public cCloud computing market: Amazon Web Services, Google, Microsoft, Verizon and Rackspace among them. And here's another company that's looking to make that list one day: Digital Ocean.

The company, founded three years ago in New York City by a group of executives who used to run a datacentre hosting company, today secured a major new infusion of cash - $US37.2 million led by the well-known Silicon Valley venture capital firm Andreessen Horowitz, with participation from IA Ventures and CrunchFund.

Is that kind of big money enough to take on giants in the industry though?

+ MORE AT NETWORK WORLD: Big money in the cloud: IBM bets big on PaaS with $1 billion investment | More cloud startup funding: CloudBees gets $11M in new funding for its Java PaaS +

Digital Ocean, like Amazon, Microsoft and Google, offers public cloud-based, multi-tenant virtual machines and storage that customers pay for on a per-use basis. Its base-level micro virtual machines start at $US0.007 per hour, which is less expensive than AWS.  

The company has a simple go-to market strategy: Digital Ocean wants to be the simplest IaaS to use on the market. Marketing exec Mitch Wainer says AWS, Google and the others are too complicated for developers to use. Developers can spin up Digital Ocean VMs, named Droplets, in under a minute. Its APIs are simple and easy to read, he says. AWS, by comparison has dozens of different VMs to choose from. More choices allows developers to fine tune their cloud for their exact use case. It can also make it difficult to choose exactly which one to use though.

Digital Ocean has been growing rapidly. Late last year independent traffic monitoring company Netcrafter said it recorded a higher month-over-month growth rate of VMs being spun up in Digital Ocean's cloud than in AWS's cloud. Digital Ocean says it's already spun up 1 million virtual servers. AWS clearly has a larger overall footprint though.

Digital Ocean's new funding will support the company's international expansion. It recently opened a data center in Singapore to add to its New York City and San Francisco operations.

Even with new funding, and the backing of one of the most well-respected venture capital firms in the world, Digital Ocean will still be competing with Microsoft, Google, Verizon and Rackspace, which are all themselves competing with Amazon Web Services. All those companies have significantly more resources behind their efforts compared to Digital Ocean, even with this new funding. Those significant resources allow the incumbent IaaS vendors to innovate, which can reduce their costs, which they then pass on to customers by reducing their prices. Startups like Digital Ocean, ProfitBricks and various others could have trouble keeping up with that cycle over the long term.

The cloud is something that just about every major tech company wants to have a hold in though. So, companies like Digital Ocean and other smaller IaaS vendors can be seen as acquisition targets for large companies that are looking to boost their public cloud offerings. One of the most notable examples of that was IBM's purchase last year of IaaS vendor SoftLayer for a reported $2 billion.

Senior Writer Brandon Butler covers cloud computing for Network World and NetworkWorld.com. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW. Read his Cloud Chronicles here.

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