Digital Ocean grows toolset with CloudWays’ PaaS deal, edge story emerges

Digital Ocean grows toolset with CloudWays’ PaaS deal, edge story emerges

Digital Ocean continues to expand its application development toolset with an agreement to acquire PaaS provider CloudWays. Digital Ocean will pay $350m in cash and the transaction is expected to close in September 2022.

Cloudways was founded ten years ago by co-founder and CEO Aaqib Gadit and has 280 employees; its tools are used by 72K SMB customers, according to the company.

Cloudways has built a tool for simplifying the process of on-ramping websites and applications. It has automated the process of deploying and configuring server infrastructure and enables end users to point and click and avoid writing code.

Digital Ocean has been a partner since 2014; Cloudways runs its PaaS on Digital Ocean, while supporting other cloud infrastructure services including Akamai’s Linode, Vultr, AWS and Google Cloud. End users are currently able to move their workloads between clouds by updating settings.

Financial impact

Cloudways is projected to generate approximately $52M in FY22 and will contribute $13-15M to Digital Ocean’s FY22 when the transaction is closed. The Cloudways revenue works out to a three-year CAGR of over 50% and is expected to be accretive to Digital Ocean’s growth rate. Executives said the deal will not impact the recent outlook shared for operating margin and cash flow generation.

Notably, the acquisition increases Digital Ocean’s large customer (customers spending over $50 per month) count by 18%.

Analysis

The acquisition of Cloudways brings both a customer base and revenue stream, along with technology that Digital Ocean is likely to integrate into its own platform over time (for now, the plan will be to operate Cloudways on a standalone basis).

Digital Ocean has built its value proposition around simplicity and Cloudways is similarly focused so the fit and alignment is there. The multi-cloud angle here is interesting. Will Digital Ocean continue to support other clouds that also include some direct competitors? Or will it wait to further integrate Cloudways and then go back to running the Cloudways PaaS exclusively on its own cloud?

Overall, this is a deal that should find good operating synergy as Cloudways is asset-light and both providers target the same demographic. And one possible add-on is that Cloudways, given its platform and support of multiple clouds, may have more of a global customer mix than DO’s current profile.

Phil Shih, Managing Director, Structure Research

It’s worth noting that Digital Ocean’s newest addition to the toolset follows last year’s acquisition of Nimbella for a serverless Kubernetes platform. We see the potential for a cloud-to-edge PaaS platform, which would be in line with what competitors are building organically (Cloudflare’s Workers, for example) or through acquisition (Akamai’s acquisition of Linode and Limelight/Edgio’s acquisition of Layer0). Our previous speculation that Digital Ocean may eventually seek to acquire a CDN so that customers can use Cloudways and other tools to build and deploy from cloud to edge.

Jim Davis, editor, EdgeIR.com and Principal Analyst for Edge Research Group. 

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