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Congratluations to DO! Sadly there's so much hard work involved in this space and so little money ($5/server/mo) to be made in "hosting" that founders always ey

by jjoe 13y ago

Congratluations to DO! Sadly there's so much hard work involved in this space and so little money ($5/server/mo) to be made in "hosting" that founders always eye an early exit. Also a $5/server strategy is proof this isn't sustainable in the long run. Revenue isn't enough to cover capex. And this kind of growth almost always means founders are looking for an early exit. Yes it's all a happy ending for the founders but what will happen to the end users?

pavs 13y ago
I think you might be underestimating how cheap bandwidth and hardware has become at scale. If anything, because of the nature of how VPS work, you can make good money as server hardware gets faster and cheaper.
- jjoe 13y ago
  There's the people aspect in all of this. What's reasonable pay for a good sysadmin/programmer hybrid? 70k - 100k/yr? How many do you need to keep things running smoothly and build new tools? How many do you need full time for remote hands and provisioning? Hardware prices don't drop so much at this scale unless you're buying in extremely large quantities. Even then and they don't drop as much as bandwidth (except for out of lease equipment and I doubt DO does this).
  - pavs 13y ago
    With newer, more powerful servers they can cram more VPS in to single server. Usually users rarely have continuous CPU usage on small CPUs like that, so in theory you can cram more VPS in a server, without causing any performance issue to other VPS. VPS in general is insanely profitable, if you know what you are doing. The employee aspect will always be there, DO can still make money by not taking outrageous profit margin like AWS and Rackspace.
    - jjoe 13y ago
      I run a similar business (fully managed though). I know for certain that hardware and bandwidth costs are the tip of the proverbial iceberg. Remember there's also colocation, power, contracts, networking equipment (2x10G), and DDoS costs. You don't really charge a client for the bandwidth costs incurred during a DDoS if you choose to absorb the attack. You don't charge a client when a RAID controller fails and you need to restore xTBs of data (xx man hours). Oh and you need to purchase backup nodes, which you're not getting any immediate return on. You need an office. You need to factor in travel costs. Overtime pay. Health insurance, payroll costs, etc. Ads...
wyck 13y ago
You realize that DO scales up to 960$ /month right (96GB24 Cores960GB SSD )? The 20$ package competed directly with linode.
- traskjd 13y ago
  I was going to say the same thing. This whole thread of comments seems focused on $5/month. I don't even host a blog on that one ($10, I'm not fussed paying 5 bucks more to ensure it stays up on the off chance I write something people linked to). $5 offering really is the marketing line to get you looking at the offering IMO. Equally, at our company, we're paying DO for many different machines at $160. I'd love to know their ARPU number, I expect it is actually significantly above $5.
jeffasinger 13y ago
It's definitely a tough market, and competing with Jeff Bezos in a low margin market is certainly not an enviable position, however it's certainly possible. You can buy a 1U server that could fit 100 DO sized droplets for about $5,000. Scale that up a little bit, and you can see that it might be profitable although low margin.
- codesuela 13y ago
  "low margin" being 60-80%

by jjoe 13y ago

pavs 13y ago

I think you might be underestimating how cheap bandwidth and hardware has become at scale. If anything, because of the nature of how VPS work, you can make good money as server hardware gets faster and cheaper.

jjoe 13y ago
There's the people aspect in all of this. What's reasonable pay for a good sysadmin/programmer hybrid? 70k - 100k/yr? How many do you need to keep things running smoothly and build new tools? How many do you need full time for remote hands and provisioning? Hardware prices don't drop so much at this scale unless you're buying in extremely large quantities. Even then and they don't drop as much as bandwidth (except for out of lease equipment and I doubt DO does this).
- pavs 13y ago
  With newer, more powerful servers they can cram more VPS in to single server. Usually users rarely have continuous CPU usage on small CPUs like that, so in theory you can cram more VPS in a server, without causing any performance issue to other VPS. VPS in general is insanely profitable, if you know what you are doing. The employee aspect will always be there, DO can still make money by not taking outrageous profit margin like AWS and Rackspace.
  - jjoe 13y ago
    I run a similar business (fully managed though). I know for certain that hardware and bandwidth costs are the tip of the proverbial iceberg. Remember there's also colocation, power, contracts, networking equipment (2x10G), and DDoS costs. You don't really charge a client for the bandwidth costs incurred during a DDoS if you choose to absorb the attack. You don't charge a client when a RAID controller fails and you need to restore xTBs of data (xx man hours). Oh and you need to purchase backup nodes, which you're not getting any immediate return on. You need an office. You need to factor in travel costs. Overtime pay. Health insurance, payroll costs, etc. Ads...

wyck 13y ago

You realize that DO scales up to 960$ /month right (96GB24 Cores960GB SSD )? The 20$ package competed directly with linode.

traskjd 13y ago
I was going to say the same thing. This whole thread of comments seems focused on $5/month. I don't even host a blog on that one ($10, I'm not fussed paying 5 bucks more to ensure it stays up on the off chance I write something people linked to). $5 offering really is the marketing line to get you looking at the offering IMO. Equally, at our company, we're paying DO for many different machines at $160. I'd love to know their ARPU number, I expect it is actually significantly above $5.

jeffasinger 13y ago

It's definitely a tough market, and competing with Jeff Bezos in a low margin market is certainly not an enviable position, however it's certainly possible. You can buy a 1U server that could fit 100 DO sized droplets for about $5,000. Scale that up a little bit, and you can see that it might be profitable although low margin.

codesuela 13y ago
"low margin" being 60-80%