Readers would be amazed at how much effort large technology vendors go to in order to woo young startups to their platforms. Amazon Web Services, Google, Microsoft, Rackspace -- they all have significant initiatives aimed at getting startups on board early. The theory goes that if you get one of these companies at the start, you're more likely to have it for life.
Of course, that isn't always the case: High-profile cloud accounting vendor Xero made a big song and a dance of being a Rackspace customer for its first 10 years and is currently in the midst of re-platforming its business onto AWS, a not insignificant task for a company with half a million or so customers. And Zynga, the once great gaming company, made a big splash a few years ago when it moved at least some of its infrastructure away from AWS and into its own purpose-built private cloud data centers.
But generally speaking, hooking startups at an early stage is a smart strategy for these vendors -- which is why they invest so much time and effort into these early-stage companies. They're well aware that they're not going to make any money off them early on, but they may be able to parley early support to longer-term revenue.
So given this context, it is interesting to hear that DigitalOcean, the fast-growing hosting provider, is jumping on the startup bandwagon. In particular, it is interesting given that DigitalOcean, unlike its larger public cloud competitors, is still firmly aimed at the startup world and hasn't really moved upmarket into the enterprise.
DigitalOcean's take on the startup program theme is Hatch, an offer that sees startups get up to $100,000 in infrastructure credits for a year and comes with free technical training, mentorship, priority support and a community to connect with other startups, accelerators and investors. DigitalOcean already has relationships with a number of incubator programs, including Y Combinator, Techstars and 500 Startups, but Hatch broadens that to startups outside of these accelerators.
"Use of the cloud has significantly decreased the capital required to start a business, yet still remains one of the largest expenses founding teams face in the early days," said Ben Uretsky, co-founder and CEO of DigitalOcean. "We got started as part of the Techstars accelerator program so we understand, firsthand, the challenges and what it takes to launch and scale a company. That's why we're supporting the next generation of startups in getting their products off the ground."
Hmmmm. From the outset I have to say that any support for startups is a good thing, so from that perspective Hatch is a good start. But . . . not enough, not nearly enough.
Let’s face it: Very few startups are going to spend anywhere near $100,000 on infrastructure in their first year of operation. The first year is about building minimum viable products and searching for product/market fit. Realistically, a few thousand dollars covers those costs.
The real costs start to ramp up post-commercialization, when startups need to scale their customer numbers and their technical complexity.
And there’s the rub: I love DigitalOcean. The company has been an absolute exemplar of fast scaling and execution. But the reality is that, to date, its products have been super simple and hence only provide the bare minimum a startup needs. As with the example of Xero, the reality is that most startups that are on DigitalOcean (and that grow to any scale) begin to need more advanced services that the company doesn't offer.
So on the one hand, for Hatch to be truly effective for startups, the credits should extends for two, three or even four years. But to be effective for DigitalOcean, the company needs to see customer revenue early enough to recoup costs before the startups either fail, get acquired or shift off their platform.
Anything is better than nothing, but alas -- I don’t see Hatch really moving the needle any.
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