Rapidly growing DigitalOcean opens second NYC data center

Continuing its rapid expansion, cloud service provider DigitalOcean has opened a second facility in the greater New York metropolitan area -- a data center located in Google's gargantuan Manhattan facility.

The additional location is another sign of the fast-growing success the company has had in offering a low-cost, easy-to-use IaaS (infrastructure as a service).

"There's a huge market for developers out there who just want a server online as fast as possible, and that is what DigitalOcean provides," said Mitch Wainer, a co-founder and the chief marketing officer of DigitalOcean.

Although Wainer disputed that DigitalOcean's first New York City-area data facility, actually located in northern New Jersey, ran out of space, new users who have signed up in the past month or so were instructed that they could not host their accounts there, and were instructed to choose DigitalOcean's outlets in Amsterdam or San Francisco.

In any case, the company's user base is growing quickly. The company has accrued more than 35,000 customers since its launch in 2011, and its revenue is increasing by about 30 percent to 50 percent per month, Wainer said.

Internet service market analysis firm Netcraft noted that in June 2013 DigitalOcean had more than 7,000 Web-facing servers, a dramatic increase from the prior December when Netcraft counted only 100 DigitalOcean Web-facing servers.

This newest set of servers is being colocated with the Telx data center company, which leases space in Google's 3 million-square-foot building. The building takes up an entire block on 8th Avenue, in the Chelsea district of Manhattan.

DigitalOcean was founded with the idea of offering cloud hosting that would be easier to set up than what was offered by the market leader, Amazon Web Services (AWS).

"There was a huge void in the market," Wainer said. Amazon and Rackspace are focused on enterprise-scaled businesses, but businesses in the lower-tier to midlevel market, which don't require advanced feature sets and don't have full engineering teams to manage infrastructure, are completely ignored, he said.

With its wide range of services, Amazon Web Services recently launched a series of tutorials that can guide users into setting up virtual machines.

In contrast, DigitalOcean keeps its deployment options relatively simple -- and inexpensive. Accounts are billed either on a monthly or an hourly basis. The least expensive "droplet," which is what DigitalOcean calls a virtual machine, costs US$5 a month, or about $0.007 cents per minute, and features a single CPU core between 2GHz and 3GHz, 512MB of working memory, 20GB of storage and 1 terabyte of data transfers.

In contrast, the least expensive month-to-month option on AWS, a T1.micro image running Linux, would run about $14.96 per month, and does not come with any storage.

The company claims that users can set up a droplet, or resize it to another pricing tier, in less than a minute. It offers virtual machine images running basic versions of either the Ubuntu, Debian, CentOS, Arch or Fedora Linux distributions.

The company is using a number of new technologies for competitive performance, including SSDs (solid state drives), which can boost I/O performance. For virtualization, DigitalOcean uses Red Hat's KVM hypervisor.

Just as Microsoft is doing with its Windows Azure service, DigitalOcean is initially pursuing the market of developers who need modestly priced machines to develop and test code.

Wainer points to the rapidly growing user base of GitHub, an online source-code repository, as proof of the potential size of the developer market. Founded in 2008, GitHub now hosts 7.7 million repositories from 3.3 million users.

"You can see from that market size alone, that this is a billion-dollar market opportunity," Wainer said.

While DigitalOcean has been courting the developer market, it is also suited for startup businesses as well, Wainer said. For instance, one startup using DigitalOcean is the RSS reader service NewsBlur, which has accrued a significant user base after Google shut down its own RSS reader.

Not that the company hasn't had a few bumps. Last month, one user found that the service was using identical SSH fingerprints for multiple Ubuntu droplets generated within a single account, which was a significant security vulnerability. The company has since fixed the problem.

"That's one of the things about being a startup -- you can't be perfect from the get-go," Wainer said, though adding, "Whenever there is an issue, we've been responsive."

DigitalOcean, which is based in New York City, now has 30 employees, though it is looking to hire network engineers and Linux system administrators. It is also expecting to get a significant investment from an outside party shortly, which will be used "to drive new features and acquire capacity in additional regions," Wainer said.

The company is planning to offer virtual private networking and object storage, similar to Amazon's Simple Storage Service (S3). It will also broaden its array of off-the-shelf virtual machines, including those with WordPress or other popular applications installed and ready for use.

Wipro sees growing demand from outsourcing clients

Indian outsourcer Wipro grew revenue and profits in the second quarter, citing improved demand.

At the end of last quarter, Wipro spun out its non-IT businesses such as consumer care and lighting into a separate company, and is now more closely focused on its IT business.

On Friday it reported that its revenue was up by 5 percent year-on-year to about 97 billion rupees (US$1.63 billion) in the quarter, while profits increased 11 percent from the same quarter last year to 16 billion rupees. The results are in accordance with IFRS (international financial reporting standards).

The company has said that its IT services revenue from outsourcing in the next quarter will be up to $1.65 billion. IT services revenue was close to $1.6 billion in the second quarter.

Other Indian outsourcers like Tata Consultancy Services and Infosys have also indicated an improvement in the outsourcing business, particularly in key markets like the U.S.

TCS, India's largest outsourcer, said last week that its deal pipeline was strong both in the U.S. and Europe. It reported that revenue in the second quarter rose 16 percent year-on-year to over $3 billion, while net income increased by 10.6 percent to $668 million.

While deal closures in the last quarter were lower than expected, 886 deals valued at about $21 billion are coming up for renewal this year in the outsourcing business as a whole, said Siddharth Pai, president of Asia-Pacific for Information Services Group, which analyzes the market. The outlook looks positive for the remainder of this year as a result, he added.

Wipro's IT services business had 147,281 employees as of June 30, an increase of 1,469 people in the quarter, and added 28 new customers. A smaller IT products business had revenue of about 8 billion rupees, a year-on-year decrease of 14 percent. A salary hike for employees, which came into effect in June, affected operating margins in the quarter, the company said.

China Taps a Growing Phone Market

Until then, the global market for smartphones had been defined by the rivalry between Apple and Samsung Electronics. They built expensive phones as must-have products for affluent consumers in wealthy countries.

Now more phones are being designed for consumers in emerging markets, who are expected to account for most of the growth in smartphone sales in the future. That presents an opportunity for the major Chinese phone makers, like Huawei, Lenovo, ZTE, Coolpad, Xiaomi and Oppo.

While Samsung is the biggest smartphone vendor in China, with a market share of 20 percent in the first quarter of 2013, according to the research firm Canalys, several Chinese companies have surged past Apple, which holds 8 percent.

These include internationally recognized names like Huawei, known for network switching gear, and Lenovo, known for ThinkPad laptops, which moved into the No. 3 and No. 4 positions in the first quarter. But there are nearly 400 other little-known makers in China, where two-thirds of the world’s smartphones are made. One of these, Coolpad, leapfrogged from seventh place a year ago to second in the first three months of this year, with a 10 percent share.

“There’s a long tail of local competitors that are going to push Apple and Samsung harder and harder,” said Neil Mawston, an analyst at Strategy Analytics. “There’s a million and one people trying to eat their lunch.”

Chinese phone shoppers are concerned about price because most phones are sold without subsidies from network operators. In the United States and Europe, the wide use of subsidies masks what consumers pay for phones.

The Chinese also switch phones far more often than their counterparts in the West — generally after about six months, analysts say, compared with every two years or so in developed economies. Fickle customers mean market share shifts swiftly, and the fortunes of companies rise and fall almost as fast.

Apple’s and Samsung’s position in the high end of the market allows them to collect most of the profit from smartphone sales in China, analysts say. Apple sells 55 percent of the phones priced at $450 or more, with Samsung accounting for 40 percent, according to Sanford C. Bernstein, a brokerage firm. Apple’s iPhone 5 costs about $780, while Samsung’s Galaxy S4 costs about $850.

But growth in this segment is slowing. Analysts at Bernstein expect sales of smartphones $450 and up in China to rise to 296 million units this year, from 235 million in 2012. But the total will flatten out at around 300 million a year, the firm said.

By contrast, sales of phones priced at less than $200 are expected to surge to 400 million units this year, from 234 million last year, with a further jump to 685 million in 2015, the firm says. The low end is growing faster because prices of smartphones have fallen so much that hundreds of millions of Chinese consumers are now able to replace old-fashioned feature phones that lack mobile data capabilities.

“The question for Samsung and Apple is whether they are equipped to compete in the developing markets, especially China, where the growth is going to happen,” said Pete Cunningham, an analyst at Canalys.

Some of these phones are simply knockoffs of handsets from Samsung or Apple, often housed in cheap plastic shells or offering less memory, lower-resolution screens or inferior cameras. Last year, one Chinese brand, Goophone, introduced a clone of the iPhone 5 for $150, even before Apple released the iPhone 5 in China.

It bears a resemblance to Apple’s phone, but the Goophone i5 is different in an important respect — it runs on a version of Google’s Android software.

The challenge for the Chinese makers is to go global. Coolpad began selling its Quattro 4g in the United States through MetroPCS, a mobile network operator. It drew mixed reviews in the United States, but it sold for less than $100 under some promotions.


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