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Is This Tech Stock the Square of Cloud Computing?

By Trevor Jennewine – Jan 15, 2022 at 7:30AM

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Several customer-based decisions have worked well for DigitalOcean.

In this segment of Motley Fool Live, recorded on Jan. 6, Fool contributor Trevor Jennewine explores how DigitalOcean (DOCN 1.74%) has been able to gain some significant traction in the crowded cloud computing space.

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Trevor Jennewine: DigitalOcean is in the cloud computing business. This is going to be a high-growth tech company. It provides a range of infrastructure services like compute, storage, networking, and platform services like application development tools.

When most people think about cloud computing, I'm assuming Amazon (AMZN 1.14%) Web Services, Google (GOOGL 1.32%) Cloud, Microsoft (MSFT -0.44%) Azure come to mind, and with good reason, those three companies hold over 60% market share in the cloud computing industry, and they all have much larger portfolios than DigitalOcean.

But those cloud titans tend to tailor their products to larger enterprises. That means they're often too complex for the small and medium-sized businesses and the individual developers of the world.

I think the situation is somewhat similar to the way that financial institutions used to prioritize larger businesses. It was difficult to integrate third-party hardware, software, and payment processing services, and then Square [now known as Block (SQ 3.40%)] came along and it provided this end-to-end self-service solution and addressed the needs of those small and medium-sized businesses and it's really gained a lot of traction.

Now, Block is moving upstream, it's gaining traction with mid-market sellers, and I can see DigitalOcean following a similar path in cloud computing. The big thing here is that they simplify cloud computing. They tailor their platform to those small and medium-sized businesses. They have a very simple user interface. They actually say it's possible to get up and running with just three clicks without any formal training.

The company also provides infrastructure performance monitoring tools free of charge. Clients can troubleshoot and resolve problems. On top of that, they have an extensive library of tutorials. There's 24/7 technical support for every single customer regardless of how much they're paying.

I think that's particularly important, especially if you're not familiar with cloud computing or you're new to the technology. I think that they hold your hand through it and I think that's important. I also think there's a little bit of a network effect.

Developers can access these preconfigured applications through the DigitalOcean marketplace. As the company's customer base grows, the number of available products in the marketplace should grow too which creates value for all of DigitalOcean's customers.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns Amazon and Block, Inc. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Block, Inc., Digitalocean Holdings, Inc., and Microsoft. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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