DigitalOcean, a leading cloud hosting business, has recently announced its acquisition of Paperspace, a New York-based startup specializing in cloud computing and AI development.
The cash deal, valued at $111 million, marks DigitalOcean’s commitment to enhancing its product offerings and empowering customers in testing, developing, and deploying AI applications more efficiently.
In return, Paperspace customers will gain access to DigitalOcean’s comprehensive range of cloud services, including databases, storage, app hosting, documentation, tutorials, and reliable customer support.
During the initial phase, Paperspace will continue operating as a standalone business unit within DigitalOcean, ensuring a seamless transition for existing customers without any immediate changes to their service.
This strategic acquisition aligns with DigitalOcean CEO Yancey Spruill’s vision of expanding the company’s portfolio, specifically targeting small- and medium-sized businesses (SMBs) and startups.
By providing simplified AI and machine learning solutions, DigitalOcean aims to enable customers to concentrate on building applications and fostering business growth, while reducing their infrastructure-related concerns.
Paperspace, founded in 2014 by Daniel Kobran and Dillon Erb, graduates of the University of Michigan, gained support from prominent backers such as Y Combinator and Jeff Carr, one of DigitalOcean’s co-founders.
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The company operates its own datacenters, equipped with custom-configured GPUs. Initially focused on delivering cost-effective virtual machines for design, visualization, and gaming in the cloud, Paperspace subsequently shifted its focus towards AI, offering a suite of tools designed for AI model development, training, deployment, and hosting.
Before the acquisition, Paperspace secured $35 million in funding from investors such as Battery Ventures, Intel Capital, SineWave Ventures, and Sorenson Capital.
Dillon Erb views this acquisition as a significant step towards offering a comprehensive range of cloud CPU and GPU computing capabilities, positioning DigitalOcean as a competitive player in the public cloud market.
By combining the strengths of DigitalOcean and Paperspace, a new class of customers, particularly those on a tight budget, will gain access to AI- and machine learning-driven applications, such as generative media, large language models, recommendation engines, and image classifiers.
Recognizing DigitalOcean’s reputation for simplifying complex cloud technologies and making them accessible to developers and businesses, Erb expresses enthusiasm about the collaboration.
He believes that DigitalOcean is the ideal partner to unlock the vast potential of AI and machine learning for developers and businesses alike.
The acquisition of Paperspace represents DigitalOcean’s first acquisition since 2022, when it purchased Pakistani cloud hosting service provider Cloudways for $350 million.
This move is part of DigitalOcean’s strategy to stay competitive in the rapidly expanding cloud AI and machine learning solutions market.
While the company experienced revenue growth in Q1 2023, with a 29.7% increase to $165.13 million, earnings per share, return on equity, and net margin fell short of expectations.
Major cloud providers like Microsoft, Amazon, and Google are increasingly leveraging generative AI to drive revenue growth, with promising results.