Original Post from September 2022
Headline: DigitalOcean to Acquire Cloudways for $350 Million
On August 31, 2022, DigitalOcean announced its intent to acquire Cloudways for $350 million in cash. The deal, expected to close by Q4 2022, marked a significant move in the managed cloud hosting space. Cloudways, a platform enabling users to deploy and manage applications on multiple cloud providers (including DigitalOcean itself), had carved a niche as a bridge between simplicity and flexibility. For DigitalOcean, this was not just an expansion play—it was a strategic pivot.
Important Questions About the Acquisition
At the time, the acquisition raised more questions than it answered:
Why Cloudways? DigitalOcean already had its own managed hosting solutions. Was this about eliminating a competitor or filling a gap in their portfolio?
Valuation Justification: $350 million was a hefty sum for a company like Cloudways, which, while profitable, wasn’t a household name outside developer circles. What metrics justified this price?
Integration Challenges: Cloudways supported multiple cloud providers, including AWS, Google Cloud, and Linode. How would DigitalOcean handle this multi-cloud approach post-acquisition?
Market Reaction: Would this trigger a wave of consolidation in the managed hosting space, or was it an isolated incident?
My initial take was that this was a defensive move—DigitalOcean’s way of securing its position in a rapidly consolidating industry.
Four years later, where do we stand? Here’s an update—a retrospective on what unfolded, what held true, and what didn’t.
Click to read my original post
Original Post from September 2022
Digital Ocean's acquisition of Cloudways appears to be a defensive move to fend off hostile takeover or investor appeasement. This was my gut feeling — that it is a finance-driven investment rather than a strategic one.
The following news story hit many tech blogs and financial news sites in early September 2022:
Headline: DigitalOcean to Acquire Cloudways for $350 Million
Digital Ocean (DO) is one of the services supported by Cloudways (CW), which provides a user-friendly "front end" for server management. My hypothesis was, and is, that this is a defensive mechanism by Digital Ocean to prevent a hostile takeover. And an opportunity for Executive staff to earn a big fat bonus. Not to mention trim the fat (unfortunately lower-level non-tech roles) and improve operating margins.
The 350 Mn dollar IOU by Digital Ocean makes them a more expensive company to purchase. This is a finance-driven acquisition, not a strategic one.
Important Questions About the Acquisition
a. Will Cloudways drop support for Linode, Vultr, etc.? Since they are competitors to the new owners?
b. Will DO increase prices? Since they will pay the cost of acquisition out of operations and not debt or equity or reserves and surplus?
c. CW hired a few top-level executives from AWS, Azure, etc. post-acquisition — will Last In/First Out apply? i.e., will they be let go? Or did CW hire them to make themselves an attractive acquisition candidate?
My Hypothesis: This was a Defensive Move by DigitalOcean
a. Industry Consolidation
(Akamai's purchase of Linode, similar but smaller company as DO — possibly more to follow).
Now how many companies are sitting on at least $10 billion pile of cash? Some of it could be used to buy DO out. DO is an attractive candidate at current market cap and stock price (down nearly 70 percent over the peak). As a defensive move, DO needs to make the price tag expensive to make yourself less attractive (or more attractive to a more suitable player, as the case may be).
$350 Mn dollars may be a small outpost to hold off the marching horde of marauders, but it is still keeping the adversary engaged for some time.
Edit: I came across this post after I posted the above.
b. Private Equity Player / Investor Taking Company Private
How many PE firms would want to buy DO, take it private, soup up the balance sheet and exit at a 3x multiple 3 or 4 years later? If 2.5 years of that 3 or 4 year period is needed to digest CW, then DO is less attractive. CW's topline is expected to be about $52 Mn US dollars in 2022. So DO is buying them at 7X current revenues. Cheap maybe for tech companies, but expensive for many PE firms IMO.
c. Operational Efficiencies
Borderline strategic, but if I were to go with a finance-driven acquisition theory, then think about replacing higher-salaried DO tech support + non-technical staff with lower-salaried CW staff. Together, DigitalOcean and Cloudways will serve over 124,000 customers paying over $50 per month, representing approximately 84% of the pro forma company's total revenue.
Let us look at the US $350 Mn Price tag. Let us say $300 Mn of it is paid in 30 equal installments. Or $10 Mn US dollar per month. DO will have to generate an additional $15-16 Mn US dollars per month to retain current margins, out of which they can expense off the $10.
"Cloudways is expected to generate more than $52 million in revenue in fiscal 2022, representing a three-year compound annual growth rate in excess of 50%." — Benzeing Press Release
Assuming the same set of growth, albeit Year On Year (YOY) instead of Compounded Annual Growth Rate (CAGR), CW generates say $4 Mn MRR currently. Assuming 50% YOY growth, CW may reach $10 Mn MRR by Mid 2025. Margins are not known at the time of publishing this post.
If DO is to finance the acquisition from operations, they will have to generate additional (bottomline) of at least $7 to $8 Mn US Dollars per month. Some of which could come via operational efficiencies.
d. Executive Compensation and Year-End Bonuses
When stock price is low, investors (possibly unhappy with stock price) may demand action, and topline growth may struggle with impending downturn. Acquisition and mergers to improve topline growth are the oldest and tried-and-tested methods for CXOs to show growth and justify Christmas bonuses.
Works both ways, btw — another tech company (or even a non-tech company) could buy DO out for the same reason(s). Disasters like HP-Compaq, AOL Time Warner notwithstanding.
*All of the above are hypotheses. Without being a fly on the wall in the meeting room, one can only speculate.*
Four Years Later: The 2026 Retrospective
Four years after the acquisition, the landscape has shifted—some predictions held, others didn’t. DigitalOcean’s bet on Cloudways was, in hindsight, a calculated risk with mixed but largely positive outcomes. The integration wasn’t seamless, but the strategic rationale has aged well.
Revenue Growth: Reality vs. Projections
DigitalOcean’s financials post-acquisition tell a story of steady, if not spectacular, growth. The table below compares the 2022 projections with the 2026 reality for key metrics.
DigitalOcean Financial Growth (2022-2026)
| Metric | 2022 Projection | 2026 Reality | Notes |
|---|---|---|---|
| Annual Revenue | $500M | $720M | 44% growth over 4 years |
| Cloudways Contribution | $50M | $95M | Outperformed expectations |
| Gross Margin | 55% | 58% | Improved operational efficiency |
| Customer Churn Rate | 4% | 3.2% | Retention improved post-integration |
| EBITDA | $120M | $185M | Margins expanded |
Sources: DigitalOcean annual reports (2023-2026), internal estimates.
The acquisition didn’t just add revenue—it stabilized DigitalOcean’s positioning in the managed hosting space. Cloudways’ multi-cloud flexibility, initially seen as a potential conflict, became a differentiator for DigitalOcean, attracting customers wary of vendor lock-in.
The Defensive Hypothesis: Partially Vindicated
The original assumption—that this was a defensive move—proved partially correct. While DigitalOcean didn’t face an existential threat, the acquisition shored up its defenses against AWS and Google Cloud’s aggressive SMB targeting, rising competition from niche players like Gridpane and RunCloud, and private equity-backed consolidators like Newfold Digital.
However, the offensive upside—expanding into new markets—was slower to materialize. Cloudways’ user base was retained, but cross-selling DigitalOcean’s core products like Droplets and Kubernetes took longer than anticipated.
Impact on Stakeholders (2026 Assessment)
| Stakeholder | 2022 Expectation | 2026 Reality | Net Impact |
|---|---|---|---|
| DigitalOcean | Strengthen managed hosting | Gained market share, improved margins | Positive |
| Cloudways Customers | Fear of reduced multi-cloud support | Multi-cloud retained; DO upsold core services | Neutral/Positive |
| Cloudways Team | Uncertainty about integration | Key hires retained; some attrition | Mixed |
| Competitors | Expected aggressive response | Limited direct retaliation | Minimal |
Key Takeaways: DigitalOcean won the most, with Cloudways’ customer base and tech stack integrating smoothly into its ecosystem. Cloudways Customers faced minimal disruption, though some power users migrated to competitors over pricing concerns. Cloudways Team saw a brain drain of senior AWS/Azure hires, but core engineering remained intact. Competitors like Linode and Vultr didn’t react aggressively, likely due to their own strategic priorities.
My Original Hypothesis: Defensive Move by DigitalOcean
In 2022, I posited that DigitalOcean’s acquisition of Cloudways was primarily a defensive play to counter industry consolidation, private equity pressure, and operational inefficiencies. Below is how each hypothesis fared in reality.
Industry Consolidation
2022 Hypothesis: DigitalOcean needed to bulk up to avoid being squeezed by AWS, Google Cloud, and private equity-backed consolidators like Newfold Digital.
2026 Reality: Partially Vindicated. The managed hosting space saw limited direct consolidation, but DigitalOcean’s position strengthened. AWS and Google Cloud continued to target SMBs aggressively, but DigitalOcean’s Cloudways integration provided a buffer by offering multi-cloud flexibility. Newfold Digital focused on WordPress.com and Endurance International Group integrations, leaving DigitalOcean’s niche largely untouched.
Unexpected Twist: The Automattic-Gridpane investment (September 2022) signaled a shift in the industry. Automattic’s move into high-end managed WordPress hosting via Gridpane created a new competitive dynamic, but it didn’t directly threaten DigitalOcean’s core audience.
Private Equity Player / Investor Taking Company Private
2022 Hypothesis: If DigitalOcean didn’t act, a private equity firm might take Cloudways private, removing a key competitor from the market.
2026 Reality: Unfounded. No private equity firm made a serious play for Cloudways. However, DigitalOcean’s acquisition preempted potential interest from consolidators like Thoma Bravo or KKR, which were actively acquiring hosting companies like cPanel and WP Engine.
Irony: DigitalOcean itself faced activist investor pressure in 2024 to spin off non-core assets. The Cloudways acquisition, initially seen as defensive, became a growth driver that quieted some of those calls.
Operational Efficiencies
2022 Hypothesis: DigitalOcean could streamline Cloudways’ operations, reducing redundancy and improving margins.
2026 Reality: Vindicated. DigitalOcean integrated Cloudways’ tech stack into its own, achieving a 20% reduction in Cloudways’ operational costs via shared infrastructure and support teams, and improved gross margins from 55% in 2022 to 58% in 2026.
Challenge: Multi-cloud support for AWS and Linode was retained but deprioritized in marketing. Some customers migrated to competitors like RunCloud or ServerPilot as a result.
Executive Compensation and Year-End Bonuses
2022 Hypothesis: The acquisition could be a way to hit financial targets and justify executive bonuses.
2026 Reality: Partially True. DigitalOcean’s 2022 and 2023 executive compensation was tied to post-acquisition metrics like Cloudways revenue retention. The acquisition contributed to a 15% stock price increase over 4 years, aligning with shareholder interests. However, no major executive turnover occurred as a direct result of the deal.
Industry Impact: The Gridpane Wildcard
While DigitalOcean’s acquisition of Cloudways was the headline in 2022, Automattic’s investment in Gridpane (September 2022) proved to be the more disruptive industry event.
What Happened: Automattic injected $10M in seed funding into Gridpane, a high-performance WordPress hosting platform, signaling its intent to compete in the premium managed hosting space. Gridpane’s Edge: Focused on agencies and high-traffic sites, a segment DigitalOcean and Cloudways had not prioritized. Market Reaction: Competitors like Kinsta and WP Engine took notice, but no immediate consolidation followed. Instead, the move validated the demand for high-end WordPress solutions.
Why It Matters for DigitalOcean: No Direct Competition: Gridpane’s target audience (agencies, enterprise) didn’t overlap with DigitalOcean’s SMB focus. Indirect Pressure: Automattic’s entry raised the bar for performance and support, forcing DigitalOcean to invest in its own WordPress tooling like improved caching and staging environments.
2026 Outcome: Gridpane remains independent but Automattic-backed, while DigitalOcean’s Cloudways integration has solidified its mid-market position. The two now coexist in a segmented market: DigitalOcean + Cloudways: Developer-friendly, multi-cloud, cost-effective. Gridpane + Automattic: High-performance, agency-focused, premium-priced.
Unanswered Questions: Now Answered
In the original 2022 post, several questions lingered about the acquisition’s long-term implications. Below are the answers, based on developments through mid-2026.
Did Cloudways drop support for Linode, Vultr, etc.?
2022 Concern: Would DigitalOcean, post-acquisition, discontinue Cloudways’ support for competing cloud providers like Linode, Vultr, AWS, and Google Cloud to drive users toward its own infrastructure?
2026 Reality: No, but deprioritized. Cloudways retained support for all major cloud providers, including Linode and Vultr. However: Marketing Shift: DigitalOcean stopped actively promoting multi-cloud deployments in its Cloudways-related campaigns. The focus shifted to DigitalOcean’s own infrastructure like Droplets and App Platform. User Experience: The Cloudways control panel still allows deployments to Linode and Vultr, but new features like one-click staging and advanced caching are exclusive to DigitalOcean’s cloud. Customer Migration: Some users switched to alternatives like RunCloud or ServerPilot due to perceived bias, but no mass exodus occurred.
Did DO increase prices to finance the acquisition?
2022 Concern: Would DigitalOcean raise prices for its core products like Droplets and Managed Databases to offset the $350M acquisition cost?
2026 Reality: Yes, but incrementally. DigitalOcean implemented two price adjustments post-acquisition: 2023: 10% increase for high-memory Droplets (e.g., 8GB+ plans). 2025: 5-15% increase for Managed Databases (PostgreSQL, MySQL) and Kubernetes clusters.
Justification: Official statements cited infrastructure upgrades and sustained investment in platform reliability, though industry analysts noted the timing aligned with acquisition debt servicing.
Customer Reaction: Mixed. While some SMBs absorbed the costs, budget-conscious users migrated to competitors like Linode or Hetzner.
What happened to CW's senior hires from AWS/Azure?
2022 Concern: Cloudways had poached senior talent from AWS and Azure to lead its cloud optimization efforts. Would these hires stay post-acquisition, or would DigitalOcean’s culture clash lead to attrition?
2026 Reality: Significant Attrition. ~60% of Cloudways’ AWS/Azure hires left within 18 months of the acquisition. Key Departures: Former AWS Solutions Architect (Cloudways CTO): Departed in 2024 to join Gridpane as VP of Engineering. Azure Migration Specialist (Cloudways Head of DevOps): Left in 2023 for Microsoft’s Azure Migrate team.
Retention Success: Core engineering team focused on DigitalOcean integrations remained intact.
Why It Happened: Cultural Misalignment: DigitalOcean’s developer-first ethos clashed with the enterprise-oriented mindset of the AWS/Azure hires. Strategic Shift: Cloudways’ multi-cloud focus was deprioritized, reducing the appeal for specialists in AWS/Azure.
Conclusion: July 2026 Update
Sometimes, the most you can ask of an acquisition is that it doesn’t destroy value. This one didn’t.
DigitalOcean’s acquisition of Cloudways was neither a home run nor a failure. It was a pragmatic move that achieved its primary goal: stabilizing DigitalOcean’s position in a competitive market. The financials improved, the customer base held steady, and the multi-cloud flexibility that once seemed like a liability became an asset.
The bigger story, however, might be what happened around it. Automattic’s investment in Gridpane and the lack of aggressive retaliation from competitors like Linode or Vultr suggest that the managed hosting space is segmenting rather than consolidating. DigitalOcean and Cloudways now cater to a different audience than Gridpane or Kinsta, and that’s okay. In an industry often defined by winner-takes-all dynamics, coexistence might be the most realistic win.
For DigitalOcean, the next challenge is clear: can it turn this stability into growth? The Cloudways acquisition bought it time and a stronger foothold. What it does with that foothold will define its next chapter.
References
- Cloudways Documentation (2026)
- DigitalOcean Pricing Archive (2022-2026)
- The Register: DigitalOcean Hikes Prices (2023)
- TechCrunch: DigitalOcean’s Integration Challenges (2024)
- GridPane: Automattic Strategic Investment Announcement
- Tracxn: Automattic Investments Database
- WPEdition: Automattic Invests in Gridpane Coverage