Cloud hosting firm DigitalOcean (NYSE: DOCN) is making it easier for its small and medium business customers to develop and deploy artificial intelligence (AI) applications. The company earlier this month acquired AI-startup Paperspace for $111 million with the intent of simplifying AI for its customers.
“We could have gone and built AI but there was this company [Paperspace] in the market and we’ve known them for a while and their strategy fits our strategy,” said DigitalOcean’s Chief Strategy Officer Megan Wood.
Paperspace was started in 2014 and backed by YCombinator, Initialized Capital, Battery Ventures, SineWave Ventures, Intel Capital, Sorenson Capital and Data Collective. The company’s platform, Gradient, provides a set of tools for developers so they can focus on building code without having to spend time on the underlying infrastructure. It also eliminates much of the complexity around AI such as needing to deploy servers for AI and machine learning projects because it can host AI models in the cloud.
“This extends the compute platform and enables SMBs to build new AI applications,” Wood said. “It’s complementary to our existing product set.”
In a blog post about the acquisition, DigitalOcean CEO Yancy Spruill noted that there is a huge demand for Al and machine learning (ML) cloud solutions and said that many small businesses face a steep learning curve, as well as many technical and financial barriers to entry when it comes to developing AI-based applications. Because Paperspace’s solution is so scalable, Spruill said it’s a perfect complement to DigitalOcean.
DigitalOcean certainly had a lot of AI startups it could have selected. According to market research firm Tracxn, as of March 2023 there were more than 14,000 AI startups in the U.S. However, few, if any, AI startups are focused on small businesses. Wood said that a big part of Paperspace’s appeal is that like DigitalOcean, it is primarily working with smaller companies. Indeed, according to Paperspace, it has more than 500,000 users of its technology.
“Small companies can really see a lot of gains from using AI,” Wood said. “And Paperspace can help them with new AI/ML models so they don’t have to be experts in AI.”
For now, DigitalOcean plans to keep Paperspace as a standalone business unit. However, DigitalOcean customers will be able to benefit from Paperspace’s product offerings and Paperspace customers will gain access to DigitalOcean’s cloud services, including its databases, storage and application hosting.
“There are benefits to both customers,” Wood said, adding that Paperspace wanted to be more of a full-stack cloud provider and this acquisition enables it to do that.
The Paperspace acquisition comes at a critical time for DigitalOcean. The company, which became a public entity with the launch of its IPO in 2021, acquired Cloudways, a Pakistani cloud hosting service provider for $350 million in 2022 and is still in the process of integrating that company into its business.
In Q1 DigitalOcean saw its revenues rise nearly 30% year-over-year to $165.13 million. However, analysts on the company’s Q1 investor call peppered the executive team with questions about AI and its role in the business.
The big cloud providers like Microsoft, Amazon and Google are all making big bets on AI. In April, Amazon Web Services (AWS) launched Bedrock, a cloud-based services that AWS said will make it easier for developers to build generative-AI apps. Likewise, Microsoft recently launched a new version of its Bing search engine that includes a chatbot powered by GPT-4 and Google also has its own AI chatbot, Bard.