DigitalOcean, the cloud hosting business, today announced that it’s agreed to acquire Paperspace, a New York-based cloud computing and AI development startup, for $111 million in cash.
DigitalOcean CEO Yancey Spruill says that Paperspace’s infrastructure and tooling, once integrated with DigitalOcean’s products, will enable customers to more easily test, develop and deploy AI applications. As for Paperspace customers, they’ll benefit from DigitalOcean’s cloud services, he says — including databases, storage, app hosting, documentation, tutorials and a robust support system.
For now, Paperspace will remain a standalone business unit within DigitalOcean, and Paperspace customers won’t see immediate changes to their service.
“We’re excited to expand our portfolio tailored to the world’s small- and medium-sized (SMBs) businesses and startups with simplified AI and machine learning offerings,” Spruill said in a press release. “The combined offerings allow customers to focus more on building applications and growing their businesses and less on the infrastructure powering them.”
Paperspace was co-founded in 2014 by Daniel Kobran and Dillon Erb, graduates of the University of Michigan. Backed by Y Combinator and Jeff Carr, one of the co-founders of DigitalOcean, the company runs its own datacenters with custom-configured GPUs.
Paperspace initially focused on low-cost virtual machines, providing high-performance workstations for design, visualization and gaming in the cloud. But as AI entered the mainstream, Paperspace leaned hard into its AI offerings, launching a suite of tools designed for developing, training, deploying and hosting AI models in the cloud.
Prior to the acquisition, Paperspace raised $35 million from investors including Battery Ventures, Intel Capital, SineWave Ventures and Sorenson Capital.
Erb sees the acquisition as a step toward a comprehensive offering of cloud CPU and GPU compute to rival other vendors in the public cloud market. The combined power of DigitalOcean and Paperspace, he asserts, will let a new class of customer — particularly those on a tight budget — delve into AI- and machine learning-driven apps like generative media (e.g. OpenAI’s DALL-E 2), large language models (e.g. ChatGPT), recommendation engines and image classifiers.
“DigitalOcean is renowned for simplifying complex cloud technologies and making them more accessible to developers and business alike,” Erb said in a canned statement. “We’re thrilled to join forces with DigitalOcean, as we believe there’s no better company to unlock the endless possibilities of AI and machine learning for developers and businesses alike.”
The Paperspace acquisition is DigitalOcean’s first since 2022, when it bought Pakistani cloud hosting service provider Cloudways for $350 million, and its fourth since its public stock listing in 2021.
From the outside looking in, it’s a wise move for DigitalOcean, which risks being left behind in the surge for cloud AI and machine learning solutions. While the company’s revenue increased in Q1 2023, growing 29.7% to $165.13 million, earnings per share, return on equity and net margin fell short of expectations.
Increasingly, Big Tech cloud providers like Microsoft, Amazon and Google are turning to generative AI to boost revenues — with some success. A recent CNBC poll found that AI is now the biggest spend for nearly 50% of top executives across the economy, indicating it’s a wise place to invest resources.
Driven by the enthusiasm for AI, Gartner predicts that cloud spending will grow 21.7% in 2023, coming in just under $600 billion this year versus $491 billion last year.