1 core/512MB/20GB ssd => $5. They state that they are running hexcore hardware. That translates to 6*$5 = $30 per month per server. So that's probably not making much money for them.
But then it looks better if they manage to sell the higher plans. 4cores/8GB/80GB ssd = $80, 2cores/4GB/60GB ssd = $40. These fit easily to single server and that's then $120 per month per server. Compare this to for example some of cheaper dedicated hardware providers like Hetzner [1] who are selling similar dedicated hardware for something like $60-70 per month.
Based on this it could be a sustainable business model, at least if they have enough volume (which seems to be the case, considering the Netcraft article).
(I assumed they are providing dedicated cores and using single socket servers. But it might make more sense to use some relatively cheap multi-cpu servers since with these plans the bottle neck seems to be on the numbers of cores side and not with the memory).
It isn't a dedicated core. Linode offers a $20/mo 8-core instance. That doesn't mean there aren't others sharing those cores. If Linode were offering 8-core Sandy Bridge E5-2670 servers with all 8 of those cores dedicated to you for $20, that would be quite a steal.
The RAM is guaranteed and the processor is shared. Amazon has been working a fixed-compute model on all except their Micro instances. Other providers are sharing cores.
Right now, DigitalOcean is limiting the number of cores exposed to smaller instances. They may change that in the future (there have been hints on their feedback site that they're looking into changing this so that smaller instances could have better burst capabilities).
But then it looks better if they manage to sell the higher plans. 4cores/8GB/80GB ssd = $80, 2cores/4GB/60GB ssd = $40. These fit easily to single server and that's then $120 per month per server. Compare this to for example some of cheaper dedicated hardware providers like Hetzner [1] who are selling similar dedicated hardware for something like $60-70 per month.
Based on this it could be a sustainable business model, at least if they have enough volume (which seems to be the case, considering the Netcraft article).
(I assumed they are providing dedicated cores and using single socket servers. But it might make more sense to use some relatively cheap multi-cpu servers since with these plans the bottle neck seems to be on the numbers of cores side and not with the memory).
[1] http://www.hetzner.de/en/hosting/produkte_rootserver/ex4