Very few people run actual custom kernels, but most people want to run the distro-supplied kernel for their distro of choice (including security updates to it) and most decent providers configure their VMs to allow custom kernels so that their users can do this.
This is especially big for RHEL, OEL, and friends. Yeah, CentOS is cool for your startup but a big portion of the valley wants support contracts so they can stop doing OS grunt work, and if your provider doesn't roll RHEL you get to deploy your own, and AFAIK that is not possible on DO (and requires quite a bit of work on Linode, its closest competitor in the space; DO is not AMZN). Deploying RHEL in a supported way requires using their kernels.
It's your virtual machine. You should be able to pick a kernel. This isn't for running Andrew Morton patches, as some of the comments imply.
Yeah, I often get annoyed when DigitalOcean doesn’t keep with with Ubuntu kernels. One of my DigitalOcean servers is running Ubuntu 15.04 and kernel 3.19.0-21. The newest kernel from Ubuntu is -49, which DigitalOcean does not have. I also have -26 in my /lib/modules, but they don’t have that either. So now I have to explicitly install -30, the latest they support, or remember to update later.
Is there a good reason they can’t automatically add all new kernels from the major distributions?
Well, you can do that too, but the point is that you have control over what kernel your VMs are running and not the hosting provider. From a technical perspective it makes little difference where that kernel comes from; either you control what kernel you're running or you don't.
I was at least thinking that once you pick a distro, they'd be first in line updating the security patches for it (or at least as fast as say your own ops team would). But I guess that is not the case.
It's specific to VM images. "Custom" here means "not baked into Xen," since your filesystem is not considered when spawning a domU kernel except in limited circumstances. In the Xen world, your kernel is provided by your hosting provider. You can apt-get all day and nothing will happen.
That is what custom means in this context. "Not yours." Read accordingly; you've made the same flawed point at several spots in this thread.
It's no longer true that Xen needs to mean managing the kernel outside the VM. PVGRUB can be specified as the 'kernel' to boot, which will chainload a grub which can be managed inside the VM, which lets you run any kernel you wish and manage the boot process as you would on a non-virtualized system.
Amazon uses Xen for their EC2 product, and as I understand they too now set people up with pvgrub.
Depending on what kind of level of virtualization they opted for, I've run Windows on Linux under KVM. They are doing the "boot a kernel" mode instead of fully virtufalized hardware mode probably to save on resources.