Rather than cut prices (I think $5 is low enough), I would prefer if they would beef up their specs. For $5, DO gives you only 512MB vs 1GB from Linode.
I would, however, love that price point. It would be nice if I could run a few light-weight services on a VPS for $2.50 a month and then put my websites and other projects on a beefier VM.
I currently use Linode, but if DigitalOcean offered something at that pricepoint they would be getting $2.50 more from me a month than they currently do.
It's more about support costs if I were to guess. How many support tickets does it take for their profit on $25 a year to disappear? (if $2.50 a month is discounted to $25 a year).
ARIN charges for IPv4 address allocation (https://www.arin.net/fees/fee_schedule.html) and I read that below $5 a month it becomes unprofitable for hosting companies just because of the cost of leasing IP addresses. If your services can run on shared hosting there are a bunch of hosts for less than $1 a month around.
I use one of my DO instances as staging for file transfers. 2 days a month, I can barely get more than 30K/s from their sf data center to comcast. Other days, I get 5M/s. Their network is shitty.
And I don't think I'm being rate-limited; it's 1-2G transfer per day.
Keep in mind that bandwidth bottlenecks can happen on both sides - depending on the peering that is chosen between Comcast and DigitalOcean, there might be a significant oversubscription between two peering providers that's causing this.
DigitalOcean might happily be able to push 10g to their next hop, but beyond that things are significantly more outside of their control. This is mistaken as 'throttling' a lot, but is actually just ISPs not investing in peering to handle their peak demand. Similar to the Netflix and Cogent issue that happened a couple of years back.
At times, I can get better speeds by tunneling or proxying using a DigitalOcean Droplet and downloading something from overseas than I can doing it directly. The path taken from my home internet to the DO Droplet uses different peering than my path to Europe, and the speeds are faster overall even though it creates more hops.
I don't particularly care if they keep around a 512MB/$2.50 instance at that point.