[DoubleMalt]

Of course they do. In the sense that a smartphone app competes with a printed book.

While they are completely different things, for many users in many circumstances they are substitutes.

I worked for a startup that got into the rackspace program and had several thousand $/month free in rackspace services. The same amount of raw power on DO would have cost 200$/month, but a couple of 20$/month DO VMs would have been ample.

And for prototyping you usually don't need anything more sophisticated than a VM (or a free heroku account for that matter ...)