I'd be very interested to know if DO make a positive margin on their $5 droplets. I feel like I push a fair amount of data through mine, and plan to push more in the future using a bunch of $5 droplets and round-robin DNS. I'd feel better if I knew I was still a +EV customer.
The hardware cost is the same. 128 * $5 == $640, they charge a fixed $10/GB RAM.
They do have higher support costs, credit card transaction fees, and ip address costs. They would probably lose money if the primary users of the $5/month plans were doing punishing things like video encoding, but my guess is the vast majority are no load users.
I once read someone that was doing hosting, said the larger plans were actually more challenging. 4 high volume forum sites on the same host would cause IO contention. Digital Ocean has SSDs and they mix and match sizes on the physical host, so it should be less of a problem for them.
