They run their own data centres and have for a while. There is a pretty big industry for that sort of thing as an alternative to “the cloud” here in Europe.
We used to use nianet to house our hardware in Denmark. Basically these companies does hardware renting and they also do hardware renting with more steps which is where you rent rack space but own the hardware. They provide the place for the hardware and they also have multiple locations so that you have both backup and redundancy, and while it doesn’t scale globally in 20 years I’ve literally never worked on anything that needed to beyond having some buffer caches for clients logging in on their vacations or something like that.
What Hetzner seems to be doing with the DO styled hosting, and this is just a guess, is that they are one or the many EU companies preparing for the big EU exodus from the non-EU cloud. Which is frankly a solid bet these days where both AWS and Azure are increasing prices and are becoming more and more unusable because of EU legislation. Part of this is privacy which Microsoft and Amazon are great with in terms of compliance, but part of it is also national security. I work in an investment bank that builds solar plants, since finance and energy are both critical sectors we risk being told that half of the finance/energy companies in the world can’t use Microsoft because the EU seems it as a single point of failure if our entire energy sector relies on Azure. Which is sort of reasonable right? But what this means for us is that we can’t vendor lock-in, not really, because we need to have up-to-date exit strategies for how we plan on being fully operation a month after leaving Azure. Which is easy when you just containerise everything and run it in VMs or similar, and really annoying if you go full in on things like AKS. Which doesn’t help our Azure costs.
Anyway, right now we are planning on leaving Azure because of cost. Not today, not next week but sometime in the next 5-10 years and a lot of these EU cloud alternatives that actually operate the hardware instead of renting it are likely going to be a very realistic alternative. And that is the private sector, I spend time in the EU public sector which is a massive amount of money and I’m guessing it’ll leave both AWS and Azure by 2050. Some of these EU cloud initiatives is going to explode when that happens, and right now, hetzner is one of the best bets.
To get back to your question, DO rents server space. I have no idea where they’d rent it in Germany but they could potentially be renting it from Hetzner.