Normally, to show my clients work in progress, I create a sub-domain.

Normally, to show my clients work in progress, I put their rails app in a sub domain of my website. Is that possible with digitalocean or will the subdomain need to be started in a new droplet ?

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It certainly is possible. You can add a new virtualhost that handles the subdomain: How To Set Up Apache Virtual Hosts on Ubuntu 14.04 LTS. If you’re using unicorn, you will need to configure an additional instance that serves the new app.