The Dropbox Equilibrium

Dropbox is unarguably one of the most exciting companies to have been brought to life in the past decade. Drew Houston and Arash Ferdowsi, backed by seed accelerator Y Combinator, disrupted the cloud storage and file sharing industries by bringing out and evangelizing the concept of their Dropbox application, which end-users could download onto their computers to share files seamlessly on the cloud.

Incredible Momentum

The company has built up an audience of more than 500 million users faster than LinkedIn did. More than 90% of their revenue comes from “self-serve channels”, enabling them to not have to invest much in sales teams. About 11 million of their users have converted to paying customers. Of course, this means that almost 10 million of those users converted to paying customers by themselves (via the website). Last week, they became the first company ever to deploy SMR storage in production on their exabyte-scale infrastructure, Magic Pocket. Without going into much technical depth, let’s just say that this is a bold investment that could yield very meaningful dividends in the near future, in the form of cost savings and more efficient data storage technology.

They are the talk of the town right now, primarily because of the crazy fashion in which their stock, DBX, has risen in value by almost 40% this June! Sure, they do well to create and maintain the hype, but underneath the hype is a company that is striving with all it’s might to prevail in a highly competitive market.

Crowded Space To Be In

Most of the criticism Dropbox has faced off late is due to the fact that the times have changed and cloud storage is a commodity now – far from a differentiator.

Behemoths

AWS, Microsoft Azure, Apple iCloud, Google Drive – all of the behemoths are in the race to grab more of a market share in cloud storage. They are bigger brand names, have more capital to invest in marketing and sales as well as technology, and already have existing enterprise customer-bases.

Newer Entrants into Enterprise Software

Box, which started a couple years before Dropbox did, is focused on file sharing and cloud storage for enterprises. This gets right in the way of Dropbox, which also makes its money largely from enterprise subscriptions. Atlassian is another great company that makes its money in the enterprise space, by building and selling tools to help software development processes and product lifecycle planning become more efficient. Product managers in most enterprises these days use JIRA for sprint planning and reporting, and everybody uses Confluence as a medium to share documents and data internally. Competitors like these need to be reckoned because of their sharp focus on solving enterprise needs. They are smaller and more agile than the behemoths, and that’s their biggest strength.

What Dropbox is doing well

Freemium Business Model

Right from the start, the freemium model has worked well for Dropbox. Users sign up, and eventually enough of them upgrade to the paid version when they run out of space. Not having to invest in sales adds a lot of ammunition to the Dropbox business model, since it brings down their COGs (cost of goods sold). The customer channels are reduced largely to word-of-mouth, advertisements, and their website. This contributes to a relatively high gross margin, for a company that is making most of its money through businesses and enterprises.

Dropbox Paper

This service allows teams within an organization to collaborate freely on shared documents and project spaces. It is great for design teams and creative teams. They have built into the product the ability to edit and view completely different file formats next to each other on a single pane of canvas (like YouTube videos, InVision, and Sketch). Team members can integrate Paper with their calendars. Annotations provide a way to link people or entities within the organization easily and quickly. Of course, the project content can be viewed from any device. Teams can seamlessly transform documents into presentations. The service will even follow up with you if you’ve been tagged and haven’t responded. It is heading towards being an all-in-one collaboration tool that is worth considering for any enterprise.

Heavy emphasis on seamless enterprise experience

It’s really important, having adopted the freemium model for so long, to be able to repeatedly churn out ways to provide more value to your customers – both paying as well as non-paying. Dropbox has identified and targeted the enterprise market, and has rolled out features that not only address the needs of the enterprise market, but also work towards providing seamless experiences.

Permissions and Security

256-bit AES for files at rest and SSL/TLS encryption for data in transit, backup and recovery of deleted files, and remote device wipe for lost devices, are only the basics of what is offered to all paid users of Dropbox. They go much further with their permissions models, which include allowing administrators to have fine-grained control over user permissions to access and edit files, at the folder as well as sub-folder level. Additional security measures include password protection, expired shared links, 2-factor authentication, and HIPAA compliance. Each one of these is thought through and the suite of security features seems very attractive to a business.

Integration with 3rd Party EMM Providers

For subscribers of their Enterprise offering, Dropbox now provides the ability to integrate with popular EMM (Enterprise Mobility Management) providers. EMM providers, like VMware Airwatch and Microsoft Intune, provide enterprises with solutions for Mobile Device Management (MDM), Mobile Application Management (MAM), and identity management. Read more about that here. Dropbox integration with EMM providers not only makes it a viable option for the enterprises looking to manage their internal or BYO device Dropbox accounts, but also makes it a feature that enterprises with EMM solutions need to subscribe to, if they are using Dropbox. That’s what makes this a great choice to charge a premium for.

Integrating Dropbox with other applications

Dropbox Badge integrates some of the coolest features of Dropbox with key Microsoft Office applications, namely Word, Powerpoint, and Excel. It allows you to easily collaborate with others on your team from within the application, look at and sync to other versions of the file, and export the file to your Dropbox. Conversely, you can also create Microsoft Office files, upload photos, and scan documents straight from the Dropbox app on your smart phone. Something tells me they’re not done building their integrations eco-system just yet.

There are some great success stories out there, of companies and product teams that have gone from problem space to solution space and prevailed. I see Dropbox as a company that is poised against the odds in this competitive market, and they’ve done well so far by sticking to the basics of focusing on a finite set of customer needs and executing relentlessly to solve them.

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