Where is Dropbox headed?

Having started in September 2008, Dropbox today is a leading cloud storage provider (CSP). It has over a 100 million signed free users and about 4 million paid users (4% conversion rate as quoted often by Houston). Assuming the lowest payment tier (100GB at $99 per year), this translates into annual revenue of about $400 million. Based on Amazon S3 costing and estimates of Dropbox employee costs, the EBITDA works out to $250 million. Its costs are always going down and its revenues are always going up. The company is valued at $ 4 billion. Dropbox is making money hand over fist. Right? But consider this –

It now has more than ten competitors several with deep pockets e.g., Amazon CloudDrive, Apple iCloud, Google GoogleDrive, Microsoft Skydrive, Box, Spideroak, Ubuntu One, MediaFire, Mega. Its other competitors, purely in enterprise space include HP Cloud Objects, Rackspace etc.

Dropbox offers the smallest free quota – 2GB plus referral bonus. All its competitors offer 5GB or more (Skydrive -7GB, MediaFire and Mega – 50 GB).

Dropbox pricing is probably the highest ($99 for 100GB). For same capacity, competitor prices are much lower –CloudDrive ($50), GoogleDrive ($60), Skydrive ($50). Box ($480), iCloud ($160). Spideroak ($100) have a higher pricing but have more powerful features (see below).

Dropbox is merely a folder service. Its competitors have other value-adds and lock-in mechanisms. For example, iCloud allows streaming of music, apps, books, and TV shows you purchase from the iTunes store, Google and Microsoft have GoogleDocs and Office WebApps respectively. Documents created through these apps do not count towards the drive quota. Box is designed more as a business-collaboration and work-flow solution that a CSP. SpiderOak is the only service that offers data encryption before your data hits their servers. Perhaps, acquisition of AudioGalaxy should enable Dropbox with music streaming feature.

The giants like Apple, Google, Amazon and Microsoft see storage as a way to lure customers into their respective cloud and then “upsell” them on higher-level and more profitable services that they have in the portfolio. They have been aggressive in launching or responding to price cuts from competitors. Dropbox cannot win against these Goliaths in the theatre of feature and price wars.

The Dropbox differentiator was the near seamless experience backing up and syncing files to cloud on multiple platforms. That differentiator is rapidly evaporating with the competitors catching up. Moreover, what happens if all your files are already in the cloud for example music (iCloud, Spotify), Documents (GoogleDocs, Office 365), Pictures (Instagram) and so on. There are umpteen such scenarios that make Dropbox redundant.

I am sure Dropbox product managers are having sleepless nights. Do you have a product strategy and roadmap for Dropbox’s future?

Amazon CloudDrive Apple iCloud Box csp dropbox Google GoogleDrive icloud MediaFire Mega. Microsoft Skydrive Office WebApps Spideroak Ubuntu One

Kiran Jonnalagadda

You’ve outlined the exact reasons why I use Dropbox and not any of the others. I’ve tried many of them (including Box.net, which isn’t in your list and is the next closest usable service).

1. Dropbox is just a folder service. They are not trying to upsell me anything. I can keep my private files there with the assurance that they’ll remain my private files.

2. Unlike everyone else, the sync actually works. I can leave Dropbox sync running knowing fully well that it will never fail. I cannot say this for any of the other services. They are always whining about connection failure or some folders remain stuck in sync for months at a time (even if the contents have actually synced). I never feel safe putting my files in there.

3. Having been burnt by Google’s completely broken multi-account setup where, among other issues, on some platforms the native app allows multiple accounts (Android) while on other platforms it doesn’t (iOS), I find myself locked out of my data every once in a while. Now couple this with Google Drive’s mostly broken sync.

Given the state of the competition, it’s no wonder Dropbox is so far ahead already. Deep pockets aren’t the only thing competitors need.
- ratul29
  
  you hit the nail. the worry-free and super-easy experience on Dropbox is unmatchable. Plus, I still have the public folder generating public links, which, being a web developer is super-handy.
- Arun Saxena
  
  What’s your take on Dropbox future? Do you think they should confine to folder sync ? Why? If yes, aren’t they putting themselves in a tight spot? Assume others will catch up with them on usability sooner or later. Don’t you think size matters? The Apple,, Google, Amazon and MSFT will render them irrelevant in next couple of years by sheer size f customer base.
  - Kiran Jonnalagadda
    
    If size alone mattered, big companies could never stumble and let nimbler opponents overtake them, could they? Google and Apple could never have replaced Microsoft as the most important technology companies, could they?
    
    Long before Dropbox existed, Apple had iDrive. It was a crap product. Novell had iFolder, and that inspired a me-too clone from Microsoft in the early 2000s. I can’t even remember the name of the product now.
    
    Sync is an inherently hard problem. Just witness the decades of crappy version control software we have had to deal with, where Microsoft’s SourceSafe even required users to request permission to lock a file before they could open it. Reliable sync was so hard that making users suffer was acceptable.
    
    The main reason big companies are unable to compete with Dropbox is that it’s not a product for them. It’s a feature, one that is meant to check off some boxes, not to make money. They can’t afford to put their best people on it because their best people are fighting other battles.
    
    Dropbox, OTOH, does nothing else.
    
    Why is folder sync *so* important? Because despite Apple’s war against the file system, files are still how we think about our data, and will continue to be so for a long time to go. Dropbox gets this. Dropbox’s approach makes me feel safe putting files there, while with everyone else it feels like a demo extension to some other product, a feature that could go away with the same arbitrariness with which it was introduced.
Sandeep Todi

Arun, here’s what I think will help them:

a) First nullify the obvious advantages of competition offering more space and up it to 5gb. It’s a risk and they may cannibalise some existing paying customers, but most will not cross 2gb. When I’m buying I always like to have more, whether I need it or not.

b) Get aggressive on the app ecosystem. Get more and more linkages with cloud mail providers in every country (there are 2-3 large scale webmail folks in India alone) and other software providers.

c) Create pipes between S3 and other cloud storage to make it easier to navigate your files.

d) Create some server based applications with security control so Enterprise will start adopting

Above all, maintain the simplicity that they always have had. That will differentiate when they hit these war zones.
Sudeep Kumar

Dropbox may be a great product but the competition will catch up sooner than later. Even if you discount the threat posed by relatively slow-moving large competitors, another start up may started creeping up on them.

I think this is the right time for them to attempt what Eric Ries (Lean Start Up) describes as a pivot – “by keeping one foot in the past and placing one foot in a new possible future”. Of course, easier said than done, surely their product managers might already be thinking out of the ‘drop’box.

One such area could be better collaboration around document sharing. If you want to penetrate the enterprise market, you have to provide some value on top of just sharing files. That could be the form of versioning, document collaboration or review. Another area of pivot could be deeper integration with other app ecosystems related to key content such as documentss, pictures and videos.
Arun Saxena

Thanks folks for the illuminating views on the topic. I would like to add the following –

Kiran – File and folder paradigm will fall sooner than many believe. What with virtualization of storage. That will be the only way to stay afloat for pure storage providers. Dropbox will not have the benefit of a minimum 100 GB slab for a consumer account. Incidentally, this slab size is a major source of quick and dirty profits for them (most consumers utilize far less). Business size does matter – there is a critical size required to fight and survive. Remember the case of Netscape from the distant past. It was the first browser, had the court ruling in its favor but just too small to fight with Microsoft! Of course a disruptive innovation can lead to demise of company of any size. For example the business model innovation from Dell caused downfall of large PC makers like Compaq. What could be a disruptive innovation in pure-play cloud storage?

In the final analysis, Dropbox is in the IaaS business. It rents storage from Amazon (its landlord) so does not have much leverage on its cost. With 100 million customers it does not have flexibility to move to another vendor or to its own data center. Its product is generic file / folder sync that has little scope for bigger higher value scenarios. It is saddled with a “consumer storage provider” image that would make its entry into enterprise that much more difficult.

Clearly backup is not the focus for many of Dropbox’s big competitors. They are playing a bigger game here. They are hooking customers to their web-apps. in the cloud. Storage will come packaged with the app. The number of Google Drive and Skydrive customers already outstrips the size of Dropbox customer base. To add to Dropbox problems, increasing number of data uploads in future will happen from devices like tablets and smartphones that will have a native connection to the respective vendors’ cloud storage. Dropbox will need to jostle with these app vendors to place their icon on those devices.

Sudeep, Sandeep – yes, Dropbox would need to move aggressively in app-space. Though it is debatable if they can compete with the likes of Google or Microsoft on the office and collaboration apps. But how would they claim lost time and ground from established cloud app vendors is a big puzzle. Perhaps enterprise space might remain elusive forever to Dropbox. IBM, HP, Microsoft, Rackspace, Amazon are deeply entrenched there.

What do you think?
Lakshman Pillai

One trick ponies cannot survive for long! But I do not know if dropbox will continue to be a ‘one trick pony’ or develop more related tricks.
Lakshman Pillai

Arun, Well explained with relevant data. Am sure dropbox PMs are thinking hard!
Arun Saxena

Consider this – Dropbox announcement today –

Dropbox today announced new tools that could help the company become an indispensable ally to developers in an increasingly fragmented mobile ecosystem.

The growth of smartphones and tablets spawned a whole new app economy, as well as a vexing problem for app developers: how to make an app that’s running on one device, such as a game on an Android smartphone, and sync up with the same game running on every other device a person may use, from iPads to Linux laptops.

Today at its first developer conference, Houston explained the difficulties developers encounter when trying to make apps work together across platforms, saying there are “thousands of details” they must get right for it to work. “If it were easy, all of this stuff would just work,” he said. “We wouldn’t be talking about it.”

Houston introduced a new Dropbox platform, which includes a way for developers to easily allow their Android and iOS apps to sync with each other by having Dropbox do what it already does—sync and store data online—but with the structured bits of data modified within apps as you use them, rather
than just for files like photos and Word documents. By doing this, it doesn’t matter what logo is on the back of your phone, Houston said, “it just works.”

“This is a first step in a whole new way of building apps where you can have this completely seamless experience across platforms,” he said.

It’s not just about helping developers out, though. If Dropbox can popularize its method of synchronizing data, we won’t just be storing pictures and PDF files in Dropbox; we’ll also be counting on it to keep our apps running smoothly—an increasingly big deal in a multi-platform world.
Anirudh B Balotiaa

Speaking purely from a user perspective –

1. Dropbox has the first mover advantage. Yes they were not the first to have cloud storage there were many before who existed and became extinct, but Dropbox got it right. When there is a need to share files be it at work or personally, Dropbox comes first to mind. And I am sure I am not alone.

2. As Kiran mentioned, Dropbox works! Barring the issue of space running out, I have never had any issue since I began using it.

3. Dropbox is uncomplicated, I have tried Google Drive and its darn confusing. Google tries to link all its services and at times its more complex than simple. More often opposite of helpful than helpful.

4. A lot of people and their teams are using Dropbox for quite sometime. Moving all of them to a new service is not easy even though it may be a breeze. Remember not everyone likes change and not everyone is tech savvy.

5. I may be willing to try a new service, but expecting my entire list of people whom I am sharing files to move with me is a wishful thinking. If I am the boss they all would, but not willingly and will add to everyone’s ever bursting bucket list. I need a solid reason. There is a reason in spite of many IM, Whats App is still the most popular.

6. As for enterprise/developers point of view, I am still to comprehend what they are upto, so any comment will be premature!
productnation

I thought I posted my comment and since it didn’t appear here, I may be re-posting.

DropBox’s future will be decided by its decision on Whom it wants to serve? Is it the free users, some of whom may convert to paid at a future date or the existing (and future) paying customers? If it is the former, then it must raise the free limit to 5 GB or more and hope that it continues to attract more people. Or it can decide to leave the freemium game to the others and focus on its paying customers by adding value.

Just because something worked in the past, doesn’t necessarily mean it will continue to work forever!!

Remember the decision of Tally (conveyed so eloquently by Goenka in this forum itself) of wanting to reach the masses with its product as a commodity? They slashed the price to a fifth and did so many things. It didn’t work out and they took a loss of almost Rs.50 crores. The definition of the target customer makes a really huge difference to the fortunes of any business, not only software products!!

With Warm Regards
V S Badri Narayanan (Badri)