Dropbox: “It Just Works” Reid Patton 9/20/2015

Analysis Drew Houston, CEO of Dropbox, is at a crossroads. He is deciding whether or not Dropbox should segment its offerings, into a pro/business version and an individual use version, to better service its growing and diverse user base. Dropbox functions off of a freemium model. Early on Houston, tested different marketing techniques but decided that analytics were the best way to figure out the most efficient and successful ways to acquire customers, and he followed the AARRR framework created by Dace McClure. In the end, Houston decided to let Dropbox grow mainly organically because it was not economically feasible to pay almost $300 to acquire customers who were buying $99 of service a year. Even with the analytics, Dropbox’s marketing programs were futile compared to the growth due to word of mouth and referrals. Dropbox implemented a two sided incentive structure where customers got an additional 250 megabytes of storage for every new user they referred. In April 2010, there were 2.8 million referrals from Dropbox’s 4 million users. 35% of these were direct referrals and 20% were from Dropbox’s shared folder feature. Dropbox also cares a lot about the user experience and would gain insight about customer preferences through A/B testing, Votebox (where users can vote on features), and by reading support forums. However, a lot of what was requested by users conflicted with Dropbox’s goal of being simple to use. This is one of Dropbox’s dilemmas at the end of the case. It can add more features, but lose usability, or Dropbox can create a different offering with more features to appeal small and medium businesses. In the June 2010 rankings of Backup Review, Dropbox was ranked #6 in the consumer category but did not break the top 25 in Small-Medium business or in Enterprise. Dropbox is also thinking about partnerships with PC and smartphone makers by having Dropbox preinstalled on these devices because user downloads was a big barrier to obtaining clients. Finally, Dropbox has to consider competition. Mozy and Carbonite are the biggest competitors at the time, but Dropbox’s offer is different because unlike these other two services, Dropbox not only backups files but also synchronizes files across devices. Google is also a looming threat because it has the power to swoop in, unconcerned about profitability, and offer backup for free. Master freemium= organic customer acquisition engine Free user costs as marketing budget Users: share files with others or use the application for business Trojan horse

Financial Analysis For SG&A and R&D, I estimated the values for Dropbox from the data given about Carbonite. In year 2010, if what I estimated was correct, Dropbox is still operating at a loss. This is to be expected though for the early years of a technology startup.

Recommendation Dropbox initially tried the “Trojan horse” method where people would use Dropbox inside companies without IT permission, and then once companies’ IT people saw that Dropbox worked and people wanted it, they would implement it across the company. At the end of the case, it does not seem like the Trojan horse method had been entirely successful. This, paired with the fact that Dropbox is not ranked as one of the top 25 Backup Companies for Small-Medium Business or Enterprises leads me to suggest that Dropbox should create a separate offering for businesses. Business have more needs than individual users, and indeed these needs conflict with Dropbox’s original goal of being simple. However, because businesses have not adopted Dropbox as their go-to online backup service, the sell of simplicity is not solving businesses’ “jobs to be done”. Intercommunication and seamless sharing between employees are two needs that stand out to me, and Dropbox for Business could offer solutions to these needs. Dropbox is still in a considerably early stage in 2010, but it is operating at a loss. Targeting businesses is a way to alleviate these losses because Dropbox can charge a lot more than $99/ year when an entire company is using the service. Dropbox originally did not go after enterprise customers and small and medium-sized business because Houston did not want to deal with companies’ IT divisions. There was a Catch-22 where Dropbox wouldn’t be able to make salse unless certified by IT, but could not be certified by IT until it had established a track record. With 4 million user in 2010, Dropbox has now established a stellar track record which breaks it out of its original Catch-22. Google has the ability to offer a free backup service at anytime, which could be a detriment to Dropbox on an individual user basis. However, companies like services tailored to their specific needs, which a Google back up service would not be. If Dropbox creates a business platform, it would also create a safety net if Google decides to swoop in. **Note I am writing this only using the information given from the case. I do know that Google now has a backup service that is threatening Dropbox’s business.