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Cloud Computing

Dropbox bets on scale, speed and UXP to sync for success

Dropbox’s central London office is in the often overlooked area of Fitzrovia; tucked away in a side street, it is co-located in a space that once housed the BBC. This area north of Oxford Street was named after the Fitzroy Tavern, a local pub that, with other locals in the first half of the 20th-century, thronged with artists and writers such as George Orwell and Dylan Thomas, some of whom helped produce wartime propaganda for the broadcaster.

To this day the area is still known for creativity. Dropbox’s office is in a building with obligatory characteristics of modern tech/media/design spaces. The reception sign-in requires an iPad and the jug of water offered to visitors is set off by mint and raspberries. That’s apparently nothing though compared to Dropbox’s famous San Francisco HQ which, legend has it, boasts foot-scooter transit, a music room for employees to plug in and play, art, a gym and food made by dedicated chefs.

Dropbox’s London domicile is almost a year old, having opened in January 2015, and the boss here is Mark van der Linden, a Dutchman who joined from Google after earlier stints at Dell and VMware. The meeting room where we talk is relatively restrained with a bar football table, models of London bridges and large screens displaying his daily agenda.

Dropbox is an icon of the unicorn-period internet. It has raised over $1.1bn in funding at a valuation that, at one point at least, made it a ‘decacorn’; that is, a pre-IPO company with a valuation of $10bn or higher. Recently some institutional investors have reportedly marked down the valuation of their stakes so, I ask, is it distracting having so much media attention on fiscal froth rather than business substance?

 

Believing in unicorns

Van der Linden says that the unicorn/decacorn chat can get a bit silly but contends that there are hard reasons for the buzz around Dropbox. Certainly the numbers he rolls out are startling: over 400 million users worldwide, up 100 million in the last year. Closer to home, the number of UK internet users that have signed up for Dropbox has grown from one in four to one in three. Dropbox might well have the world’s largest repository of Microsoft Office files in the world (35 billion) or Adobe PDFs (18 billion). And 1.2 billion files are saved to Dropbox every day. In techie terms, Dropbox has scale.

That scale provides a “network effect” for Dropbox, van der Linden says, with vistas of opportunity to build collaboration across value chains, convert freebie customers to paying versions, and to get those who depend on it commercially to end up subscribing to Dropbox Business or the latest Enterprise version with extra security, controls and support. Dropbox arguably has a first-mover advantage then, having built up a large user base, but while its roots are in B2C its future success lies in its ability to get business buyers to stump up.

That’s the nub of the challenge and it’s one van der Linden says he is comfortable with. In all, 150,000 organisations now pay for Dropbox and the logo screen of big name customers is impressive, from media giants like News Corp. to NBC, consumer brands from Hyatt to Hard Rock, and technology-enabled disruptors from Spotify to Uber.

“It’s a very clean business model,” he says. “Dropbox is free with a limited amount of storage - and if you want more you have to pay for it.”

Dropbox, van der Linden says, today is often the “glue” that makes collaboration possible, ensuring users see up-to-date documents whichever applications, platforms and software versions they’re using. He calls it “the Switzerland in the war of ecosystems”.

 

Battle of the xBoxes

It’s hard to mention Dropbox today without also referring to Box, the near-namesake company that operates in much the same space and has also crossed the river from being consumer-orientated to today’s business focus. More similarities? Both are California-headquartered and both are led by youthful CEOs: Dropbox CEO Drew Houston is 32, Box’s Aaron Levie is just 30. There is significant competition from giants such as Google, Apple and Microsoft, but Dropbox and Box have emerged as something like the Tweedledee and Tweedledum of the sector.

That has led to the two firms indulging in some harmless sparring. Van der Linden says Dropbox has added 50,000 paying customers in 10 months, about the same as Box’s total number of customers to date. However, as a private company Dropbox is still parsimonious about what it shares so direct comparisons are necessarily hazy and Box has a strong presence in the world’s largest companies, covering over half of the Fortune 500 and more than a quarter of the Global 2000.

Box’s effusive and witty CEO Levie recently tweeted: “Any time you ever want to see what Dropbox will do next, look for what we did 3-5 years ago.”

But Dropbox believes that the more successful company will require bottom-up support.

“Adoption is key,” van der Linden says. “There’s a bit of a rat-race in security features. We try to balance ease of use with highest performance and security.”

That’s presumably another oblique dig at Box which could be said to have marketed itself with the formula ‘Dropbox + Enterprise-grade Security’.

Box, we know since it trades on the New York Stock Exchange, had over $73m in revenue for its last calendar quarter, up 43% annually. However, as this article was being drafted market sentiment over Box was down and shares were trading near the company’s 52-week low, giving a market cap in the $1.5bn range. That (and myriad other factors of course) could mean that Dropbox takes its own sweet time before attempting its own share flotation: the company’s CEO Houston said in September this year that there were no immediate IPO plans.

Ultimately, van der Linden says, there is room for both in the market.

 

Just getting started

Van der Linden harks back to that vaunted scale which, he says, gives Dropbox a unique platform for external as well as internal collaboration. And while the focus on paying businesses is clear, he says he is aware of no plans to rein in the number of freebie accounts to save storage costs.

These are still early days in the race to lead the way in sync/share/collaborate services and it’s important to remember that Dropbox is only eight years old and has only had a business offering for two-and-a-half years. But both the xBoxes, Dropbox and Box (founded two years earlier), have at least avoided the race to the bottom that is focusing on online storage and both clearly have enormous ambition. And Dropbox might even have done enough to disprove Steve Jobs’ famous suggestion when he wanted to buy the company, that it is a feature rather than a product.

Momentum is “as strong as ever” van der Linden says without disclosing Dropbox revenues, and he believes that his company’s architecture is strong – for example, under-the-hood work on synchronisation so that only changes to files need to be updated, thus improving performance. And of course that big installed base and attractive user interface will help it to prosper, he claims.

He calls Dropbox the “clear leader” in the sector but again the numbers and points of valid comparison are opaque; there is surely plenty of scope for change and jockeying of position in a market that is morphing and where the vast majority of users currently don’t pay. Many IT departments are only now coming to terms with “shadow IT” and the whitelisting/blacklisting of services. Deeper integrations and alliances with platform players could also be big. Data sovereignty is still in play, and any major data breach on one of the sharing platforms could lead to trouble. Also, verticals have not yet made any of the category leaders de facto.

But the signs for Dropbox are interesting and augur well. A strong US business software company might well be pleased with 40% of its business coming from outside its domestic market. Dropbox has 70% of its users located outside the US. Partnerships with the likes of Hewlett Packard Enterprise and Ingram Micro might help it gain traction and as more organisations such as publishers (a Dropbox stronghold) build workflows around its service, the company can cement itself into big deals and processes that persist for decades.

The market is wide open and it’s likely that what happens in the coming years will become the stuff of business management case studies. Dropbox remains a company that is closely scrutinised; its true value is still open to interpretation but then that’s a situation that Google, Amazon and many others have gone through (and continue to face at times). What’s clear is that Dropbox in a relatively short period of time has made itself a part of quotidian online life. But there are many more opportunities and challenges ahead: how much further can it go? 

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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