Dropbox Case Study

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Problem Statement

Dropbox is a downloadable app that allows users to share, sync and store files and have access to those files both from their personal computers as from their smartphones. It was founded in April 2007 by Drew Houston, the current CEO of the company, and by Arash Ferdowsi, the current chief technology officer. Dropbox was launched to the public in September 2008.

Houston got the idea for Dropbox while waiting for a bus in 2006, he was frustrated since he forgot his USB drive that he needed in order to work on a programming project for Bit9 (an enterprise security software company where he worked at). He then realized how useful would be to have a service that synchronized and shared files between personal computers using the Internet. Houston and Ferdowsi spent four months coding Dropbox’s prototype. Since Houston had worked on the software security business before, they decided that Dropbox’s main target would be individual user, both consumers and business users. The strategy was to get people using it inside companies without needing the IT’s permission and, after that, IT would realize how demanded Dropbox was and would certified it for use inside the company systems.

When Dropbox entered the market it faced a fierce competition from online backup products and storage service space. By late 2006, there were a lot of new offerings in the market and, in July 2007, there were more than 80 online backup and storage services such as Box.net and Mozy available in the market. However Houston was confident in his project mainly because the experience that users got from the competition services had some flaws: it often failed to transfer data across firewalls and balked with big files or with a large number of files. By storing files locally and updating the cloud copy in the background using some time and bandwidth saving optimizations, Houston figured out how to solve these problems, which became one of Dropbox’s competitive advantages. Dropbox used Amazon’s Simple Storage Service cloud to provide their own service, having no need for infrastructures nor investment, and it positioned the company to scale very quickly.

In order to launch the prototype, Houston created a three-minute screencast of a product demo, upload it to an online forum for developers (Hacker News) and use it to recruit beta users and to get feedback on features. The posting of the video also had another objective. It aimed at establishing a connection with Paul Graham the founder of both Hacker News and Y Combinator (an incubator program for start-ups). He managed to do so and Dropbox received $15000 in funding from this company. In March 2008, they launched another demo video and uploaded it on Digg. The video got hundreds of thousands of views and the list for Dropbox’s private beta went from 5000 to 75000 names overnight.

After launching Dropbox, Houston focus went back to product development, so he hired six engineers from IMT. These hires were crucial for setting the company’s mind-set – quality and hard work. His next step was to create a marketing plan. Dropbox first attempted to acquire customers through paid search advertising but that wasn’t economically suitable nor a viable long-term option. Houston realized that having a freemium business, marketing messages and pricing would be crucial so he invested 30% of engineering resources to the optimization of this areas. The service grew rapidly, reaching 200000 users 10 days after launch and 1 million users by June 2009 and, in October 2009 (one month after launching the iPhone app), it reached 2 million users. The majority of users were acquired through online marketing and word-of-mouth referrals from loyal users who appreciated the ease-of-use and reliability offered and encouraged friends to try it out. Houston always wanted to know how the consumer was perceiving the product so, besides tracking support forums, the company launched Votebox that allowed users to comment on the app features. Dropbox’s team continuously upgraded their product, often in response to some of the users’ feedback. The company reached this scale by offering a single product version both to the general consumer as to the business users. However, users were constantly requesting new features, many of which were against the company’s ideal of a simple and easy-to-use product.

Although Ferdowsi disregard for the idea of a partnership, Houston still tried to follow this strategy but he ended up abandoning the idea. In May 2010, when Dropbox was already well known he moved back in this direction and announced a mobile application programming interface that allowed a third-party software developer to access users’ files. Partnership opportunities came also from PC and smartphone manufacturers that suggested to pre-install Dropbox on their devices.

Dropbox remained distinct in offering the ability to sync files across devices and to share files through public and private folders unlike some of their main competitors, Mozy and Carbonite, which were limited to automatic backup and remote file access. Although having some distinct features, consumers ranked Dropbox’s competitors higher than Dropbox itself.

In June 2010, Dropbox was performing quite well, they had plenty of cash, activations were increasing and the company freemium business model (they offered both a free and a premium version) was working well. However, Houston had a major question in mind, whether to continue its strategy of offering a single product for all users or to create two different products, a version for the general costumer and a more professional one to the business users.

Situational Analysis

Company

The company goals and objectives include providing the customer with the freedom of access to his own information and data from any computer or device, through a service that synchronizes and shares files between devices over the internet, eliminating the need of having a physical device that could be easily forgotten, lost or damaged.

The culture, which the company characterizes itself with, is “the obsession with quality and taking pride in creating something “good”.”

• Drew Houston

The competitive advantages of the company are its focus on Ease-of-use, the distinct synchronization ability given that it is automatic, it still works offline, is windows integrated, subversion, trac, rsync. In addition, contrary to what its competitors did, Dropbox didn’t fail transferring data across firewalls neither balked with big files or large number of files - since this was resolved with storing files locally and updating the cloud copy in the background using a number of time and bandwidth saving optimizations.