PREPARATION QUESTIONS – DROP BOX: “It Just Works” 1) Dropbox is a late mover in a crowded space. What opportunity did Houston see? Specifically, what are the key elements of Dropbox’s current business model? Dropbox was a later mover in File hosting service, but it created a niche space through which it increased its market share. All other File hosting never had an option of fast and fluent synchronization service. Drew Houston therefore had the team to develop prototype, which allowed instantly synchronization for files of any type or size. They later further clarified their focus on ease-of use and reliability. Dropbox targeted the mass customers, then targeting the early adopters. They increased their presence based on the referral program in which the user had to have Dropbox if he had to download the file. Based on its past experience, this method is more effective than other kinds of advertisement. In addition, one of their niches is that users can share files and works across multiple PC platforms. They also utilize the demand of people to share files with friends to spread the product information and used Amazon’s storage service to eliminate need for huge infrastructure. Value proposition a) Auto Synchronization service b) Back of data through online c) Document backup on system. Target customers Professions working in IT industry
2) Is Dropbox profitable as of June 2010? Are you optimistic about its prospects? How does your estimate of Dropbox’s current profitability influence your evaluation of the venture’s prospects? The estimated revenue of Dropbox was between 10 million to 15 million USD. As per April 2010 the number of users who registered for Dropbox is 4 million For per paid user space it was offered for 3.18 USD and for the free users it is around 0.11 USD.
The average data stored free users capacity 433 MB at storage price 0.11 $ and paying users capacity 25 GB at storage price 3.18 $. 40, 00,000*2%=80,000 and 40, 00,000*3%=1, 20,000, so considering average we get 1, 00,000 INR. Revenue was approximately 10 million to 15 million thus considering the average we get 12.5 million. Revenue per customer 12,500,000/1, 00,000=125 USD revenue per customer Number of free customers 40,00,000-1,00,000= 39,00,000, Cost for free users 39,00,000*0.11=4,29,000 and for paid users 1,00,000*3.18= 3,18,000 cost for paid users. Overall cost= 4, 29,000+3, 18,000= 7, 47,000 USD. Net income 1, 25, 00,000-7, 47,000=1, 17, 53,000
3) When he applied to Y combinatory, what hypothesis did Houston hold about the key elements of Dropbox’s business model? As of June 2010, which of these hypotheses have been confirmed, and which have been discarded? What is your assessment of the approach Houston used to test his hypotheses? Did he make time/resources or make notable mistakes? Can you imagine better ways to test key hypothesis? As discussed previously the main aspect of the Dropbox business model is the ease of using the product. Compared to the other product Dropbox had a superior advantage, since there was already many competitors in same space. Dropbox worked automatically and dealt with complex operations in a simple way.
Targeting the right customers was another master stroke by Dropbox, refer a friend which was almost 35% signup of new customers. Another key element was the release of a single version for all users, targeted specifically at individuals. This allowed the company to expand by a “Trojan horse” strategy of targeting users to then enter into the B2B market automatically. This strategy could also have been supported by AdWords and partnerships with big distribution channels.
The revenue generation of Dropbox was totally based on the freemium model, customers can use the basic service for free and later on they can upgrade for a fee. There are Pro plans which come with larger storage space for 9.99 USD which is around 120 USD a year.
4) Imagine that at the time Dropbox was founded, Google decided to target the same opportunity that Houston had identified. How would Google’s approach to G-Drive have been different from the approach that the Dropbox team followed? Google came up with similar kind of strategy, which offered free storage space but in case of premium Google offered at a completive price than Drop box. For example customer who has 100GB plan with Google and Drop box, customer used to pay 1.99 $ a month compared to 9.99 $ a month for Dropbox. This is best way to compete with Dropbox, with lower price customer would tend to use the lower price based product for the same kind of service Google has both the capital and the design team which can disrupt the Dropbox business model. Google could have increased the free data space and with their superior design team and market share they can come up with new features which similar to how Dropbox had created. But Dropbox came with an aggressive strategy of giving 1 TB space for 10$ because now price is factor which would attract the customers.
5) What should Houston do about have separate version for SMB businesses? What approach should be use? Houston should concentrate on the existing business model, rather that experimenting with the separate version for SMB business. Since already Dropbox has a very good existing customer base and the number of customer are around 4 million by end of April 2010.
