Dropbox – Here to stay?

Four years ago on a bus, after realizing he left his USB stick in his dorm, Drew Houston realized that he was too dependent on a device. He went onto co-found Dropbox, the web-based file hosting service, that now claims 45 million users, a billion new files each day, and revenue that is expected to exceed $240 million. Dropbox went from an undergraduate idea funded by Y Combinator, to rejecting a 9-figure offer by Apple, and now finds itself on the cover of the latest issue of Forbes, and in midst of a fight for technology’s most desired prize: the Cloud.

How did this happen?

Whilst Drew Houston’s idea was hardly revolutionary at the time, Dropbox’s rise is unprecedented. This is reflected in the company’s structure. Most of the 70 employees are engineers, and, instead of hiring PR specialists, Dropbox focused on word of mouth marketing. Houston attributes both factors to having learned that “best practice is not necessarily best practice”.

Simplicity is the key

Surfing the web and using devices to store data have become daily routines for most of us. Emails have dominated corporate culture since the mid-90s, yet we still haven’t figured out an effective and simple way to store and send files. Simplicity was perhaps the key reason Jobs believed that an acquisition of Dropbox would be a “strategic asset”, and it has certainly been the reason for its success. It is extremely simple to get to grips with. After you install the application a blue box appears, in which you can drag files into. These are then replicated across all your devices. It’s so easy that Houston summarizes the concept in a 4 minute clip, whilst adding inside jokes a plenty (http://www.youtube.com/watch?v=7QmCUDHpNzE). The name of course sums up the process, and therefore the company, perfectly. Along with the minimalistic website it echoes Job’s “focus and simplicity” mantra.

Dropbox is centered around an idea – an idea that can make life for anyone storing files on several devices much simpler. It shifts the focus from the device to the content. Now, it doesn’t matter whether you forget your USB stick before boarding a bus or you leave your Exam notes on the kitchen table.

Share thy files

Besides simplicity, there is another explanation for Dropbox’s success: it allows for files to be shared with other users. Virtually anything can be shared from individual files to whole folders to HD movies (if you pay up for the extra space). This has made Dropbox a hit across campuses, in offices and with the authors of this blog. as it allows for the seamless co-editing of documents. Add to that that Dropbox works on all major platforms (including the mobile OS systems), and it has a massive competitive edge over the likes of Amazon's Cloud Drive, Microsoft's Sky Drive or Apple's iCloud. On the other hand, it faces fierce competition from other success-hungry startups such as Box.net or SugarSync, which are busy marketing their file sharing capabilities. Although Dropbox still boasts more VC funding attention than any of its young rivals, it's not the new(est) kid on the kid trying to claim the collaborative cloud.

Housing problems

Perhaps Dropbox’s biggest cause for fear is also the main problem many cloud startups face - the cost of infrastructure. Data centers are expensive (Apple recently shelled out $1billion to build its newest one), and companies such as Dropbox can't afford to build their own. In light of this, Dropbox teamed up with Amazon to use its hosting spaces, but Bezos' online empire launched the Amazon Cloud Drive at the end of March. This highlights a big problem for Dropbox: its competitors, whether Amazon, Google or Oracle, have far greater economies of scale, and can therefore deliver similar services at lower internal costs. Dropbox can either charge higher fees, which risk putting users off, or run on lower profit margins, which does not bode well with investors.

The bottom line

Dropbox’s meteoric success is explained by designing a straightforward solution to a problem that is as old as the internet: How can I best access and share my files from any device. By rejecting a series of possible buyouts, Houston again signalized his intent to build “a big company” (as he explained to Jobs back in 2009). However, to do so it must compete with the web’s big players. Dropbox being smaller and (especially internationally) far less well-known, makes this no easy feat. Whilst it teamed up with HTC last week, hoping to capture the Cloud in the Android world, it now has to compete with Google Storage, run by Android’s parent company. Furthermore, Google is rumored to be introducing Google Drive, a storage device which is free AND gives users twice the space of Dropbox.

Dropbox illustrates the current situation of the software industry well: it's effectively run by an oligopoly that provides a full range of services, from operating systems, to email accounts to IaaS-based storage. Dropbox has managed to break into this exclusive circle. However, to remain in it, it will have to innovate beyond the “focus and simplicity” mantra, raise its profile, and find a way to make up for its far smaller economies of scale.

Better, not newer

Steve Jobs returned to Apple to make it a better company, and when he left, Apple had perfected making other things better. We traced the lineage of some of Apple's most revered products - the iPod, iPhone and iPad - and reached a few interesting conclusions on how innovation may not be the golden ticket in hi-tech after all.

Improving the world

Jobs' first acclaimed success as the CEO was the creation of iPod. The device wasn't groundbreaking as a concept – it was a yet another portable music player, and these were popular since Audio Highway launched its Listen Up player in 1996. However, the iPod had better looks and more user-friendly software than most of its competitors. In a few years it became a best selling mp3, outpacing early market leaders such as Sony or Creative. By 2007 it captured over 70% of the global mp3 player market!

Although Apple did not invent the mp3 player, it definitely showed the world what one should look like. Every year it released an updated version of the gadget, making it ever more user friendly. It wasn't afraid of bold moves either. When in 2007 many argued that the classic iPod look was the key to the device's continuous success, Apple unveiled the iPod Touch – a gizmo looking nothing like the original iPod, and sporting a tiny memory disk on top of that. It obviously was a success.

2007 saw the rise of another genius gadget, that is iPhone. Its story was similar to that of the iPod: the smartphone market was booming, yet iPhone sales were almost instantly higher than that of anyone else in the market. Apple won once again by putting the customer first. Its was the first smartphone with quality touch screen, fast browser, and reliable WiFi port. Since then the iPhone has become the most profitable smartphone in the world, with a dozen of large mobile phone manufacturers trying to repeat its success with their own products.

Spotting the moment

Apple isn't just good at making gizmos appealing to the masses. It can also spot flawlessly what the consumer wants, and this is perhaps best represented by the iPad's success. Tablet computers is an old concept: Microsoft's Tablet PC was launched in 2002, but it never achieved any considerable success. In the early 2000s large, powerful laptops dominated the consumer market, yet this began to change as processors became smaller (making it easier to equip a thin tablet with a powerful engine), and people started to store files in the cloud instead of cluttering their terabyte-sized hard drives.

tablet sales, $bn

Apple iPad came out in 2010 and instantly became much more than just another hit gadget: it redefined the tablet market, driving sales in that segment sky high. Months after the iPad launch, Apple's competitors released over 80 gadgets made to compete with Jobs' new darling. However, the iPad makers didn't wait until the others caught up, and designed an updated device which lacked some of the biggest flaws of its predecessor. Currently iPads dominate around 70% of the tablet market.

The bottom line

What other companies could learn from the Cupertino-based prodigy? First of all, despite every MBA curriculum begging to differ, innovation does not necessarily guarantee success.  Few remember that it was Ericsson that made the first smartphone. It might be a better idea to come into the market slightly later, when its possible to identify the areas yearning for improvement, or the changing consumer demands.

Also, a genuine consumer-centrism is crucial. Everybody claims to put users first, but few companies do it as well as Apple. At the iCorp, everything from the design down to the icon layout is made to be appealing and friendly, and it does the trick. Jobs' products might be showy and his software inflexible, but few other companies managed to inspire an equally impressive following. Profit is always the bottom line, and Apple is remarkably good at achieving it.