Dropbox is viewed by Houston as a promising player in a crowded market. Their strategy focuses on creating a user-centric product that enables easy file syncing and sharing across multiple computers through online platforms. Users can easily download the service on any computer to synchronize their accounts and automatically update their files.
Dropbox’s business model
Value proposition
- Allowed creation of easy to use cloud drive.
- Keeps track of older version of files.
- Performs automatic backup of online data. Target Customers
- Users with multiple PC’s or handheld devices who wanted to access the data across systems.
Revenue Model
- Free for the first 2 GB and payable thereafter. Core Competency
- The founders and engineers were all competent enough to develop code. Marketing
- Viral marketing
- Word of mouth spread Partner Network
- Used Amazon’s storage service to eliminate need for huge infrastructure.
Is DropBox profitable as of June 2010
During the mid-2010, Dropbox’s estimated revenue ranged from $10 million to $15 million.
By mid-2010, Dropbox had around 3 million users and generated revenues of $10 million to $15 million. They imposed a fee of $0.11 per free user and $3.18 per paid user in return for storage space.
User Type| Charge for service| No. of customers| Revenue from each source| Cost/ user| Total Cost/user type|
2GB| $0 | 2925000| 0| $0. 11 | $321,750. 00 |
100 GB| $10 | 45000| 449550| $3. 18 | $143,100. 00 |
200 GB| $20 | 30000| 599700| $3. 18 | $95,400. 00 |
Monthly: 3000000 | 1049250 | $560,250.00 | Yearly: 12591000 | $6,723,000.00
The company is profitable with an amount of $5,868,000 left for salary and other expenses (loan repayment).
- Current crop of users were individual customers.
- Can leverage on the brand equity and approach group users such as institutional, corporate etc.
Hypothesis that Houston used
The hypotheses that were confirmed are as follows:
- assumed that acquiring small and medium customers won’t be profitable.
- They used a freemium based model to generate revenues.
- His main expense was to attract customers through paid advertising
- incorporated the security and antivirus software’s to provide built in applications for dropbox in partnerships with the OEMs. . He assumed that customer loyalty will play a major role in developing the business.
The hypotheses that were discarded are:
- His assumption was dropbox model cannot be replaced because of complex design criteria but Google and many other big giants reproduced the same type of model.
- He assumed that he could generate a version in 8 weeks, whereas he took 18 months to develop it.
The different approaches between Google and Dropbox in pursuing “G-Drive” can be outlined as follows:
- As Google was an established brand hence it could have modified their products as per the customer requirements whereas drop box was a new entrant in the market and it would take them subsequent years to target the segments.
- Owing to its reach throughout the world, it would have targeted a much larger customer base (such as cross-country etc. which would have a significantly higher potential compared to the one estimated by the consultancy companies
- Google was an established brand in the market and it took dropbox years to develop its brand in the market.
- They could have used their own data storage systems with regard to AS3 which was used by dropbox without depending on any 3rd party enterprise.
- Google had a excellent IT infrastructure than that of dropbox which offered a simple product with regular features.
The decision posted at the end of the case about creating a separate version for small and medium-sized business customers presents a question for Houston: what should be done? Furthermore, what process should he follow in order to make this decision? In terms of targeting SMB, there are considerations to take into account.
- Modify the products as per needs and wants
- A product diversification strategy.
In order to support his decision,
- Conduct periodic surveys for proper feedback.
- Design copyright measures to avoid replication of his model.
- Analyze the different competitive products offered. And customization of his product to suit the needs.
- Ensure that feedback is taken care of properly
- He should also generate prevention measures against replication of his product
