Don't Drop the Box, Dropbox

Not long ago, cloud storage was extremely expensive to purchase. There was Dropbox at first, but Google, Microsoft, and then Apple soon offered cloud storage. Other smaller cloud storage services like Box exist too, but I won't focus on them in this post (I think they're just waiting to be acquired, and simply offering cloud storage isn't a viable business model). 

So that leaves Dropbox, which is not in a good place right now. Cloud storage has become a commodity; it's already offered for free in small storage amounts (around 30GB is given for free), and I expect unlimited cloud storage will be provided for free within the next few years from huge tech giants (Google, Microsoft, Apple, Amazon) which can subsidize it through their other revenue generators. Amazon already offers unlimited cloud storage for photo's for Prime subscribers, free of charge. Similarly, Microsoft offers unlimited OneDrive storage for Office 365 subscribers. Apple is slow to catch up here, but they will undoubtedly offer unlimited cloud storage too (they likely don't have the infrastructure to do so currently, but it's being built). The data centers are a fixed cost investment, and once they are built it costs very little to provide the additional users with cloud storage. And since these tech giants make money through their other services, they can afford to subsidize cloud storage, and tout it as an additional feature. Dropbox can't afford to do so, since cloud storage is their main money maker. 

Although I believe Dropbox's management knows that cloud storage isn't a sustainable business by itself, they haven't done enough to differentiate themselves. When broken down, Dropbox the company is three distinct products: Dropbox cloud storage, Mailbox, and Carousel. Dropbox purchased Mailbox in 2013, and launched its photo service Carousel in 2014, but in terms of products, that is all they've got. In most recent news, Dropbox also partnered with Microsoft, allowing Microsoft Office users to access the Dropbox directly from the apps. Here's my breakdown of those three Dropbox products:

Dropbox the service is unquestionably the best cloud storage provider - it's beautifully designed, cross-platform, fast, and extremely stable. But it's also the most expensive option, and great design will not convince users to pay when they can get a slightly worse designed cloud storage service for free.

Mailbox is a Gmail client, and how Dropbox plans to monetize this product is unclear. They can put ads into the app, but its been over a year since the acquisition, and no ads have been added yet. Of course, it can simply be a value-add for Dropbox subscribers, but it's currently offered even to free users.

The last product under the Dropbox umbrella is Carousel, which is also their least successful product. It's a glorified photo viewer that integrates with your Dropbox account. Again, nobody would pay extra for this when free options exist that are not much worse.

None of these things scream sustainable businesses. For people to pay for Dropbox, it must add considerably more value to them than competitor services. At the moment, this is not even close to being true.

That leaves Dropbox with a few, difficult options.

1) Sell Itself. Steve Jobs infamously called Dropbox a feature, not a product, when in negotiations to purchase it. While it looked for a little while that he was dead wrong, as soon as cloud storage became a commodity, Steve's quote seemed to ring true, and it certainly rings true today. Dropbox could easily find a purchaser today, and cash in for a few billion dollars. I would put their value at around $2B, but more speculative investors value it much higher. Google, Microsoft, and Apple would definitely be interested in such a purchase, if only for the design and engineering talent. 

2) Go Public. This can be a terrible option, as Twitter is currently learning. Going public would infuse Dropbox with a lot of cash, which it could use to hire more people and develop a larger portfolio of products. But I doubt that would give them a new business model and ways to become profitable 

3) Release More Products. This is easier said than done. In essence, what I'm saying here is that Dropbox should create entirely new products that may generate them revenues for sustainable growth. They tried with the acquisition of Mailbox and the creation of Carousel, but both of those products generate no revenue (goodwill, maybe, revenue, no) and function as slight supplements to Dropbox the service.

Dropbox is one of my favorite companies, which is why I want them to start thinking of how they will differentiate themselves. Currently, their future looks bleak. It would be a shame if they were acquired, but that looks like their best and most lucrative option.