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Global Entrepreneurship

Dropbox – It just works


Key elements of Dropbox’s
business model
Customer value proposition I
• What is the customer problem that Dropbox was trying solve?

• Integrate three file management capabilities

Customers’ problem Carbonite Microsoft

Backup

Sharing

Synchronization
Customer value proposition II
• How did the competitive landscape look like?

• How did Dropbox differentiate itself?


• Easy-to-use.
• Speedy service
• Extremely reliable.
Customer value proposition III
• Who did Dropbox target and why?

Type of users
Individuals Businesses

Mainstream
Users’ competence
Advanced

• Keep service simple and easy to use to grow the user base very fast.
Customer value proposition IV
• What was Dropbox charging its customers?
Subscription price

Dropbox $10/month for 50GB

Mozy $5/month for unlimited space

Carbonite $55/year for unlimited space

• Is the premium pricing warranted?


Activity systems
• Datacenter design
• Purchase services from Amazon S3.
• Scales very efficiently

• Use the services of a potential competitor.

• Intellectual property
• Ability to seamlessly work with multiple OS platforms.
Go-to-market plan
Growth in customer base
• Reliance on viral marketing. 5 (Mn)
• 35% of new users originate from referrrals. 4

• 20% through shared folders.


3
2

• A portion of the rest through word-of-mouth. 1


0
Jun-09 Apr-10

• Avoid corporate gatekeepers.

• Target individuals to promote business use also.


Revenue model-Freemium
Individual(Basic) Individual(Plus) Dropbox business

Number of users 1 1 3+

Base price ($USD/user) Free $9.99 pm/$99 pa $15 pm/$150 pa

Storage 2 GB 1 TB 2 TB

Advanced sharing permissions No Yes Yes

Version history 30 days 30 days 120 days

Smart Sync Yes

Team folders Yes

Support Basic email support Priority email support Live chat support
Questions to consider in a Freemium model
• What features are for free?
• Do customers understand the premium offer?
• What is the target conversion rate?
• percentage of users who upgraded to the premium product
• What challenges await at various stages of the conversion life cycle?
• Are users helping you in spreading the word?
• Free users are worth as much as 25% of paid users because of the referrals
they generate.
Customer acquisition costs
• Dropbox almost spent nothing on marketing.

• Free users generate referrals and folder sharing.

• How many paid users are supporting free users (Free/paid ratio)?
Cash flow needs
• Asset intensity
• Using Amazon’s S3 reduced the need for upfront capital.

• Working capital
• Subscription model provides cash upfront.
Profitability estimates
Revenue estimates
Revenue

Monthly Subscriber base Conversion rate


subscription price
Revenue estimates
Variable Costs

Free users Paid users

# of Free users # of Paid users

Cost of serving Cost of serving


Breakeven analysis
• Fixed costs
• Salary and office overhead
• 25 employees
• $150,000 per employee

• Contribution per paid customer per month: $6.82


Conversion rate Paid subscribers required to break even
1%
2.5%
4%
Life time value of a subscriber
LTV

Life time revenue Acquisition costs

Life time 1/attrition rate Life time

Free/Paid ratio
Value per 1 2 3 4 5 Cost of
year 81.8 81.8 81.8 81.8 81.8 Cost of serving acquisition
free customers
How did Dropbox’s model differ from it Y-
combinatory application?
• Search engine marketing
• Cost of customer acquisition.

• Business development deals with corporates


• Slow decision making of corporate clients.

• “Pivot” to viral marketing.

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