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Dropbox case.pdf - Dropbox Dropbox provided remote-storage...

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DropboxDropbox provided remote-storage over the internet, also known as cloud storage, of any type ofcomputer file. The name of the company came from the idea that their cloud storage service would allowusers to drop files into a folder that could be accessed anywhere using the internet. This enabled filesharing, synchronization and backup. In six years, Dropbox had grown into a business with 200 millionusers saving more than a billion files per day, outpacing internet giants such as Amazon, Google, andMicrosoft. Using a freemium pricing strategy whereby a basic service was free- of-charge and premiumservices were paid, Dropbox’s user base was still growing quickly. But onlyan estimated 1.6 to 4.0% ofits users provided any revenue to the company. Going forward, could Dropbox, an internet companywith only a few hundred employees and one product offered to businesses and consumers, compete inthe cloud storage space? If so, how? And should Dropbox continue with its freemium pricing or not?The Cloud Storage IndustryIn 2007, a major market research firm predicted that“theworldwide market for online backup serviceswould grow to $715 million by 2011.”1This prediction greatly underestimated the size of this market. By2011 the cloud storage industry was already estimated to be worth $4 billion.2In these four years, themarket for cloud storage grew seventeen-fold. Fine-tuning their expectations, in 2013 market analystspredicted that the global cloud storage market would expand at a compound annual growth rate of 40% inthe next five years, reaching more than $46 billion by 2018.3By 2013 Dropbox faced greater competition than ever before as the heavy hitters of the Internet beganvying for a piece of the fast-growing cloud storage market. Despite having experimented with earlierremote storage services, it was between 2007 and 2012 that Microsoft, Apple, and Google introducedcompetitive offerings in cloud storage services. Microsoft with its SkyDrive was an early entrant, havingstarted in 2007, and had more than 250 million users by May 2013.4Apple released iCloud in 2011,5pre-programming it inside consumer hardware such as iPhones, iPads, and laptops. Using this approach,Apple quickly gained300 million users for iCloud.6Google released Google Drive in 2012, and packagedit with its pre-existing email service, Gmail. In a direct competitive move against Dropbox, Google madesure to offer more free storage in its Google Drive. (SeeExhibit 1for a comparison of cloud storageservices in 2012.)
However, signing up users did not mean that they would routinely use the service. For example,SkyDrive’s high number of users was a result of forced-bundling with other online services thatMicrosoft provided. Online services such as Outlook and Office 365, the cloud version of Microsoft Office,required new users to sign up for a SkyDrive account. (SeeExhibit 2for the actual share-of- usage in2012.) The downside for users was that, unlike Dropbox, which was available for Windows, Mac, andLinux users, SkyDrive had been limited to a single operating system until recently.

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