Last Thursday, after waking up to the news of Dropbox’s most recent announcements,1 I couldn’t have been less impressed. To quote myself from a chat I had with a friend: “Dropbox is an unfocused mess.” But then I actually watched the event.
I’ve long been a believer in cloud storage; back in college I experimented with storing files on shared hosting (and accessing them via FTP!), and was a day one subscriber of Amazon S3. I couldn’t have been more excited when Dropbox was launched in 2008, and not only moved my personal files to it but also used it to build a syncing system for a computer-based teaching system I had developed.2 At business school I would conservatively say I was responsible for 50 new Dropbox customers, and I’ve had the 100GB plan ever since it was available. As a consumer, I’m a fan.
The entire premise of this blog, though, is to take off the consumer product-focused hat, and instead look at the larger strategic picture and business fundamentals. On the first point, I’ve long been and remain very bullish about cloud storage as a business. Forgive the stretched analogy, but in a lot of ways cloud storage is to the enterprise as messaging, the other emerging category I’ve followed with interest, is to consumers.
- Messaging targets what is most important to consumers: their communication with their friends and family (in many ways it is our connections that define us). Corporations, though, are defined by the sum of people, processes, and priorities, represented as data.3 This makes storage of that data equally indispensible.
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Because they are the locus of what matters to our “real” life, messaging apps are a tremendous platform for all types of value-added services, ranging from stickers to better express ourselves, to shared entertainment (with oh-so-alluring in-app purchases), to an easy way to manage the day-to-day friction of life, from taxis to dining to buying something special.4 Similary, because cloud storage contains the data that for all intents and purposes is a corporation, it too is a fantastic platform opportunity for all types of value-added services, including specialized applications, appliances, and other cloud services.5
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From a product perspective, both messaging and cloud apps are relatively simple and on their way to being commoditized. There are high double-digit messaging services with more than 10 million users, and all of the major tech players are driving the cost of cloud storage to zero. This means that differentiation will not be achieved through technical acumen alone.
This final point has, at least until the last few months, led many to dismiss both messaging and cloud services from a business perspective. However, what more and more people are realizing is that both deal in incredible scarce resources: attention, in the case of messaging, and perfectly unique data6 in the case of cloud storage.
You’ll note, of course, that I explicitly talked about storage in the context of the enterprise; the problem for Dropbox is that while they have a fantastic consumer product, they have traditionally not focused on businesses, the main category that has demonstrated a willingness-to-pay. As I wrote in Battle of the Box:
Dropbox’s model makes sense theoretically, but it ignores the messy reality of actually making money. After all, notably absent from my piece on Business Models for 2014 was consumer software-as-a-service. I’m increasingly convinced that, outside of in-app game purchases, consumers are unwilling to spend money on intangible software. That is likely why Dropbox has spent much of the last year pivoting away from consumers to the enterprise.
To that point, Dropbox held an event last November to announce their new Dropbox for Business. Last Thursday I actually watched the video of this event (thinking it was last week’s event), and it couldn’t have been a more dreary affair: Drew Houston interminably telling (again) the story of Dropbox’s founding, followed by an awkward segue into the introduction of basic business features that only scratched the surface of what enterprises truly need in a cloud storage solution.
The beginning part of this week’s event wasn’t much better. An uninspired rehash of Dropbox for Business and a recreation of functionality Sharepoint has had for years were, for the business model side of me, all that mattered, and they were nice, but nice doesn’t get you far. Not helping matters was the Mailbox demo: while Auto Swipe was very cool, Mailbox isn’t even close to being a real enterprise solution (it was telling that Mailbox for Desktop was demoed on a Mac7). Mailbox, at least, fits my initial reaction: a distraction.
But then came Carousel.
First, off, let me clear: Carousel looks amazing. But what was far more impressive, and telling in my mind, was the way in which Houston talked about the problem Carousel was meant to solve. You could feel his angst at the millions of photos we collectively are losing for lack of management, and his giddiness at what they had come up with. And, this is where I take off my business and strategy hat and speak with my heart: it was genuinely touching, and inspirational.
Touching and inspirational, unfortunately, don’t get you far in the enterprise; touching and inspirational, though, matter more than anything in the consumer space. Last week’s event made this eminently clear: Dropbox’s soul is that of a consumer company,8 not an enterprise one. And that matters.
From a purely objective business-minded basis, Dropbox is not only right to pivot to the enterprise, but are in fact wasting their time with products like Carousel. However, as I’ve written previously, it’s better to change your strategy than to try and change your culture. Business is not a game played by robots; it’s about real people building products that they believe in, and this presentation has completely changed my mind: Dropbox should build products for consumers, with just enough business icing to let IT look the other way.
The rub, as I noted, is that it is difficult to see how Dropbox earns its $10 billion valuation while competing head-on with Google and Microsoft, whose business models entail driving the cost of storage to zero. It’s clear Dropbox has long seen photos as a potential lever, going so far as to degrade the user experience of their apps with constant badgering to automatically import your photos (and thus push you past your free 2GB allotment). Carousel is a much better effort in this regard; storage will be free unless it is differentiated, and Carousel does just that.
Product alone, though, does not win in the consumer space; marketing is equally if not more important, and Dropbox does not have the most inspiring history in that regard.9 I actually think this presentation was a good start, although the video promoting Carousel was far more compelling in the context of the presentation than it was when I watched it in isolation. The issue, though, is that marketing takes significant investment, both in talent and in resources, yet Dropbox is funneling most of their money into the aforementioned business product.
My initial worry for Dropbox, then, still stands. I don’t think you can be both an enterprise and a consumer company, particularly in a space as competitive as cloud storage. Dropbox needs to pick a direction and go all out, and, in this case (and in opposition to where I stood a week ago), it appears they have gone with their heart.
I’m based in Taiwan, 15 hours ahead of San Francisco ↩
Probably not the best idea, considering it was still in beta, but Dropbox, along with a bit of AppleScript, continues to do the job perfectly ↩
The three P’s reference is from Asymco ↩
For more on messaging, see Messaging: Mobile’s Killer App ↩
For more on cloud storage and platforms, see Box, Microsoft, and the Next Enterprise Platform ↩
My data is irreplaceable, even as data in a general sense is a commodity ↩
Not to mention the fact that only Mac’s have a good-enough trackpad for Mailbox’s gestures; I have yet to use a decent trackpad on Windows, and I’ve used a lot of Windows computers ↩
Steve Jobs should have paid whatever it took to acquire Dropbox in 2011; it’s a nearly perfect match. Consumer at the core, like Apple, with expertise in Apple’s biggest product weakness. ↩
Two things about that post:
- I actually wrote that on another blog, which I imported to Stratechery to flesh it out at the beginning
- While I stand by my criticism about syncing laptops and desktops, clearly sync is critical when it comes to “computers,” which, of course, includes phones and tablets ↩