What's your business model?

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How does Dropbox make money?

As competition ramps up, Dropbox's hockeystick growth may be slowing down...

Innovation series by Faith Merino
January 23, 2014 | Comments
Short URL: http://vator.tv/n/348f

Seven-year-old Dropbox has become one of Silicon Valley’s favorite children. (Sure, Silicon Valley says it doesn’t have favorites, but we all know it does.) And it has joined the rank of Silicon Valley darlings like Square and Airbnb that are worth multiple billions of dollars.

Earlier this week, Bloomberg reported that Dropbox has raised a round of funding from BlackRock and other investors at a valuation of $10 billion. That’s after much speculation last fall that the company was raising a round at a valuation of $8 billion. 

The company is said to have about 200 million users, which is 10 times that of its 2010 user base, along with four million businesses (indicating a hefty minority of paying users). In 2012, an estimated 4% of Dropbox’s users were paying users. Additionally, Dropbox is believed to have generated over $200 million in 2013, up 20-fold from the $12 million it was generating in 2010.

Those are impressive numbers for such a young company (although many, including GigaOm founder Om Malik, at one time thought Dropbox was generating as much as $1 billion in revenue).

So how does Dropbox make money? Dropbox is one of those valuable companies that has a very straightforward business model: it charges customers directly. No advertising or cookie gimmicks. Just good old fashioned “you want our service? Pay for it” logic.

To be clear, the company utilizes a freemium model: customers can get the basic service for free, and they can upgrade for a fee. The Pro plan comes with 100 GB of space (compared to 2 GB for the Basic plan) for $9.99 a month—which comes up to about $120 a year. The Business plan comes with unlimited space, unlimited version history, and allows up to five people to use the account and costs $15 per month per user.

Some back-of-the-envelope math by Forbes indicates that only 1% of Dropbox’s users are paid customers, which would be a pretty clear dip from the 4% it was said to have in 2012. (Mark Rogowski estimates that Dropbox is only making about $125 per customer on some two million paid users.)

That would ultimately suggest—as many have speculated—that Dropbox is seeing slowing growth as competing products from Amazon and Google have entered the market. Dropbox unveiled its Business service the same day Amazon announced Amazon WorkSpaces, its new cloud storage service for enterprises.

Dropbox is also seeing increasing competition from fellow cloud storage service Box, which has raised $409 million since 2005 at a $2 billion valuation. Box kicked off its international expansion in 2013 and is growing at a pretty quick clip as it reportedly gears up for an IPO this year.

Dropbox has raised $507 million to date from investors like Sequoia Capital, Accel Partners, Index Ventures, Greylock Partners, Goldman Sachs, and more.  

 


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