Dropbox was founded in 2007 by Drew Houston as a file sharing and storage application that allows users to easily sync and access files across devices. It gained popularity through word-of-mouth and viral marketing. While Dropbox saw strong growth and many new users, Houston faced dilemmas around whether to segment users and how to balance adding new features while maintaining simplicity. Competitors like Mozy and Carbonite also posed challenges to Dropbox's business model and growth.

1. Dropbox: “It Just Works”
By: Sindoor and Varun.
Case Synopsis
Dropbox, founded in April 2007 by Drew Houston, is a downloadable application that
allows users to easily share, sync, and store files (photos, documents, videos, etc.) across most
personal computers and smartphones. It has a user base of 7 million, two thirds of whom resided
outside the U.S. The company reached this scale by offering a single product version to both
consumers and business users. Customers relied on dropbox for specific tasks such as backing up
photos, running a startup or collaborating on Office documents. Users were constantly requesting
new features, many of which would violate the company’s commitment to offering a simple easy-
to-use product.
Houston graduated from MIT in January 2006 with a bachelor’s degree in computer
engineering. After setting up a couple of startups he was looking for something more challenging.
Once he left his USB flash drive at home and went to Manhattan, where he was frustrated not to
find it and this made him come up with a concept of developing a service to sync and share files
between personal computers over the internet. He recruited Arash Ferdowsi who was an MIT drop
out, to help him in this new project. Although Dropbox was a late entrant in the file sharing segment
Houston was confident that it would succeed in the face of intense competition and also due to
marker researchers like IDC predicting that the worldwide market for online backup services would
grow to $715 million by 2011.
Houston and Ferdowsi created a prototype that allowed Windows PC users to access files
of any size or type via an encrypted Internet connection from other Drop-Box enabled PCs or from
any web browser. With a working prototype in hand, Houston came up with an innovative
approach for testing demand. He had produced recruiting videos for his college fraternity; with
this know-how he created a three-minute screencast of a product demo and uploaded it to
Hacker News, a popular online forum for developers.
Dropbox received funding from Y Combinator in April 2007 of $15,000.Houston had
understood that they can’t make sales unless certified by IT and no certificate is obtained until
you have a track record. So they started targeting single users and not businesses in the beginning.
They adopted Guerilla marketing tactics. In 2008 the company launched its Windows and Mac
clients and added a Linux version too.
There was a need for a product manager as the company was expanding and new
products were being designed. Their marketing efforts included search engine optimization of
their product using Adwords. Paid search advertising was proving very costly and hence they had

2. to look for other options like display ads, affiliate programs and freemium options. Analytics helped
in tracking free users and their conversion into paid users which was critical in understanding
consumer behaviour so that new offers could be presented to the user to increase conversion
rate. Majority of the users acquired were through word of mouth referrals and viral marketing
efforts rather than paid advertising. They focused on ease of use and reliability which paid
dividends in the form of loyal users. The company launched “votebox” which allowed users to
vote and comment on features they would like to see added in Dropbox. The team gained
considerable insight on user preferences through support forums and votebox, consumer surveys
were stopped. Team also devised better tools for satisfied users to spread the word about Dropbox
such as referral program. Dropbox’s 4 million users produced 2.8 million direct referral invites. About
2% to 3% of Dropbox’s users were paying customers, this implies they generated around $10 to $15
million annual revenue.
Dropbox implemented “stay the course” strategy. They deliberately avoided
implementing the most requesting feature on “votebox” enabling service to sync files outside of
the Dropbox folder in particular, the my documents folder citing complexity as an issue. They
announced a mobile API which allowed third party software developers to access files within the
user’s Dropbox. Number of PC and smart phone manufacturers had approached the company
about pre installing dropbox on their devices.
The Android ecosystem represented a promising opportunity, in May 2010 Dropbox
released a native iPad app and official Android app which served as a differentiator.
Dropbox remained distinct in offering the ability to synchronize files across devices into
share files through public and private folders. Mozy and Carbonite served as huge rivals to
Dropbox. Dropbox was ranked sixth in the segment which was topped by Carbonite. Ultimately
Dropbox wanted to follow their rival’s lead to offer a version specifically designed for small
businesses.
Problems
1. Houston’s dilemma was to whether continue Dropbox’s strategy of offering a single product
for all users or whether it should segment its diverse and growing user base.
2. Customers wanted a service which enables the synching of files outside the Dropbox folder
i.e. My Documents which Dropbox were deliberately avoiding to implement.
3. The other challenge was to find whether or not the users shared files with others, and whether
or not the users used the application for business.
4. Houston and Ferdowsi had mixed views on partnering with large companies.
5. Due to competition from Carbonite and Mozy, Dropbox had to innovate and offer special
services and features for their users such as storage facility and rental.

3. Situational Analysis
 Dropbox synchronizes files across your computers and your team’s computers. It’s better than
email, uploading or a Windows file share.
 It’s seamlessly integrated into Windows, but there’s also a web interface. It also stores past
versions of documents, handles huge files gracefully, and works both through firewall and
offline.
 Mozy’s service was free for up to 2GB of storage; unlimited storage for a single computer was
available for $4.95 per month.
 Carbonite did not offer free service (other than 15 day trials); its unlimited storage service for
a single computer costed $54.95/year.
 US accounted for 32.7% of Dropbox users followed by UK and Germany.
 FTP (inactive) showed a cost per conversion that sticks of $388.11 which was 66% higher than
cost per conversion that sticks of SYNC (active) of $233.31.
Recommendations/Conclusions
(In order of problems)
1. Dropbox should segment its diverse and growing user base as per usage rate.
2. To maintain the ease of use which is hampered by a service which enables the synching of
files outside the Dropbox folder, the service has to be avoided.
3. A dedicated Google analytics team can solve the problem of finding whether or not the users
shared files with others, and whether or not the users used the application for business.
4. Houston’s idea of partnering with large manufacturers of tablets and smartphone by pre
installing the Dropbox service in their devices should be implemented as it can help Dropbox
to capture the whole of smartphone and tablet market.
5. To compete with rivals like Carbonite and Mozy, Dropbox have to rethink on their pricing and
their freemium business model and offer suitable and flexible service to cater the demands of
the customers.