Dropbox Is Pursuing The Wrong Business Model

I love Dropbox. I have loved Dropbox since I signed up in 2009. In fact I loved it so much in ­­­­2009 that I invited my entire 2,000+ contact list to sign up, and have been reaping the 250MB and 500MB referral rewards ever since. I love the story of Dropbox’s beginnings, I love its fun artwork, and I love its visionary CEO, Drew Houston.

But I don’t like the Dropbox business model.

Today, I use my 21.75GB of free space as the virtual home for all my documents, with the exception of photos and videos. Business plans, passport photocopies, apartment leases, and even senior school physics experiment write-ups are available to me globally, at the touch of a button, for free. Intuitive sharing functionality has made “Attachment too large” a part of email history, and allowed everybody access to their own shared drive.

With 300 million users and 4 million businesses signed up, it’s clear that many other people love Dropbox as much as I do. Furthermore, the company’s $10bn valuation suggests that many VCs believe the company is capable of converting this adoration and user engagement into cold hard cash. I have faith that Dropbox will ultimately reward its investors handsomely, but not if its future cash flows are entirely derived from selling cloud storage, a business which effectively became commoditized with Google’s massive price drop in March.

Clearly Dropbox’s competitive advantages lie in its wonderful UI (enhanced with the release of Carousel, a photo viewing app) and sharing capabilities (bolstered against peers with its Mailbox acquisition), not just the bits and bytes it offers for storage; however, both of these advantages only supplement and enhance the original business of selling storage, rather than offering new revenue streams. Drew Houston has spoken of his vision of a “pervasive data layer”, and in fact I think that vision may form the basis of a new business model which could be both sustainable and defendable against competition.

Dropbox should build a business model around privacy, and control of personal data.

I envision Dropbox as a sort of homehub from which I can control the visibility of everything “me”across the web: Dropbox would house my Facebook statuses, my Youtube videos, my Yelp reviews, my Pocket articles and my Fitbit metrics alongside my school essays. With similar functionality to Facebook’s “Who Can See My Posts” and Google+ Circles, I could easily control where and to whom my data is visible. My data would be mine, not subject to the whims and vitality of any particular internet portal (like, where is all my Myspace data??).

Now that is a product I would pay for.

As our lives become increasingly digitized, controlling our data is going to be increasingly complicated, and increasingly important. The company that can help society manage its data overload can easily become a $100bn company over the next 10 years.

Given the recent privacy concerns following the hiring of Condoleeza Rice, some may doubt Dropbox’s privacy and data control credentials, but the truth is that no company is better positioned to capitalize and build a business upon controlling and managing our digital spew.

Just look at Dropbox’s competitors. Google’s Drive offering is both the immediate competitor in the consumer space and the 800 pound gorilla in online offerings, but Google’s primary business model restricts its ability to become a privacy and data control hub. Google’s ultra-lucrative Ad business relies on selling the information you freely provide, and in no scenario will Google give up its huge competitive advantage in selling Ads in order to generate a few billion dollars in privacy control subscriptions. Just look at how hard it has fought the “right to be forgotten” legislation passed in the EU (which I agree with, but still shows their aversion to allowing information to be removed from its database).

Box and Microsoft One Drive are much more associated with Enterprise offerings than the consumer varieties which would put them at a severe disadvantage to Dropbox, and their lack of a widespread API means there is far less integration with the consumer apps from which we generate much of our data, such as Fitbit or SmartThings.

With a universal API that is already embedded throughout much of the web, and a lot of recipes tied to IFTTT, Dropbox is the only company with the clout and lack of conflicts that allow it to operate a universal privacy hub.

Dropbox cannot indefinitely make revenue from selling bits. A comparison can be found in that other tech darling of the past 2 or 3 years, Square. In many ways, Square is Dropbox’s brethren. Both companies offer fantastic User Experiences for what are essentially commodities (processing payments and cloud storage, respectively), earning plaudits and loyal fan bases in the process; however, they have both struggled to generate revenue at the rates necessary to justify their lofty valuations. Leveraging the data on both platforms is the key to building a more enticing business model.

Come on Drew, everyone loves you and your company. Now lets monetize that good will with a product that will form the basis of our digital lives for years to come.

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