Although Dropbox trailed behind its competitors to catch onto the initial wave of the cloud computing, this minor setback did not restrain the company from revolutionizing the way we store data today. When Houston noticed the limited aptitude of preexisting online backup companies, he seized the opportunity to address the transfer of information across firewalls, unreliable wireless connection, and inability to effectively process a large amount of data. Whereas the competition relied on a distant server to enable file accesses over the Internet, Dropbox stored files locally on computer hard drives and synchronized copies on their servers to save time and bandwidth.
When Houston applied to Y Combinator, he included several assumptions in his business model. Originally, Dropbox would directly target individual users, including consumers and businessmen. This decision was contingent on the theory that IT would overlook the company’s limited track record to certify Dropbox after witnessing such high demand. Adopting a freemium model, Dropbox would offer 1 GB to non-paying subscribers and 10 GB to paying subscribers for 5 dollars a month. To raise the funds necessary to launch Dropbox, Houston aimed to raise capital from investors like Y Combinator and Sequoia Capital.
Having developed a strong following from an eclectic group of 782,000 users, Dropbox must now maximize profits through price differentiation. This would help them combat their current operating losses of $14.234 million. By classifying their users into various consumer segments, Dropbox could charge each segment the maximum price they are willing to pay. In this case, the consumer segment would be small to medium sized businesses. Aside from requiring a lot of customer support, these clients would most likely be working with many computers and a lot of data at a time. To tailor to their needs, Dropbox should release a different version of their software and market it at a set bundled price per month. This bundle should include all of the benefits deemed most appealing to businesses, such as: file sharing, large storage capacity, Pack Rat (unlimited undo history), and a personal hotline.
By using bulk pricing, Dropbox could offer a deal for groups of computers rather than charging per each computer separately. By pursing this strategy, Dropbox would stay relevant with competitors like Mozy and Carbonite who have already released different versions of their software to accommodate different consumer segments. This strategy would encourage Dropbox to invent new services that they otherwise would not have invested in without being properly compensated. Additionally, Dropbox would enjoy minimal acquisition costs because small to medium businesses are the consumers who would be most actively searching for these data storage services to optimize operations, thereby coming across Dropbox all on their own. In order to justify this decision, Houston should use a conjoint analysis to determine which Dropbox features hold the most value to these businesses.
This will allow them to better customize the bundle and determine the price that will capture the largest market share. Dropbox should also develop a running prototype and expose it to pretest markets or run a beta test. This will reduce risk, increase expected benefits, and forecast sales. To collect feedback from their target audience, Dropbox should continue to follow support forums closely, forward customer surveys, implement A/B testing, and conduct usability tests. With a more refined understanding of this consumer segment’s needs, Dropbox can design a customized premium product that will pave the way for company growth and success.