1. Dropbox is a late mover in a crowded space. What opportunity did Houston see? Specifically, what are the key elements of Dropbox’s current business model?
Houston saw the opportunity to build a product which would allow the users to upload their work and synchronize them immediately. Houston came up with this idea as he felt the need of this product by himself by forgetting his USB stick as he wanted to work in the bus. So Houston decided to start and develop a prototype of his idea. This prototype would allow its users to upload their files and use as much data space as needed. Regarding the business model Houston and Ferdowsi invented some several key elements in their product. One of the first key elements was that users were able to access files of any size or type via Internet connection.
And the Dropbox client software was able to track changes in real-time to any file placed in the user’s local Dropbox folder. Another key element was the one-single product policy. They didn’t want to offer advanced or customized versions. Dropbox as a company just earned money from its users if they are willing to pay -they could add additional storage by paying a small fee. Which also developed one of the most success; as Dropbox is really user-friendly they could use the word-of-mouth advertisement to increase their user base in a large way. Dropbox used also some beta versions to see how customers would like it and how they could improve the current version.
Is Dropbox profitable as of June 2010? Are you optimistic about its prospects? How does your estimate of Dropbox’s current profitability influence your evaluation of the venture’s prospects?
I would say Dropbox will be profitable as of June 2010 and I’m optimistic about its prospects. As Houston had invented a good product and marketing strategy, he was able to focus on the growth of Dropbox and use the growing market his advantage. As IDC projected an annual growth of 28% for this market to $2.5 billion Dollar in 2014 I assume that this market has a big growing potential and Dropbox will be profitable in the coming years.
When he applied to Y Combinator (see case Exhibit 2) what hypothesis did Houston hold about key elements of Dropbox’s business model? As of June 2010, which of these hypotheses have been confirmed and which have been discarded? What assessment of the approach Houston used to test the hypotheses? Did he waste time/resources or make notable mistakes? Can you image a better ways to test hypotheses?
One of the key elements about his business model is the user-friendly application and the accessibility of the product. By creating a product which is easy to use and which allows user to work on the latest version of a given document by using an automatic update this hypothesis has been confirmed. Houston wanted to be sure that quality is one of the key factors of his product. He defined quality as a quick process and safety of the documents by using a web interface and the files were securely backed up to Amazon S3.
Houston figured out that his potential users, which would be his target group, where already technically adept but that due to the simplicity of the product and expansion of the internet it could rapidly grow. So his following key element was the realease of a single version for all users and using the “Trojan Horse” strategy to expand. To earn revenue Dropbox used the Freeware model which means that 2GB were given free and the additional GB had to be paid on a monthly basis.
Imagine that the same time Dropbox was founded, Google decided to target the opportunity that Houston had identified. How would Google’s approach to pursuing G Drive have differed from the approach Dropbox team followed?
I would say that the first aspect to look on would be the highly different starting capital. Google has a big found of money which could be use as well as a high user platform which would allow Google to be a tough competitor for Dropbox. Concerning the data space Goolge could have increased their free data level up to 4GB and with their high knowledge in the technology and IT market they could add new features. These factors could have made their product more attractive for customers than Dropbox. One of the problems Google would have been confronted with would have been the challenge to convince their customers that they would take care about individuals and secure safety.
What should Houston do about the decision posed at the end of the case ie. creating a separate version for small and medium sized SMBs customers?What process should he use to make this decision?
This would be a very difficult decision for Houston which only could be solved in corporation with his employees. I would say that they don’t have to rush at the moment as the customers are satisfied and do not need any additional elements in the assortment. But I would say it is always important to keep track of the market and follow the trends which might come up.