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Freemium pricing of Dropbox Essay

1. Describe Dropbox’s “Freemium Pricing strategy” to get users and revenue. What was this strategy? What did the company hope to accomplish with this strategy? Dropbox is a company providing remote-storage over the internet, cloud storage service as well. The “Freemium Pricing Strategy” is a popular pricing strategy which company provide client a basic service without paying a dime and premium services were paid. Dropbox offers 2GB cloud storage space for free and 1TB for $9.99 per month. The basic service attracts millions of customer to use and like it. On the other hand, the major revenue is generated by paid customers which weights 60% of total revenue. Moreover, Drew Houston, the CEO and founder of Dropbox, introduced an incentivize mechanism to expand the market. Satisfied users are more willing to recommend Dropbox to their friends, family and co-worker, in turn, they can get free storage upgrade.

In corporate business, Dropbox provide paid “Dropbox for Business” which featured unlimited storage and administrative control. Corporate contribute 40% of Dropbox revenue for the effectiveness Dropbox provided. The freemium pricing and incentive mechanism accelerate Dropbox customer acquisition. Although 98% customers are unpaid and generate zero revenue, the significant amount of user base is potential wealth of Dropbox. Dropbox was considered as one of the most successful companies to offer “Freemium Pricing” in cloud storage market. Freemium offers customers an opportunity to try out a new product or service risk-free and cost-free. Meanwhile, Dropbox achieved the objective, 200 million of user. 1. What were the positive results of this strategy?

With “Freemium Pricing”, Dropbox has 17% market share, and the second market dominator, beside Apple iCloud, which pre-programmed inside consumer hardware such as iPhone, iPad and laptop. Even several internet giants began vying a piece of promising cloud storage market, Dropbox was still possessing the second big vendor in the market.

In short-term, “Freemium Pricing” speed up Dropbox user grew from 4 million to 200 million in four years and generate $400 million revenue by 2012. As well, in long-term, Dropbox builds brand image and cultivates customer habit. With huge potentials, Dropbox is valued at over 4 billion dollars. 2. What were the negative results or failures of this strategy, if any? The competition of cloud storage market is very intense, which makes Dropbox profitability less sustainable. Consumers may turned into other giant vendor such as Google, Apple and Amazon. “Freemium Pricing” and incentivize mechanism bring some negative influence on Dropbox. Customer prefer to get more storage with recommend to friends and their friend will do the same thing to get free upgrade by doing the same thing. This will increase Dropbox operation cost by purchasing more servers and maintain them. For venture capital investor, great volatility of future revenue means high risk. The value of Dropbox may be overestimated. Low user conversion rate, loss of customers and make people always want use Dropbox for free will be hidden risk for Dropbox.

3. What was the strategy that Dropbox used for corporate/business customers? Describe this strategy and its results. Firstly, Dropbox was applying the “Freemium Pricing Strategy” to acquire basic users. According to Drew Houston, his goal was to get individuals to use and like it so much that they, in turn, got their employers to sign up as well. Dropbox was offering a product that people didn’t know that needed until they tried. Free trial gives everyone a chance to try and experience the convenience and efficiency Dropbox brings to them. Secondly, Houston built an incentive strategy to stimulate the referral process Users benefit from getting more free storage and Houston get more customers. The referral hierarchy and accelerate the promotion of Dropbox.

The quick expand of user create more chance that users will bring Dropbox to their workplace. After that, Dropbox holding a large share of the consumer cloud storage market. Internet giants stepped into the market, Houston turned his sight on corporate users. Dropbox termed corporate version “Dropbox for Business” which including unlimited storage space and administrative control. File sharing and co-working are become more efficiently than before. Finally, Dropbox achieved another success in corporate users whom become the secondary revenue stream weighted 40% of total revenue.

4. What other strategies can you think of that Dropbox could have chosen, instead of Freemium Pricing? According to news, Dropbox is turning its direction into Big Data analysis. Diversity in product is necessary for Dropbox to develop a new stream of revenue. “Freemium Pricing” costs too much time and budget on customer cultivating, in exchange, high uncertainty and risk are fatal disadvantage of Dropbox. Alternatively, Dropbox could use penetration pricing strategy. They offer the basic service with lowest price and gain enough consumers to gain the market share. The difference between penetration pricing and Freemium is the cost of customer maintaining is low but they may loss more users when the price raised.

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