DREW HOUSTON and Arash Ferdowsi must have few regrets since they turned down an offer for their startup from Apple’s then boss, Steve Jobs, in 2011. Dropbox hasn’t done too badly in the interim. It rakes in over $1bn in revenue by allowing users—500m at the last count—to store and share data in the cloud. On March 23rd it is due to go public, making it the biggest firm to do so since Snap, a messaging app, floated in early 2017. Dropbox’s range for its share price values it at between $8bn and $9bn. That will comfort other “unicorns”, the tag given to startups valued at over $1bn, that are considering listing.
True, the valuation is less than its early backers were hoping for when they valued the company at $10bn in 2014, when it last raised equity. But as Matthew Kennedy from Renaissance Capital, a research firm, points out, the previous valuation coincided with peak investor exuberance for tech firms. The adjustment may also reflect some doubts about the firm’s long-term prospects.
Its challenge, common to many unicorns, is to convince users to part with cash. Dropbox gives away a basic level of storage for nothing but charges for premium services, including pricier business subscriptions. In order to increase revenues, it either needs to convert more users into paying ones, or encourage existing subscribers to upgrade. So far only 2% of users pay anything, and average revenue per paying user is flat. In 2017 it posted a loss of over $110m. The firm is counting on a shift away from individual users and towards firms to deliver profits.
It will have to do battle with the giants. Apple, Amazon, Google and Microsoft all now offer either consumer or enterprise storage services. They bundle together a wider range of offerings than Dropbox can. Jobs’s reported description of the firm as a “feature, not a product” might not have been sour grapes. If the behemoths were to slash prices for storage, Dropbox’s margins would be squeezed.
That said, the firm has enough going for it to keep investors interested. It is not losing out to rivals yet; revenues grew by a third last year. The market for the management of corporate information is wide open, says Terry Frazier from IDC, a market-research firm. Most businesses have yet to make the leap from storing data on their premises to the cloud. An agreement with Salesforce, which offers corporate online services and is buying $100m of its shares, could give Dropbox a shop window for new business customers. And if Dropbox manages to acquire some of them, the cost of moving data to other platforms means they could stay loyal for some time. Messrs Houston and Ferdowsi may continue to confound the giants for a while yet.
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