Every time they set up a Dropbox account, it drives more document sharing and storage. Every time I share a Dropbox document to someone, they need a Dropbox account. The other magical part of the Dropbox business model is that it’s so darn viral. If a CEO tells you she is going to increase gross margins from 33% to 67% in two years on a $1 billion revenue business, you would check her in to an insane asylum. Gross margins have soared from 33% in 2015 to 54% in 2016 to 67% in 2017. Forget sales and marketing, at Dropbox, the product itself is a massively effective and efficient customer acquisition machine.ĭoes it cost too much to service all these free customers? Happily, Dropbox is following a cost curve of declining storage and cloud costs. The free product is so attractive that it drives massive adoption and the conversion from free to paid is so obvious and smooth (more usage leads to more storage leads to paid product) that the company has a customer acquisition engine that derives from a simply great product and a compelling value proposition. The company reports that “we generate over 90% of our revenue from self-serve channels”. Let’s jump in.ĭropbox has a magical business model and the data in the S-1 proves it. Anyone who concludes otherwise doesn’t understand the difference between cash flow and GAAP and the power of negative churn. In short, Dropbox is a cash machine and possesses a magical business model. To be clear, I am not an investor in the company and don’t own any shares (as far as I know!) So, when the Dropbox S-1 came out yesterday, I was excited to read through it and see what I could learn. And a few of my former students joined the company early and became key executives over the years. We also teach an early stage case on Dropbox to all first year students at HBS. I have taught a Stanford Business School case on Dropbox in my HBS class on Launching Technology Ventures for many years regarding their scaling their sales and marketing operation. I know I am weird but S-1s are loaded with great nuggets of insights about business models, company performance and have fascinating stories embedded in the sometimes turgid prose.ĭropbox has been one of my favorite startups for many years.
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