What Dropbox must do to justify its $10 billion valuation

Dropbox CEO Drew Houston, announcing the company's Dropbox for Business product. Credit: IDGNS

Cloud storage and sync provider Dropbox raised eyebrows last week when it reportedly raised at least $250 million (and maybe as much as $400 million) at an estimated company value of $10 billion.

But competition is fierce in the cloud storage space, with Box (neé Box.net) in particular making waves in the enterprise space and raising plenty of venture capital of its own (at a valuation of $2 billion). 

Dropbox has some work ahead to vindicate its high valuation. While Dropbox claims more than 200 million users, it only began to get serious about the enterprise last year, with a series of updates to its business products and a splashy developer conference. The stakes: Command of a market that's only going to grow as consumerization and the increasing ubiquity of connected devices drives ever-larger amounts of personal and professional data to the cloud. 

Build an ecosystem

Box used its first-mover advantage in the enterprise to great effect by building out its platform starting more than two years ago. Now what started as a simple file storage and sharing tool has expanded into a storage and content management backend for custom applications, boasting integration with popular business tools like Jive, Yammer, Microsoft SharePoint, NetSuite, Google Apps, and more. This strategy has made Box into much more than just a feature -- file storage -- and has helped the company grow. 

Dropbox needs to take a cue from Box here, but it's already behind the curve. Dropbox only had its first developer event last year, and developer reaction was mixed at best. Since then, Dropbox has been mostly mum on its platform play. No big customers have come forward and no new announcements on the developer front are a cause for concern, which leads to the next point: 

Choose your side

Dropbox is facing an identity crisis. Box was founded for consumers but quickly pivoted, and has focused on business users since 2007. CEO Aaron Levie looks positively precognizant for building out an enterprise IT play in a time when freemium was the hot new way to be. A critical part of the path, too, has been building out Box's own native productivity capabilities. Out of the box (ahem), Box is capable of a bare-bones but still a useful level of social document editing and collaboration that Dropbox simply can't match. 

Meanwhile, Dropbox has built a formidable brand for itself in the consumer space, thanks mostly to its lauded minimalist design, but there's limited upside -- how many consumers really need to pay for permanent online storage? Dropbox's simplicity makes it a favorite among shadow IT organizations, to the chagrin of CIOs everywhere, but the company clearly wants to make nice with the C-suite in a more formal capacity.  

But Dropbox's reach for the enterprise is causing a fractured identity. Take, for example, the company's recent announcement that you'll soon be able to toggle between personal and corporate Dropbox accounts without having to log in or out. This is nice for Dropbox's end users. But for CIOs and IT managers who are looking for enhanced security, compliance with regulatory standards like SSAE 16 and HIPAA, tighter access controls, and a variety of other features that make it easier to justify shaking loose the CAPEX for a Dropbox deployment, this feature is less than nothing. 

With that last point in mind, there's one last thing Dropbox needs to do: 

Restore and maintain confidence

Dropbox lost a significant portion of its goodwill when an outage caused sync and connectivity problems last Friday, with some users experiencing problems all the way through Sunday. Rumors abounded that Dropbox user data had leaked to the Internet -- the company has denied it, but with the Target customer information leakage disaster making big news, it's indicative of how the broader world sees Dropbox. 

Meanwhile, Box has taken the shrewd promotional tactic of offering consumers an impressive 50GB of cloud storage for life merely for installing or updating the app. Box looks confident and self-assured in its infrastructure, offering a decidedly non-core user segment a huge bonus, just because it can. Meanwhile, Dropbox has egg on its face and a lot of making up to do. 

There are other big gaps as well. Dropbox still relies on Amazon Web Services to store data, and CEO Drew Houston told reporters in November that the company had no plans to change that. For Box, infrastructure is a big deal: It colocates in Equinix data centers and has taken all kinds of steps to improve connection speed. Dropbox has just started figuring out how to support enterprise customers; Box has professional services staff, including dedicated account managers for its largest customers.

Meanwhile, other companies like Egnyte are even more targeted toward the enterprise than Box, with features like on-premises storage integration. And Egnyte raised an additional $30 million in venture funding in December, bringing its total to $67 million. It's not going just lie down and go away.

So today, Dropbox is still very much a consumer tool with what looks like all accounts an enterprise sideline. That's led "Dropbox" to become synonymous with "lightweight file sharing," with essentially every competitor messaging itself as "Dropbox, but with..." You don't get to an IPO with that kind of reputation.

However much Dropbox turns out to have raised, you can bet the bulk of it will go towards improving its enterprise cred with new features, sales, support offerings, and possibly some acquisitions to boot.

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