Dropbox struggles as competitors catch up

SAN FRANCISCO — Dropbox, which became a household name around the world by giving away cloud storage, is seeing its rivals gain ground as it struggles to come up with a clear business strategy.

The eight-year-old company, valued at about US$10 billion (S$13.4 billion), had 300 million registered users a year ago and has grown that to 400 million today. However, its efforts to make money from business users have been less impressive.

While Dropbox led the US$904 million global market for business file-sharing last year with an approximately 24 per cent share, second-placed Box and third-placed Microsoft each took about 21 per cent and doubled their slice of the pie by growing almost twice as fast, IT researcher International Data Corp (IDC) said.

Dropbox’s paid business version lets users distinguish between personal and business documents, and gives IT staff more control over the latter, but the company has been slow to add the level of security now common to office cloud software. Chief executive Drew Houston also acknowledged that Dropbox had yet to figure out some basic elements of its sales strategy, including whether to focus on direct sales or partnerships.

“We are trying a lot of different things,” he said.

Mr Dennis Woodside, Dropbox’s first chief operating officer, is leading those efforts. A year ago, Mr Houston hired Mr Woodside, then CEO of Motorola Mobility, to craft a more detailed business plan that could turn a company with more than US$400 million in annual revenue into one that makes billions. Both men say much of that process has required an adjustment period among Dropbox staffers, including the coders who thought in terms of products and rarely spared a thought for selling them.

“One of the things Dennis did early on was establish a belief system around revenue as the oxygen that allows this company to continue breathing, to continue to see another day,” said Mr Marc Leibowitz, a Woodside lieutenant who heads partnerships.

Mr Woodside, who jumped to Dropbox while Google was selling Motorola to Lenovo, made his name running Google’s foreign sales divisions. In the past year, one of his biggest achievements has been accelerating the hiring process: He filled empty senior positions such as head of marketing and head of human resources, opened five offices abroad to serve the 70 per cent of Dropbox customers located overseas, and doubled the company’s headcount to 1,200.

“My view is: Speed is what is going to win,” said Mr Woodside.

Dropbox has signed partnerships with telcos Vodafone and SoftBank to help distribute its software. Dropbox is now supported in 20 languages, including Chinese and Malay.

Meanwhile, Microsoft has hedged its bets on its own service by making Dropbox compatible with online and mobile versions of Office. Google executive chairman Eric Schmidt said he is interested in making Dropbox compatible with Google’s business software, too, even though his firm is, like Microsoft, one of Dropbox’s main rivals. More than 100,000 companies have signed contracts, doubling from a year earlier, to use Dropbox for Business, which costs US$150 a year per employee.

Box, which went public in January, is a cautionary tale for Dropbox. Its total revenue last year was about 60 per cent of Dropbox’s, said IDC, but its market value is now only one-fifth of Dropbox’s private valuation, suggesting the office cloud market may not grow fast enough to bridge the gap between investor fantasy and reality.

Still, Mr Houston remains cautiously optimistic — after all, Dropbox’s revenue grew more than 50 per cent last year. “We are kind of in the phase where we have put our pick in the ground, and all this oil is coming up, and we have got to get it together here,” he said. BLOOMBERG