Dropbox Inc. signage is displayed at the Brooklyn Beta conference in the Brooklyn borough of New York, Us
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Few people could have predicted that online storage would ever become sexy – not even the founder of Dropbox.

When talking to some of the millions of people who rely on his five-year-old cloud service, Drew Houston admits he’s surprised when a certain four-letter word keeps coming up: love. “It’s cloud storage . . . I get excited about that, but I didn’t expect other people to,” the Dropbox chief executive told developers at the company’s inaugural DBX conference in San Francisco recently.

His success is derived from the string of rather different four-letter words that can often be heard when many people try to keep their files and folders up to date between PCs at work and home, tablets and smartphones. Hundreds of millions of people have signed up to services that quietly, unobtrusively synchronise documents, photos and music between devices.

Dropbox was the first to perfect this product for consumers and reaped the benefits – user numbers leapt from 5m in 2010 to 25m in 2011, reaching 100m last year and 175m today.

Two years ago, the company had little serious competition: Apple’s MobileMe service was a flop and Google had seemingly aborted its own long-rumoured attempt to create a “GDrive”. 

Now, however, Dropbox faces serious competition on many fronts as more consumers have adopted cloud services to store their music and photos. A US survey by Forrester Research late last year found that 14 per cent of online adults had used back-up or storage services, with Dropbox the most popular, claiming more than a quarter of the market, followed closely by Apple’s iCloud.

After a shaky start, iCloud has attracted 300m users, thanks largely to prompts to sign up when they bought an iPhone or iPad. Google Drive finally launched last year, offering more generous amounts of free storage than Dropbox, as does Microsoft’s SkyDrive, which boasts more than 200m users. Mega, Kim Dotcom’s successor to the shuttered and controversial Megaupload site, claimed more than 3m users just months after launching this year.

As many of those consumers have started using these apps at work and at home, the enterprise cloud storage market has also grown. The likes of Box and Huddle are also vying for customers with claims of better security and more controls for IT managers, which provide another opportunity for revenues.

“We are forecasting to grow over 100 per cent this year,” says Alastair Mitchell, Huddle’s chief executive. “It’s a fast-growing space.” 

Within enterprise cloud services, just 1-2 per cent of the $25bn software market has moved into the cloud, Mr Mitchell says, offering plenty of room for growth.

“We are still in the very, very early stages of enterprise adoption of these tools,” says Aaron Levie, Box’s chief executive. “Every new device category is an accelerant to our growth rate. It is forcing IT buyers to think about what is the next generation of their IT strategy.” 

Dropbox has survived and even thrived in this competitive field, claiming more business customers than specialists Huddle or Box. Yet it still grapples with the question that Steve Jobs, the late Apple chief executive who purportedly wanted to buy the company in 2009, posed to Mr Houston: is it a feature or a product?

For Apple, Google and Microsoft, cloud storage is just a feature belonging to a bigger product set, with its cost often embedded in the price of a device. Likewise for Huddle, which added cloud storage to its online collaboration tools for business teams and partners.

In response, Dropbox has built and bought other services that make it more than just a repository of files. It paid a reported $100m in March for Mailbox, an email app that had launched just a month earlier to rave reviews from the digerati – online communities – and offers a simple media player and photo viewer for mobile devices.

Yet a more significant development could be its attempt to ensure that it does remain a feature – one embedded in a large number of other applications by companies that cannot build their own cloud sync or storage infrastructure.

“There is not much loyalty” between cloud services, says Mr Mitchell of Huddle, which counts users in more than 100,000 organisations worldwide. “Many people use all of them and they are all broadly similar.” 

Still, Forrester Research analyst Frank Gillett is upbeat on Dropbox’s prospects for winning over developers, citing its fast growth and easy-to-use tools for developers.

“The combination makes Dropbox a company to watch and a potential market disrupter,” he says.

Dropbox could be the standard bearer for a swath of cross-platform cloud services that appeal to people who might use a Windows PC at work, an Android smartphone and an iPad at home. That Mr Houston’s big pitch to developers came just days before Microsoft’s reorganisation last month highlights one possible victim of that strategy.

Microsoft’s decision to hold off bringing Office to Apple’s iPad and iPhone has left a gap for many start-ups on this new generation of devices, says Mr Gillett – something Dropbox’s investors hope it can capitalise on to grow into its multibillion-dollar valuation.

“A lot of entrepreneurs are looking to pick off elements of Microsoft Office. Dropbox is at the centre of that,” says a partner at one of Dropbox’s venture-capital backers.

Box already claims 25,000 developers and 600 applications built on top, but takes a less combative stance. Mr Levie says that he hopes to both partner with Microsoft in Office, as well as compete with some of its products such as SharePoint: it recently hired the creator of Google Docs as it prepares for “a future in the mobile and cloud world where more of your data will be created online”. 

But even as Dropbox steps up its enterprise efforts, buoyed by its success in the consumer market, Mr Levie believes that cloud storage will not be a winner-takes-all market.

“While there are strong network effects within companies [and their partners], these network effects are not on the same level of strength as say Facebook or Skype, where everyone has to be on the same platform,” he says.

“In the cloud, we will get used to people having a personal Dropbox account and a sanctioned corporate use of Box.”

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