Dropbox is another example of a product that has experienced remarkable growth since its launch. In this case study I will explore how Dropbox has achieved such rapid growth and try to identify strategic themes that other startups might consider for experiments centered around user acquisition and revenue growth. ((Any errors in appropriately citing my sources is entirely mine. Let me know what you object to, and how I might fix the problem. Any data in this post is only as reliable as the sources from which I obtained them.))
What is Dropbox? Dropbox is a personal cloud storage service. It provides users with a mechanism for storing files in a folder on the Internet and accessing that folder through an installed client, a website, or a mobile app, on different computing devices. It was founded by Drew Houston and Arash Ferdowsi in 2007. A number of articles online suggest that Dropbox started with an initial base of about 2,000 users. It launched to the public in September 2008 ((According to this presentation by Drew Houston Dropbox had 100 thousand users by the time it launched to the public in September 2008.)). Here are some indications of how much Dropbox has grown since then:
- It had about 200 million worldwide users in September 2013 ((See: http://www.cnet.com/news/dropbox-is-like-microsoft-in-the-90s-says-startups-ceo/. Accessed on March 25th, 2014)), and
- By February 2013 its users were saving about 1 billion files every day to Dropbox ((See: http://www.cnet.com/news/dropbox-clears-1-billion-file-uploads-per-day/. Accessed on March 25th, 2014.))
How does Dropbox make money? Dropbox operates a freemium business model. The Basic plan is targeted at individuals, and provides 2 gigabytes of cloud storage for free. One can get more storage by inviting one’s friends to Dropbox. The Pro plan provides 100 gigabytes of storage for a monthly subscription of $9.99. The Business plan is designed for 5 or more users, comes with as much storage as needed, and includes other features that are not part of the Basic or Pro plan. According to reports in the press Dropbox started out with about 2,000 users or so.
How did Dropbox grow its user base? ((KISSmetrics discusses this topic here: http://blog.kissmetrics.com/dropbox-hacked-growth/. Accessed on March 26th, 2014.))
- Explaining With Video: In the summer of 2009, Dropbox worked with Common Craft to create an explainer video ((You can watch a version of that video here: http://www.commoncraft.com/dropbox-case-study-explanation. Accessed on March 25th, 2014.)) that played a central role in the redesign of Dropbox.com. After the redesign a visitor to the front page of Dropbox.com could watch the video, and sign up. That’s it. At this stage, Dropbox had about 2 million users. ((Dropbox closed a Series A round of financing in November 2009. Accel Partners and Sequoia Capital invested in that round.)) By April 2011 its user base had grown to 25 million. ((This video discussion emphasizes the key role demo videos played in helping Dropbox grow its number of users early in its life: http://techcrunch.com/2011/11/01/founder-storie-how-dropbox-got-its-first-10-million-users/. Accessed on March 26th, 2014.))
- Getting Started: Dropbox has a very simple signup process, and an easy user interface that makes it easy for new users to become familiar with the product and how to use it. New users also get an extra 250MB of storage for taking a tour of Dropbox in order to learn about its basic features.
- Encouraging Word of Mouth Virality: Dropbox gives users an incentive, and better tools to spread news about the product through word of mouth. Users are rewarded with extra storage capacity when their friends sign up using the referral link that Dropbox gives for email referrals. According to Drew Houston referrals led to a permanent 60% increase in signups. The referral program has a two-sided incentive. The user gets 500MB of storage if a friend signs up, and the user’s friend also gets 500MB of storage for signing up. The program was put in place in April 2010. Dropbox users sent 2.8 million direct referral invitations in the 30 days after the program was implemented. ((Drew Houston, Dropbox Startup Lessons Learned. Accessed at: http://www.slideshare.net/gueste94e4c/dropbox-startup-lessons-learned-3836587 on March 26th, 2014.))
- Tying in Social Media: Users are also incentivized to connect their social media accounts – 125MB for connecting a Facebook account, another 125MB for connecting a Twitter account, and an extra 125MB for following Dropbox on Twitter. Users also get 125MB of extra storage for communicating with Dropbox about “why you love Dropbox.” ((See: https://www.dropbox.com/getspace for a list of the incentives Dropbox offers its users.))
- Focusing The Message – Simplicity: Dropbox has emphasized simplicity above all else in its communication with existing users, potential users, and in the design of its user experience. That focus has helped it succeed in a very crowded space that includes some large players like Google Drive, Microsoft OneDrive (formerly SkyDrive), Apple iCloud, and other competitors like Box ((Box just filed an S-1 with the SEC for an IPO later this year. You can read the prospectus here: http://www.sec.gov/Archives/edgar/data/1372612/000119312514112417/d642425ds1.htm#toc642425_4. Accessed on March 26th, 2014.)), SugarSync, Evernote, SendThisFile, Carbonite and many others.
- Generating PR Through User Engagement: Dropbox engaged with its existing users and potential new users through Dropquest, a scavenger hunt and series of puzzles that culminate with winners earning various prizes from Dropbox. The prizes include free storage and other items from Dropbox. In 2012 everyone who completed the challenge won at least 1GB of free space. Dropbox recommended that participants in Dropquest download and install the desktop application. ((I could not find an announcement about a 2013 version of Dropquest. Perhaps it has been discontinued.))
There’s a debate about the growth Dropbox has experienced? Is it viral or not? ((See for example: http://www.bullethq.com/blog/dropbox-the-viral-lie-sold-to-every-statup/. Accessed on March 26th, 2014.)). There’s also a concurrent debate about “growth hacking” and whether it is as useful as its proponents would have us believe. ((See, for example: http://techcrunch.com/2014/03/22/the-real-engines-of-growth-on-the-internet/. Accessed on March 26th, 2014.)) Does it really matter? I think these are dogmatic positions adopted by the protagonists in the debates taking place about how Internet startups achieve growth. Whatever your position, there’s one observation that no one can argue with; It’s hard to devise a strategy to grow the number of users for a product that none wants to use.
In the next set of posts in this series I will examine a number of mathematical models related to viral marketing – we’ll start with the model most commonly used when people speak about viral marketing.