Here’s one way to think about Dropbox
Dropbox is a closed-loop ad network. Or said differently Dropbox is a single-advertiser social publisher built on user-gen content.
The effect of Moore’s Law on digital storage is well known, and companies like Violin Memory and Pure Storage have been on the wrong side of it. Dropbox is positioned on the right side of Moore’s Law: as the price of storage approaches zero on an asymptotic curve, Dropbox can offer storage access and associated collaboration tools to 500 million users while only being paid by 11 million of them, and still make money.
If Dropbox was set up like a media company, it would sell advertising against its 489 million engaged but non-paying users. Just like Facebook inserts ads into your feed of cat videos and political rants, and Pandora reminds you that Burger King still exists between songs, Dropbox could monetize your eyeballs when you access your files with annoying and irrelevant ads.
But instead of building an expensive B2B salesforce to sell ads at ever lower CPMs to brand advertisers who may be deciding that online brand advertising doesn’t work anyway, Dropbox uses low-cost marketing tactics to advertise its premium service to the pre-qualified prospects already on its network. Dropbox is its own best customer for monetizing its far-reaching network of engaged users, and selling the available inventory to itself requires zero golf games, steak dinners, RFPs, or free iPads.
That’s why the Dropbox conversion rate is so high – with 11 million paying of 500 million using that’s 2.2% aggregate conversion, vs. typical online conversion that rounds to zero without traveling right of the decimal place.
In this way Dropbox is a legitimate example of the promise of technology, for a change. By developing a clever and user-friendly business model on top of 1) near universal wireless broadband, and 2) ever-cheaper digital storage, Dropbox offers a category-defining product that users love to the point of ubiquity, without selling out these users with a conflicted monetization engine. It’s elegant.