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Lofty Valuations Continue With DropBox

Posted on Thursday, Jan 9th 2014

According to a report by Research and Markets, the worldwide cloud storage market is projected to grow 40% annually over the five year period from $8.6 billion in 2013 to $47 billion in 2018. The growth is attributed to the rising creation of big data. North America remains the largest market for cloud services with 60% market share at $5.09 billion last year. It is projected to grow to $21.8 billion by the year 2018, growing at 33.8% annually.

Dropbox’s Offerings

California-based cloud storage services provider, Dropbox, is counting on this rapid growth. Dropbox’s freemium model of services provides cloud storage services to both individuals and enterprises. The service offers a free 2GB data storage account to individuals and charges for additional storage at $9.99 a month for a 100 GB account. The enterprise-focused pricing plan lets businesses access unlimited storage space for as little as $15 per user per month for at least 5 users. Dropbox’s user base has seen rapid growth. After quadrupling to over 100 million users within a year in 2012, the service had 175 million users by July last year. Enterprise customers have also doubled to 4 million, as of last year.

Dropbox realizes that to deliver strong growth, they need to focus on the enterprise segment. That will bring them in direct competition with another start-up, Box. Till now, these two players have stayed clear of each other’s path as Dropbox has been focused on individual accounts while Box has focused on the enterprise segment. Dropbox plans to grow within the enterprise segment through acquisitions and product enhancements. But it has a long way to go, for Dropbox has been “blacklisted” in several organizations as it is said to be a possible source of introducing viruses into corporate networks.

Recently, Dropbox introduced a product for businesses that lets users create storage segments for personal items and for business documents separately. Both the sections have their individual passwords and files, and organizations can remotely manage and monitor content on the site.

Last year, they also released new APIs for syncing and viewing data within apps. The Datastore API lets users save any structured data or metadata for an app. Using the API, developers can protect their users’ data while making changes offline. The service enables developers to store the user’s contacts and task list across multiple online and offline devices and platforms. The Drop-Ins API, and the new Chooser, lets developers download files from their users’ Dropboxes to be displayed within the app so that one can access task lists and cloud-stored content from any app. Through these APIs, Dropbox plans to give developers support across multiple platforms including iOS, Android and JavaScript. This will help do away with multiple APIs for integration and will also help with API conflict resolution.

Dropbox’s Acquisitions

Last quarter, as part of their acquisition strategy, Dropbox announced the acquisition of Sold, a mobile app that allows users to estimate the selling price of their products. The app assists in handling e-commerce transactions such as selling, shipping, and paying the seller in return for a percentage commission from the sale made. Sold showed impressive performance. Within 4 months of its launch, it was projecting an annual turnover of over $1 million. It is not known how Dropbox plans to leverage this acquisition, but rumors suggest that they may be looking to build an e-commerce product using Sold’s skills.

In September last year, they also announced the acquisition of Foundry Hiring, an applicant-tracking system provider that helped organizations manage their hiring pipeline. Terms of the deal were not disclosed.

The acquisition strategy, thus far, seems haphazard.

Dropbox’s Financials

Dropbox’s revenue growth remains impressive. In 2012, revenue doubled over the year to an estimated $116 million. But since then, growth has stagnated. Last year, they expected to end the year with revenues of about $200 million. Little wonder then that the valuation estimates continue to rise.

Dropbox has been venture funded with investments of $257 million from Y Combinator, Sequoia Capital, Pejman Nozad, Hadi Partovi, Ali Partovi, Accel Partners, Index Ventures, RIT Capital Partners, Valiant Capital Partners, Benchmark, Goldman Sachs, Greylock Partners, Institutional Venture Partners, Glynn Capital Management, and SV Angel. Their last round of funding was held in 2011 when they raised $250 million at a valuation of $4 billion. Dropbox is rumored to be on the lookout for another $250 million in funding at an estimated valuation of $8 billion. Analysts also believe that Dropbox may be looking to list soon. Analysts estimate that Dropbox plans to use these funds to expand into the enterprise segment by growing their sales and technology teams.

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