Dropbox is the simple file syncing service that has grown, in just a few years, to 50 million active users. 96% of those users do not give a cent to Dropbox. The remaining 4% pay for more storage and purportedly make it profitable; this percentage is growing every day.

I use Dropbox because of its simplicity, but for my main backups I use SugarSync, which follows the same “freemium” strategy as Dropbox. For SugarSync, I’ve chosen to pay for the premium service, which offers me more storage and ensures my documents folder is the same across all my devices.

But recently, Dropbox has garnered all the press. Why? Because Steve Jobs wanted to purchase it for Apple, but Drew Houston, Dropbox’s CEO, said, “No, thanks.”

Why didn’t Dropbox sell out to Apple for a likely nine-figure sum? Drew Houston thought he could build a bigger company. Jobs disagreed. He allegedly said Dropbox was “a feature, not a product.”

But Houston and Jobs clearly agreed on the concept itself. Take a look at this video of Steve Jobs back in 1997 — one of my favorite strategy videos. Around the 14-minute mark, Jobs says he had a Dropbox-like service for himself back in 1990. He stored his data on a server and connected over a network. He never lost any data and never did any backups. That is, he was free from the task of managing storage. Jobs knew it was difficult to crack the technical issues that would make such a service work, but he thought that Apple might develop a simple, “plug and play” option that made it easy for everyone. (Already, the younger generation seems to think that being free of physical storage is a right.)

What Houston and Jobs disagreed about was the business model that matched the idea. Houston believed he could build an independent product. Jobs believed the service should be integrated into the operating system of computers and devices. To be sure, Apple has made several attempts at this. iDisk was an attempt to replicate a server disk on an individual machine. But iDisk was Mac-specific and could hardly be considered remote storage.

Apple is not alone. The Google Docs service aims to do the same thing by allowing users to both store and edit documents in the browser. Finally, Microsoft has moved from sharing documents (using Sharepoint) to possible cloud-based services that puts Office in a browser too.

It looks like Apple’s iCloud is designed to achieve Jobs’ vision. But I would argue that iCloud is unlikely to be much of an opportunity or a threat.

Here’s why: iCould does not appear to be associated with strong network effects. Nor does any other related service. That is, whether I use one service or another depends little on what others are doing. Put simply, my data is my data. The issue is how I like to access it. Also, it is just data, easily portable. Want to switch services? At the moment, that would not be too difficult.

But there are wrinkles of network effects to consider. The reason I have a Dropbox account is a colleague with one wanted to share a folder with me. Dropbox — like its competitors — capitalizes on its simplicity by giving extra storage to users who bring other users on board. But this still comfortably co-exists with SugarSync as my main solution. I have little doubt one could do the same with iCloud, if we get to see what emerges there.

Simplicity makes it easy to switch. Moreover, Apple, Google, and Microsoft have an advantage, even if the products they come up with aren’t as good as DropBox. Since their products will be embedded in the devices people use, it will be tougher for Dropbox’s to extract actual payments from customers.

So if I were CEO of DropBox, would I have sold out to Apple? Absolutely. But then again, if I had not done so, I would have found comfort in the fact that Apple didn’t want other companies that provided similar products. They wanted only me. That suggests something strong under the hood.

2 Responses to Where is Dropbox’s power?

  1. Asd says:

    Joshua, can you elaborate on why you chose SugarSync over Dropbox?

  2. Roger says:

    Individual user file sync is not that interesting as you point out, but Dropbox does have one compelling feature there – it just frigging works. I dropped an alternate solution a few weeks ago that just couldn’t get that right.

    In general the amount and size of files we have stored inexorably grow over time, and become more valuable to us. That is how people will end up paying. Consider the non-paying people to be beta testers finding problems that could affect the people who would want to pay, as well as the marketing service.

    It is the group functionality where they shine so much more and there you will quickly need to pay for storage and other functionality. It was how you got hooked. It is what my startup uses, because people experienced Dropbox just working for them personally.

    (SugarSync also happens to not support the operating system used by our servers and developers.)

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