Nail on the head right here. The only thing Dropbox has these days is consumer confidence in it's syncing process. Beyond that, they trail every competitor feature-wise and frankly, they are succeeding despite their management, not because of it. Recent product enhancements have been, let's be honest, mediocre at best across the board and show no signs of that changing anytime soon. They exist now solely due to brand recognition when it comes to cloud file sync'ing and the moment one of their competitors cracks the consumer confidence equation with the brand image to match, Dropbox is done.

What if -- hold your breath! -- Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror!

Their investors will revolt. Their investors need 10X returns in the next couple years to satisfy their fund's existence to their LPs. Funds need a few big wins like Hollywood studios need a couple blockbusters every year. Dropbox's investors are counting on them being a blockbuster. Dropbox's private valuation is an order of magnitude higher than Box's public valuation. And Box has a bigger sales team, more revenue, and more inroads into big enterprise than Dropbox. So it's a real pickle and dividends aren't going to get them out of it.

I fully concede your point. I think the private financing markets need to become more sophisticated out here, such that they enable the type of company I described -- which I reckon is the type of company Dropbox should be -- to thrive. There are a few very clever and small investors who already do this. But they're a minority.

I agree with what you're saying.

I'm not an expert - just learning more about this myself over the last few months, but it sounds to me like the investment style you're talking about exists inside the world of private equity.

They're not playing the venture game - it's a different model. Buy and hold for either cashflow/dividends, or do some financial/managerial engineering and flip the asset.

Outside of the world of Venture Capital, there's a HUGE spectrum of investors out there doing every kind of investment - just gotta tune into it I've found.

(Great place to start is a podcast called PE Funcast - seems to me they've been doing this type of investing.)

Would that be a smart move for those investors? Just because you need 10x returns doesn't mean there's a good way to get them.

Not every investor is looking for a 10X. DB raised 1.17B, with 1.1 of those in the last three rounds (according to Crunchbase). The last three rounds were 250M,350M, and 500M. A round was 6M.

Say A round wanted 100x. B round 10X. C round 7x. D round 5x. That will bring the total expected return to around 8B. However I am sure C and D would not mind a 3X or 2X, while B would probably settled happily for a 5X.

Now add the implications of liquidation preferences (presumably) to the math and you'll see things get a lot more challenging.

Exactly. Throw in a 2x or 3x liquidation preference and participating preferred and some of those investors will be lucky to get their initial investment back.

Yeah, however even a liquidation preference will be 1x,2x.

Not true. Investors probably have preferential shares and liquidity preferences which will safeguard their investments regardless. If it is indeed a small/medium size business, then the current $10B valuation is totally out of whack, and guess who gets screwed in the end - yep, employees..

Companies like that don't usually hire 600 people in 12 months, though.

Buuut I guess they could. I guess it just kind of looks like the explosive hiring you see sometimes when a company has projected huge growth but then falls flat and realizes it has way too many employees :(

>Companies like that don't usually hire 600 people in 12 months, though.

Maybe, are those 600 people there to fight fires and work on tickets, or adding product features?

Either they have a huge growth in number of fires, tickets, or features. None of those fit your image.

During holidays you see retailers hire to capitalize on the season. We should consider the same for startups, i.e. hire a bunch of people for a year or two to capitalize on the opportunity, then let them go. Everybody wins if it is clear from the beginning that when the well dries, everyone leaves.

Let's say I am a dividend investor looking for a steady cashflow stream.

Why would an asset class like medium-size technology companies pursuing highly competitive cut-throat markets, requiring long lock-ups of capital (Dropbox was founded in 2007, so someone has been sitting on those shares for 9 years already) be more attractive than similar dividend-flowing asset classes like real estate or energy MLPs?

Are the dividends so outsized that Dropbox is basically swimming in cash and the yield is much better than I can get with similar asset classes? Do they have a stronger foothold in the market with expected longevity to out-survive an office tower, apartment complex or gas pipeline? Is it likely to attract better talent than Valley's established public companies (GOOG, AAPL, FB) or Valley's hyper-growth startups with IPO potential (Uber), and that better talent will out-compete the rivals on products, execution and market share (and, as corollary, fall under "dividend growth" umbrella, in theory allowing me to buy larger yields at substantial discount)?

Dropbox would have to compensate investors for (a) lack of liquidity and (b) for being in technology software market, known to be particularly unforgiving with its "winner takes all" mentality. Its peers would be highly risky single purpose private REITs (think casinos and fracking companies in North Dakota).

To accommodate that compensation the yields would likely have to be in the double-digits range, so let's say with profits of $20 mln of which $10 mln is allocated to dividends the expected valuation would be in the range of $60-100 mil (10-15% expected yield which seems reasonable in this rate environment with the type of risk described).

All of what you say is well taken. But there's absolutely a place for what amounts to a "data REIT." Investors prize dividends, and they prize having diverse sources for those dividends. Nothing new about that.

If Dropbox is delighting its customers and no longer interested in the lightning-fast one-uppsmanship of enterprise software/storage, then it can trim costs and pay an attractive dividend, sure.

I don't think you're going for medium sized when you raise over a billion dollars. The investors who put in $500 million at a $10 billion valuation would need a lot of dividends to even break even, much less make the 10x return they want out of a decacorn.

I'd expect that there'll be more examples of the type of company that you're describing as interest rates rise.

Regardless, once investors pay for growth, they require it, in order to be paid out on their bets and remain profitable.

But they aren't making a profit, not even close

>Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror! reply

how well did that work out for basecamp?

They could have been the next slack if they had not stuck to their stupid philosophy of staying small.

Is Basecamp in trouble or out of business? Not everyone needs to be huge, and it's not always profitable to grow out of control. Sometimes the costs of growth exceed the additional profits. Sometime to pivot to a market that doesn't actually exist. But sometimes you make some pretty decent money with a pretty decent profit, even if it's not exciting.

> Not everyone needs to be huge

But we are specifically talking about dropbox here.

I am sure they were not exactly aiming to "be small" raising million of dollars in multiple investment rounds.

I loved Dropbox for its simplicity, the fact that it has MIT in its genes, it not being Microsoft or Google, and for Carousel.

But my dropbox was super slow in Japan, MS Office products keep spawning conflicting copies, Photoshop randomly pauses batch processing because of sync file locking, and they are shutting down Carousel.

So I am moving to Google Drive. All the frustrations above are not unique to me. Dropbox even has a Japanese web site. But this is what destroys consumer confidence. There were trivial complaints on their support site regarding speed issues and Carousel issues with pages of responses. It is the loyal customers that bother to post, yet the impression everyone is getting is seriously, WTF are they doing?

You can't have it known that you are healthily funded, have hundreds of engineers, not free, and NOT care.

The grass is greener... Report back on whether your new service is faster than DB.

For most users in the US, they won't see a difference in speed. However when I lived with 100down/up internet, there was a huge speed difference between Drive and DropBox. Drive was like 4x faster.

I've had ridiculous sync issues with Google Drive. Can't remember the details, but it had something to do with switching accounts and then having to re-download tens of gigs of data. Left my system in a confused state where it wouldn't sync any more. I had quit Dropbox, but went back to it.

These issues have mostly since been fixed.

I feel your pain. I use both Drive and Dropbox. I think they have the two best cloud storage software, or at least the best from what I've used.

I agree. The whole Carousel thing has just been really confusing. It's telling me Carousel is deprecated, but there is simply no way to "go back" to Dropbox -- you still have to use it to synchronize photos to Dropbox. Stupid stuff.

The only reason I use Dropbox is that it is not made by either Apple, Microsoft or Google, so I can sort of trust that there will be client support for all platforms.

What do you mean there's no way to go back? Uninstall carousel and it works like old Dropbox (in my experience on android).

Dropbox works better for me than Google Drive. That's quite surprising, since I'd expect Google to be good at sync. Maybe not consumer sync, I guess...

Also, I don't want any more features. Same with Evernote. I just want to keep notes, and it works quite well for that.

Too bad the investor pressure will likely make each of these products worse.

>Honest question: WTF are they doing?

Have an actual profitable syncing business with several pricing tiers and tons of hooks to third party apps?

I mean, unlike tons of billion-valued "unicorns" that not only don't have an income plan (apart from "some day we'll maybe sell ads") but are also losing money.

You'd be surprised with how many 1000+ people companies are there, profitable and fine in all kinds of sectors, that are way less known than Dropbox.

> Have an actual profitable syncing business

Source? Everything I've seen says Dropbox isn't even close to being "profitable" -- the vast majority of their customers don't pay a dime according to their CEO.

>the vast majority of their customers don't pay a dime according to their CEO.

That doesn't matter as long as those who do pay subsidy the others. From what they said, they have 100,000+ paying businesses and smart ways (like hash-based de-duplication) for minimizing their storage costs.

Their CEO also said that they have enough cash to not need new financing.

Yes I've seen the 100K estimate on paying users but that isn't that significant considering how many millions of free users they have (and how many full-time employees they need to pay for).

And "not need new financing" is no indication of profitability either.

Dropbox is playing catch up with Box in the enterprise so they're hiring salespeople like crazy in San Francisco, Australia, New York and Europe.

Why you ask? Obviously because storage will be infinite and free in the future. Google Drive for education is already completely free.

https://www.google.com/edu/products/productivity-tools/

What that means is that Dropbox is shifting from a consumer to an enterprise company. We all know for consumers they're way too expensive - 1TB for $100 is way to much free space for the average person.

The problem is they've screwed up other things. Google owned Carousel with Google Photos. Mailbox turned out to be an overly expensive acqui-hire. Luckily that doesn't affect them that much because they raised a boatload of cash and have lots of customers.

Now will Dropbox go away or die? Probably not but they'll always be behind Box when it comes to enterprise features.

It's too bad Box and Dropbox can't merge. Box has crap sync and Dropbox lacks a lot of Enterprise features Box has.

Sales by far dominates their open reqs. https://www.dropbox.com/jobs/all

Trying to catch up to Box in the enterprise market. Box is all over the corporate world.

I remember thinking years ago that Dropbox's product is the perfect example of the 90/10 rule of programming. I feel like the code Drew wrote at YC covers 90% of the usefulness of Dropbox. The rest has been really advanced and convoluted optimizations.

Why i like and dislike DBX (note: i'm completely on AAPL ecosystem in HW):

+ sync works better than any other out there

+ its quick in sync esp between other machines in same network

+ sharing folders and links is much easier than other including iCloud

+ developer adaptation is high on mobile apps which is turning out to be increasingly valuable last year or so

- expensive and limitation of option plans

- extremely poor biz plans and tools, esp if you're a startup

- privacy: hugely concerned about it and haven't heard much from their comms teams about what they are doing to protect me or providing backdoors or govt snooping. (better to move to iCloud for personal info)

- no new noteworthy features - almost 'feels' like the product is stuck in 2012 era

- MS and DBX integration sounds awesome on paper, i have had an incredibly frustrating time using it. Both companies are pointing finger at each other for live editing and sharing.

Once developers start offering iCloud as sync option often, i'll move over.

Edit: formatting

I can't blame Dropbox for the Microsoft thing -- Microsoft hasn't figured that out in a decade in SharePoint.

Mostly DBX makes me sad, as there is so much potential there. I also find it frustrating that they cannot come up with a pricing model that allows me to actually give them money.

You have two choices on privacy: encrypt at the client (that means no web sharing from random machines), or be vulnerable to spying.

| - expensive and limitation of option plans

This stopped me from becoming a paying customer for years. I had 20GB of free space from referrals and it's a big leap from not quite enough space for nothing to too much space for a $100/yr. I started using the free space from Google and Box for my overflow while waiting for Dropbox to offer a $50/yr plan... and I blinked first.

The Google and Box clients are serious contenders for dethroning iTunes as the worst software on my computer. Dropbox just friggin' works and I've never noticed it crash or have a negative impact on any computer I've put it on.

My first renewal is in four months. Maybe I'll find some time to give ownCloud a try before then... or maybe not.

You have a pocket computer that's really good at storing random bytes. Store a decryption key there, and get it into your random browser's memory via QR code or encoded mnemonic phrase. The UX is hard, but probably solvable.

They are in the catering industry and serve some of the best food in SOMA!

This is true. Best lunch ever.

I expect they're going to branch out into physical storage. Prediction: by 2020, there will be thousands of DropBox locations where you can rent space ranging from a small locker to a large garage. If they're smart, they'll start in rural areas.

Interesting; what made you think of this?

Also, will I be able to sync my locker with my desk drawer? :)

It's not that far-fetched. Omni and MakeSpace are both already selling 'on-demand' physical storage and have similar business models to what shasta outlined. They pick up your stuff and store it somewhere, like Iron Mountain does for documents.

Further confirmation of Poe's law...

I know you're joking about syncing but once my teleportation startup finished its series A....

You can't teleport. Scan it locally and provide VR at other locations.

Yuck. Support nightmare.

In enterprise, about a dozen vendors do it already.

Man I've meet some dropbox employees and talked about to them about their company. Its kinda frightening. The sheer amount of decadence makes me think the company won't last. It was shocking to listen to them and be around them. They acted like they were the kings of the world and spent like it too. I guess it wouldn't be a bubble if such behaviors weren't common place.

Not working on Mailbox. Still bitter about them cutting that product.

But seriously, it's a bit odd. Dropbox's product seems fairly mature. Are these sales staff, or developers, or...?

Reading between the lines, it sounds like Dropbox is going all out to build up a sales team so they can be more like Box, and I imagine the bulk of those new hires were picked up for their skills in cold calling, not coding.

Building an API for Palantir? They sit on a pile of not encrypted data...

sales and support?