Dropbox’s billions – what’s in a run-rate?

airplane reflect on building
COMMENTARY
 
The news that Dropbox revenue has reached the $1Bn annual run-rate marker on Monday has tended to rather over-shadow the company’s other announcements this week (general availability of notetaking tool Dropbox Paper, early access to Smart Sync which unifies access to online and offline folders, new web UI, new price plans for Dropbox Business, etc.). But what does it mean in the company’s short- and medium-term future?

Dropbox revenue has managed it’s billion-dollar run-rate accolade quickly, less than 8½ years since the product first launched – making it the fastest SaaS company to do so, beating Salesforce’s record (set almost a decade ago) by around 8 months.

However, ‘run-rate’ isn’t the same as an actual year of Dropbox revenue, of course – and extrapolating seasonal or short-term numbers in order to make a headline is nothing new (hello ‘Pokemon Go’, which claimed a similar title last summer after bringing in $250m in revenue in its first month of release!) However, in the SaaS subscription marketplace, especially if your churn is low and you tend to be able to expand your install-base once you’ve landed in a customer’s enterprise… it’s a good indicator of maturity, stability and enterprise credibility. All of which are important badges to wear when wooing business customers (and investors).

It’s not straightforward to unpick any of Dropbox’s stats in order to derive a more detailed picture of the company’s health though (or compare it with its competitors), as things can get pretty opaque pretty quickly and it’s hard to compare like with like. There’s things like “number of users” (Dropbox boasts over half a billion, but that includes users of its free consumer product), “number of paying customers” (over 200,000 – but that’s the number of ‘teams’ paying for Dropbox Business, it doesn’t include the number of individual people paying for Dropbox Pro or aggregate it up to the number of organisations), etc. so nothing that specifically isolates how the Dropbox Business product is doing in terms of organisations, seats, how many ‘large installation’ customers they have, how many small ones, etc. As a privately-held company, of course, it doesn’t have to release any of this if it doesn’t want to (and it’s rare to get that level of detail from a publicly one either!).

On the face of it the numbers we do see dwarf, say, Box’s stats (more than 10 times the number of sign-ups, for instance), but Dropbox is still very much attempting to continue playing the consumer game at the same time as going for enterprise customers. Sure, Box does still have individual and personal editions too, but it’s the business and platform plans where it’s focusing its effort, cultivating a position as an enterprise player. And you’re never going to show the same scale of ‘users’ when businesses are paying for seats.

Even if Dropbox turns this run-rate into an actual $1Bn revenue figure this year then its market capitalisation would still only come out a little over half the $10Bn self-valuation it came up with on its last private finance round. To make up the shortfall, revenue would have to double. However, this news still sets the company up nicely for a healthy IPO in 2017 should it finally choose to jump that way.

And maybe then, with much more public scrutiny and shareholders to keep happy, it’ll be forced to choose more decisively between being a primarily a consumer or an enterprise brand. It’s not really showing any desire to fully orientate itself one way or the other at present… the consumer crown is too attractive to give up; and a true enterprise business will cost serious money to develop!

Being popular and well-known does give you a great head-start when it comes to initial adoption, but for paying business customers to see scope for value beyond simple file-sharing collaboration (and to be prepared to keep investing in and around the solution), they need to see something that looks like it’s going and growing in their direction. And that means certifications, integrations, extensible platforms, etc.. That’s not necessarily what hundreds of millions of individual consumer users would prefer you to focus on. Sometime soon, it’ll be time to choose.

[This article was updated to provide additional clarification around Dropbox’s ‘number of paying customers’ on 31 January 2017.]

COMMENTARY

Leave a Reply

Your email address will not be published. Required fields are marked *