Case Study in Product: Dropbox Paper

The cloud-based document-editing market is saturated with many great products, such as Word 365 Online and Google Docs amongst others. Dropbox is one of the latest to enter the über-competitive space with their new product named Paper. Users can use LaTex to type mathematical equations, templates to make meeting notes, and mentions to ensure productivity, all while working on a collaborative platform that espouses Dropbox’s design ethos.
However, I was intrigued about how Paper would assimilate into the document-editing market, considering it’s rather late entry. What was the reason for Dropbox’s new product development? Where would Paper achieve product-market fit? What is the current efficacy of Dropbox’s ‘freemium’ business model? The team at Dropbox surely invested countless hours of user research, and market segmentation before shipping the product, however, I was interested in answering some of these questions on my own.

Research
A Market Research Document that I compiled can be found here, containing more in-depth research about Paper’s target market, business model and competitors.
Below are some key takeaways:
- Paper has 2 key customer segments: Enterprise customers and a consumer mass market
- Design and Usability are key value propositions of the Product
- The product itself is free, but the company is using a “Freemium” business model to drive revenue for its consumer market. Storage space is commoditized, and the more users use Paper for their document-editing needs, the more space they will need — pushing consumers to purchase the premium offering.
- Paper is core to Dropbox’s appeal to business customers, as it part of a greater productivity suite included in Dropbox Business.
- Competitors such as MS Word 365, Google Docs, and Box Notes all have similar functionality — with varied levels of user adoption
Analysis
Paper is a product of Dropbox’s recent push to be more attractive to business and enterprise customers, a market that is crucial to Dropbox’s overall revenue. However, it remains to be seen whether Paper will provide enough incentive alone for enterprise customers to switch over from incumbent solutions. Most business customers value price and functionality over design and usability. I had the opportunity to sit down with some C-level IT executives regarding the most influential factors in choosing a storage vendor for their enterprises. Some of the big areas of focus include price per TB of storage, security, and crucially, the additional software suite included with the product. This is a key area that Dropbox faces stiff competition in, as key competitors MS Office 365 and Google G Suite are able to provide cheaper alternatives that are a part of a larger product offering.

Furthermore there is a transition process when switching from legacy solutions to Dropbox, and in many enterprise situations, it could be a costly and timely affair.
However, given the above, there are still many possibilities for Paper and Dropbox’s product offering to attract business customers. Below are some of the many possible directions they can take:
SMBs & Design Firms
One possible direction to move in is to change the current target market segment. Currently, they are aiming to pry away enterprise level-customers customers from the incumbent solutions. This would mean that Dropbox would have to square-off against industry giant Microsoft Word 365 which holds ~95% of the market share in the enterprise space, which could be a difficult proposition, considering its generally favorable reception and overall value proposition. However there exists another smaller, more dynamic B2B audience that Dropbox can look towards. The Small-to-Medium Business space, dubbed ‘SMB’ , poses a much brighter prospect as the Microsoft office suite has much lower adoption rates — 83% of SMBs do not choose to adopt the MS suite according to CIO magazine.
Although each individual Enterprise customer generates more revenue than a SMB, due to their scale, the size of the market leaves a lot of room for opportunity. According to the 2016 Annual report from the Bureau of Labor Statistics, there are 2.27 M firms that have between 5–1000 employees, all eligible to be considered SMBs, and which makes up 44% of the entire market. The segment is a subject of intense growth with firms with less than 250 employees accounting for more than 49% percent of 2016 Q4 new jobs.
Many of these businesses are individual retailers or sole proprietorships, and therefore would not have the technical skills and background that many large scale enterprise companies would have. These employees would appreciate the simplified and usability-focused experience of Paper. Moreover, many of the SMBz do not have the scale and resources to support their employees with technical implementation of tools and software. Dropbox would be able to help in those efforts with a combination of self-help documentation, user communities and over-the-phone customer support, which will allow users to migrate to their system easily.
While the SMB presents a lot of opportunity, there is some difficulty in understanding their inherent needs and preferences due to the fact that they are a diverse group. The term itself is very broad, as commonly refers any firm below a 1000 employees — which could mean anything from sole proprietorship all the way up to a 900-person startup. Therefore, it is important to identify a specific segment of SMBs that Paper can provide the most value for. Through interviews with businesses and students-organizations, it became clear that one segment rose out in particular — Design firms.
Paper was very well-received in the collegiate and professional design firms that were interviewed; The Designers I had the chance to speak with liked Dropbox’s Usability-first approach and Design-Focus. The inherent appreciation for their products prompts ideas about a possible market. What if Dropbox targeted Design firms for their suite of products, and built out additional functionality to better suit their needs? Dropbox currently has IDEO and some other reputed design firms under its segment of customers, and could expand to other large scale firms such as Frog Design and Pentagram.
Even some of the largest firms are technically considered SMBs due to their number of employees — less than 1000 in the case of aforementioned Frog. The market is considerable in size — according to the Bureau of Labor Statistics, there are about 460,140 professionals under the title of “designer” in the US. Furthermore, per the reputed magazine Dexigner, there are over 1,500 Design firms (Studios, Consultancies and Companies) listed in their directory that fall under the Industrial, Interaction, Communication, and Multidisciplinary Design subsets alone. The industry is growing as well, with the industrial design subset is having an annual growth of 4.1% in real-value added as reported by the national endowment of the arts.
These Firms also have some unique needs and characteristics, which Paper and Dropbox’s suite of products would have to cater to. Through interviews and market research certain characteristics of the design industry pose it to have different needs and challenges unique from any other industry. Once again, both professional and student-level designers were interviewed, and it is important to note that Design firms are highly unique and idiosyncratic — they each have their own style, tendencies and approach. However, below are some commonalities observed across most firms that separate them from most enterprises.
Key Takeaways
- Breadth of Work — Design is inherently interdisciplinary which leads to work and projects in many different fields, areas of focus, with unique challenges and work styles to each discipline
- Independence / Autonomy — Creative and Managerial reign over projects. Many desingers have the ability to choose independent projects of their choice, during their time at the firm
- Space for Creativity — related to an a persons individuality and artistic freedom.
Given the above, here are some concepts that could potentially address the needs of the aforementioned market:
Ideation Support in Paper
One very interesting idea is the possibility of in-built functionality for creative brainstorming, typical of the exploration and ideation phases of the design process. Companies such as MindMeister.com and Mural allow you to make collaborative mind-maps and sticky-notes, essential tools used in creative brainstorming. However, Paper can have functionality that surpasses these tools due to many Dropbox’s core competencies.
One Paper’s key strengths is concurrent file editing — dubbed “Super-Sync” which allows for real-time document editing across multiple platforms without a loss of data. Other creative collaboration tools lack the ability to edit at real-time, and therefore there presents real opportunity.
Moreover, this feature would further rely upon Papers inherent functionality for file storage — with each sticky note or idea users could attach rich media files more easily than previously able to in existing solutions. The clean UI of Paper would provide allow for a creative whitespace for these ideas to cultivate.
Dropbox Mail
Another possible direction Dropbox could look into is to continue expanding their suite of productivity tools . The most central tool to a productivity suite is email — a product that is still largely complex and uniform. Dropbox could bring its key vision to the mailbox, by creating a mail client that is much simplified, usable and connected. This product direction does make sense considering Dropbox’s acquisition of the mobile-first email client named ‘Mailbox’ in 2015. The whole premise of Mailbox was to create a simple, mobile-focused user experience that tool out the complexity of traditional mobile email software.
Dropbox could leverage their key assets in Mailbox’s technology and personnel and augment that with their own cloud infrastructure to create their own mail client. The key difference between Mailbox and Dropbox Mail would be this system would have it’s own proprietary mail infrastructure, whereas the former used Gmail’s services. With their own mail client, Dropbox can focused on simplicity, speed and large-file storage, pairing with their APIs to implement the latter as Gmail and Apple Mail do with Google Drive and iCloud respectively.
Conclusion
Targeting Design firms with Paper with an enhanced suite of products presents viable opportunity for Dropbox to consider. Targeting a niche market is a deviation from mass-market approach that the cloud storage company currently uses. However, if they gain the majority of traction in that market, they can expand outwards onto more large-scale common markets. They can identify commonalities in preferences in between Design firms and the larger SMB market and continue building out their suite of products in that regard, all of which can adhere to their core mission.

Here we can use some key concepts from Geoffrey Moore’s framework from his book “Crossing the Chasm”. In order to gain mainstream traction within a large mass-market, a specific niche within the early majority would have to be chosen first. In this specific example, Design firms would be the specific subset, or niche, within the broader group of SMBs that Dropbox could target. By developing an end-to-end solution that satisfies the needs of the segment, the product suite could proliferate to other segments of the early majority through word of mouth, referrals and most importantly vendor relationships. Moore stresses the importance of having less “paid-marketing-contact”, and in this instance, Design firms have often vendor relationships with other SMBs and enterprise companies through outsourced contracts, and here Paper’s great value and traction can permeate through these relationships. By having a clear value proposition and brand positioning as the most streamlined, usability-focused productivity suite available Dropbox can once again appeal the masses.
