The Viral Enterprise? Dropbox Growthhacks Microsoft to get access to 1B users.
Some might call it #growthhacking, some might call it biz dev or alliances. Whatever you want to call it, what Microsoft and Dropbox just did will be massive. With a little tweaking can easily be a more profitable 2nd round of “viral” user adoption big enough to drive Dropbox to 1 billion users.
Early stage Dropbox and @SeanEllis have rightfully garnered a lot of credit for the brilliant referral model that helped them grow to from 100k users to 4m users in 15 months. Almost every SAAS/consumer startup since has tried to emulate that model in some way.
Present day Dropbox now has an opportunity to repeat that growth curve and convert the free storage they gave away in the early days into revenue on scale of billions of users without advertising, massive enterprise sales teams, without paid SEM, etc. etc.
Project Harmony: Much has been said about the Office 365 & Dropbox Integration already but what we have not heard a lot about is Project Harmony. Harmony is the ticket to generating growth on a scale that is faster and more valuable than the freemium referral model could ever be. Here is Drew Houston explaining how Harmony works (@15:00). This is worth a watch.
In short, you can edit a MS Office Doc seamlessly in Dropox with multiple parties without the typical workflow. (Yes. Google Fanboys, GDocs can do this but without the Office Users it doesn't matter.)
Imagine a contract or a press release being edited by the legal team or marketing team without a copy ever changing hands.
Legacy Office Collaboration Model:
1.) Download it/check out from Exchange/Outlook or Sharepoint->
2.) Edit it->
3.) Create a local copy->
4.) Rename it Contract_Final_FinalV1_TuesdayPM_Sean_Final_Marketing Approved_Final.doc->
5.) Mail it or post it to SharePoint->
6.) Wait for the other party to revise->
7.) Repeat.
At some point this process creates a dozen copies on your desktop, servers, backups & over the network while creating massive confusion between the parties re: version control. There is a glitch in your cubicle matrix. Software developers have figured this out with their code repositories. Knowledge workers seem to just hire project managers to deal with the versioning issues.
Harmony changes this by allowing multiparty editing in the cloud.
Cloud Model:
1.) Receive the Dropbox link to the contract or press release you need to edit.
2.) Click on it & Start editing
3.) Multiple editors can collaborate in real time
4.) Finish and hit save.
5.) File is saved in Dropbox.
This eliminates the endless sending, saving, change controls, revisions and renaming that every Office user has lived with for years because it all works off of a single copy in the cloud.
So What?
That’s nice but how does that supercharge Dropbox’s growth to 1B customers that are willing to pay?
How does it shift the control point and value prop of a bunch of legacy enterprise technologies?
Cloud collaborative editing alone won’t do all this. But with a couple hacks inserting this workflow into the right places it can. The reason I use the controversial growthacks nomenclature here is because this is marketing via engineering.
Here’s how:
There are 1.2b Office users in the word. Everyday they diligently send/share billions of files back and forth to each other and edit them using the save->rename>send->repeat model above. Imagine if every one of those user behaviors added users to the equation like a Facebook or LinkedIn friend request.
To capture this network effect Dropbox has to build a plugin to Outlook or Mailbox that removes Office attachments, stores them in Dropbox and replaces them with Dropbox Harmony links (and some API’s for search and indexing and maybe a time-bomb for records retention/disposition). Combine this with a modal view or a short intro workflow video about cloud editing and they are off and running. (This isn’t new tech. It just turns out that those who tried to do it for Sharepoint and legacy archving software had a lot on common with the App developers working on the Apple Newton. They were right, but they were too early and the usability of the tech wasn’t there yet.)
Imagine if every time you attached an Office file to an email it was automatically stored in Dropbox and replaced by a link/icon. The recipient could click your link, edit the file and save the file without the version control and conflicting changes ping ponging across multiple inboxes. Project Harmony changes that experience for Office users in a meaningful way.
How big could this get?
This depends a bit on how much cooperation Microsoft provides via Exchange/Office 365 and how much Dropbox does itself via Mailbox and other tools they have. (I’ll explain why MSFT will willingly participate later.)
We could spend 10 pages netting out the different ways to go to market with this. To keep it simple for now lets look at some basic K Factor math. @destraynor and @AndrewChen have good resources to go deeper here and are welcome to collaborate on the ways the numbers twist as we dig deeper. My math is a bit over simplified here but illustrates the potential.
A xB xC xD = K FACTOR If K >1 you are viral and customer acquisition cost goes to basically zero.
Scenario: Microsoft plays kingmaker and allows Dropbox to inject Harmony into Office for Desktop & Outlook workflow in addition to Office for Mobile devices.
A: What percentage of Office Users Share Files? I’ll go with 90% to be conservative.
B: How many times do they share attachments? I’ll go with 3 times a day to be conservative. (The daily rate may be an interesting factor to reconsider here)
C: How many new users do you get per share? I’ll go with 3 conservatively because not everyone reads the attachment. The three that do open it automatically become Harmony users.
D: How many new full users do you get per share?I’ll go with 2 to be super conservative.
.9 x 3 x .75 x.66= 1.3365
Enterprise Viral
Why will Microsoft let Dropbox do this?
Monetization: There are 1.2 billion MS Office users in the world. The majority of those users are on the legacy license model. That means MS would love an opportunity to “remonetize” them. Getting them to upgrade to Office 365 subscriptions because of better cloud features will help them remonetize that base. The value of this is MASSIVE.
Legacy Office license users: Microsoft will still benefit from the legacy Office users getting access to this. It keeps the Office users in the Office ecosystem even if their data lives on Dropbox cloud disk. It will also help bring the cost of running Exchange down by decreasing network demands while also decreasing storage, backup, archiving and management costs for on premise or cloud deployments of Exchange. This helps them get to a lower TCO per mailbox, which lets them compete better with Gmail on a per mailbox cost, a current sore spot and enterprise account battleground. (Driving this cost down is one reason they built archiving into Exchange and pulled Exchange server from the SMB server pack to push people to Office 365. )
One Drive: Short term this looks like a bitter pill for One Drive. That said, Microsoft is no dummy. Just like with OneNote and Evernote they will create a migration tool down the line and attempt to drive migrations to One Drive. They will probably also find ways to monetize that user base with enterprise grade security, data loss prevention, E-discovery, backup etc. So will Dropbox. They will both play the Tug of War as partners and both will win.
Google: Harmony puts a stake in the heart of Google Docs. Google Docs have garnered a good fan base because of the real time editing capabilities. With that differentiator aside, it is hard for any other productivity suite hold a candle to the Office Suite. Why bother with Google Apps? I recently started a marketing and GTM consulting business and through Legal Zoom and Go Daddy was offered Google Apps and Office 365 starter packs. The pricing differences for each are irrelevant. (I went with MS because I got free Office 365 for 5 mobile devices)
We could go on here for quite sometime but you get the idea.
What does this disrupt?
This list could be pretty long so I’ll look at segments instead of specifics.
Other Sync and Share Vendors: Marc Andreessen likes to say software is a winner takes all market. The network effects of this are powerful and will drive consolidation toward the DBX platform at the expense of other players. It won’t be the end of them but it will force the big vendors like Google and Apple to be more open, something Aaron Levie at Box has been trying to do as well. Then we will have a version of the browser wars develop where each sync and share tool competes to see who delivers the best experience for office productivity tools. The war is not over but winning a control point on the knowledge worker’s data stream is a big battle to take at this scale.
Dropbox will win the front end of what Sharepoint wanted to be. Box will win the backend. That’s a big enough market for both and their API ecosystems. Between the two companies, I’d guess thet are already pulling $500–700m in revenue that Sharepoint would have liked to earn.
Collaboration Platforms: This will hurt other collaboration platforms and even Sharepoint as it makes sharing and collaborating part of the basic Sync and Share experience within Office. Sharepoint/Box will thrive more as the backend and Dropbox will become the front-end. I guess a focus on design isn’t such a bad differentiator to focus on.
Archiving Vendors: Many archiving vendors grew up during the bloated Exchange Server era to help businesses control storage, backup and management of unstructured information. They got their foothold by eliminating mailbox quotas and reducing expensive storage needed for Exchange servers. They then expanded to file system archiving but missed the sync and share use case, Sharepoint, IM, Social Media etc.
Harmony integration could disrupt the current architecture of archiving and retention management while adding major productivity and infrastructure savings.
Together Box and Dropbox could become the repository of record for unstructured data in the enterprise or even at a user level. When they do, they become the data platform for all of the other value add services enterprises will want to layer on top such as analytics, data loss prevention, e-discovery and collaboration. The archiving players like KVS and Zantaz were here first but they hit caught the SAAS wave and relied on legacy customer acquisition models. There are a lot of backup vendors who also see this opportunity as they already have a copy of all the data and can build value add service son top of it. Actifio, Axcient, Symantec etc.
Backup Vendors: When users are running Dropbox for all of their unstructured information little else remains on their laptops that isn’t replicated elsewhere. System files, config files and operating systems are easily replaced and if Dropbox wanted to maintain an image or a hash of those files in the cloud they could easily rebuild an end user’s laptop for a small add on cost. Larger companies will still run Exchange, SharePoint and other collaboration systems on premise for the foreseeable future. However, in the mid market and below, the number or servers and volume of storage on premise continues to dwindle putting pressure on backup vendors who charge by servers and data volume. Don’t get me started on the VARs who can’t seem to shift from this legacy selling model.
Hard Drive Vendors: Chrome Books are starting to see real ramp and the more people leverage the cloud, the less the local storage means to them. The fewer, smaller, local drives there are to manage, the easier it is for corporate IT departments to apply the hygiene they are required to provide. With the recent announcement of Adobe Creative Suite for Chromebooks the argument that Chromebooks can’t run high horsepower applications is diminished if not destroyed.
Dropbox doesn’t make any money!
Yes. They do. It just isn’t their priority yet. Up until the price wars of this year I figured they only needed one paying user for every 100 free users to break even on storage costs. That’s manageable. I suspect their conversion rate is significantly higher than that.
This announcement just supercharged their ability to charge and enterprises willingness to pay. It sent a message to Apple, Google, MS, Facebook and several other players who want, and need to have a stake in the knowledge worker information management space.
Imagine a vendor that now sits right in the middle of the knowledge worker information stream? A vendor that can apply all sorts of management, security, analysis and hygiene to the information your employees create and share on a daily basis. Dropbox will monetize this on an enterprise scale and become a massive player with over 1B users. They will sell site licenses and have endless value add services connected via API that they build or partner and resell.
I bet Mark Zuckerberg has a very expensive bottle of Champagne on reserve for Drew when they get to the, “1B users is cool club.” Even if he doesn’t, the average employee at Dropbox should have no trouble buying one themselves.
Credit to TechCrunch for the clever graphics.
