Dropbox and the True Meaning of Competition

With extremely low barriers to entry, startups might feel they are entering a crowded space.

When Drew Houston pitched Dropbox to his friend, a successful entrepreneur, his idea met strong skepticism. His friend opened TechCrunch, navigated to threads dedicated to cloud-based storage systems, and showed Drew close to a hundred startups in that field, half of which were venture backed. It was 2007, and the hot trend of that time was Cloud Storage.

Put yourself in Drew’s shoes. You have a brilliant idea, but you find out that literally tens of companies already exist in that space, and it seems that there is very little room for competition. But Drew asked his friend a simple question (and one that he would repeat to all early doubters), “Do you use any of these systems?” The answer, 9 times out of 10, was “No”.

Drew believed that all the existing companies were “pretenders” who have failed to create a cloud storage system that provided everyday users a simple and straightforward tool to manage their files on the cloud. In other words: the current systems, although many, simply didn’t work. He was confident that the system he was about to build could infinitely improve on the current solutions. He was right. Today, Dropbox has over 200 million users, and is the number one cloud storage software in the world.

Google faced a similar proposition. When the company was founded, two giant search engines, Yahoo and Alta Vista, existed and controlled the market. But Page and Brin were aware that they had created a search engine that was exponentially better than the existing incumbents. We all know how that story unfolded.

The key takeaway here is that the size or quantity of competition can sometimes be highly irrelevant. The true relevance of a competitor is not market share, but rather how much room is available for improvement on their product or service. The less room, the stronger the competition.

Most people in Drew Houston’s shoes would have seen that TechCrunch page and would’ve been demoralized (or scared) by the number of competitors. But what was relevant to Dropbox is the quality of service provided by these companies, and how vastly they could improve on it. Dropbox recognized that although hundreds of companies existed, the best system among them still left a large void in user experience. They filled that void, and continue to fill it.

Slice of Advice

Analyze the competition in your own terms. Compare your idea or product to theirs, and clearly define where and how your product improves on theirs. If the improvement is vast or meaningful, than the size or quantity of competitors becomes relevant only to the space available for improvement and how effectively your product fills that space.