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Dropbox: “It Just Works”

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Files between personal computers over the Internet. Houston said, “After graduation, I was working full time at a security software company, and part time on an online SAT prep startup that I’d launched in 2004. That startup was profitable, but I didn’t have much passion for the product. I was searching for a new opportunity that was more technically challenging.” Dropbox met this requirement. When a user downloaded Dropbox client software to a Windows, Mac, or Linux PC or to an iPhone, iPad, Blackberry, or Android mobile device, the software created a local Dropbox folder for accessing files of any size or type via an encrypted Internet connection from other Dropbox-enabled devices or from any web browser. The client software tracked changes in real-time to any file in the user’s local Dropbox folder, then instantly synchronized a copy of the file on Dropbox’s servers, updating only the portions of the file that had changed, in order to save bandwidth and time. Likewise, within milliseconds, copies of the file were synchronized in local Dropbox folders on all other devices connected through the user’s account. “We engineered Dropbox so it just worked, all of the time,” Drew explained, “We supported all the major operating systems and handled all kinds of obstacles, from flaky wireless connections to corporate firewalls, which was not an easy task.”

The company adopted a freemium business model, that is, it offered both free and premium accounts. Users got 2 gigabytes of storage for free and had the option to pay $10 per month for 50 gigabytes or $20 per month for 100 gigabytes. Industry observers estimated that 2% to 3% of Dropbox’s users were paying customers, which implied a $10 million to $15 million annual revenue run rate in mid 2010.1 At that time, the company had 25 employees, most of whom worked in engineering or support functions. Dropbox had raised $7.2 million in two rounds of venture capital funding from Sequoia Capital and Accel Partners.

Market Overview
Dropbox was a late entrant to the fiercely competitive online backup and storage services space. The first firms in the space, which had small companies as customers, were launched in the late 1990s by startups offering outsourced storage at remote datacenters. As costs declined, services also became available for consumers seeking to backup their data online. Most early users were technically adept, for example, college students downloading music from peer-to-peer file sharing services. Few firms in this first wave of services survived the dot-com crash, but by late 2006 the market was crowded again with new competitors. In July 2007, the tech blog Mashable published a list of more than 80 online backup and storage services.2 Market research vendors like IDC fueled the hype by predicting that the worldwide market for online backup services would grow to $715 million by 2011.3 Investor interest in online storage surged when Mozy was acquired by EMC for $76 million in late 2007.

Houston was confident that Dropbox could succeed in the face of intense competition. He reasoned that Dropbox would be able to collect revenue from some users, because consumers generally understood that storage cost money, whether it came in the form of a physical drive or an online service. When challenged by venture capitalists to explain why the world needed another cloud backup company, Houston asked them, “How many of those services do you personally use?” The answer from VCs was almost invariably, “None of them.”4 Houston asserted that direct experience with rival services, which often failed to transfer data across firewalls and sometimes balked with big files or large numbers of files, was helpful in understanding Dropbox’s performance advantages. Houston described some of the innovations that contributed to these advantages:

The first generation of cloud storage services was based on a simplistic model, where file accesses were redirected over the Internet instead of to your computer’s hard drive. Your operating system and all your applications assume that accessing your hard drive is cheap and fast, but when these requests are instead routed to a server thousands of miles away, they can take an order of magnitude longer. This subtle but critical distinction explains why when working remotely, even simple actions like browsing a directory can freeze your computer for seconds at a time. We needed to take a completely different approach by storing files locally and updating the cloud copy in the background using a number of time- and bandwidthsaving optimizations.

Launching Dropbox
It’s hard to imagine Tom Cruise in Minority Report sending himself files via Gmail or lugging around a USB thumbdrive.
— Drew Houston5
After his frustrating experience on the bus, Houston started working on Dropbox full time in late 2006. He said:
I needed it badly. I worked on multiple desktops and a laptop and could never remember to keep my USB drive with me. I was drowning in email attachments trying to share files for my previous startup. My home desktop’s power supply literally exploded one day, killing one of my hard drives, and I had no backups. I tried everything I could find but each product inevitably suffered problems with Internet latency, large files, bugs, or just made me think too much.

To help with the project, Houston recruited Arash Ferdowsi, who dropped out of MIT and later became Dropbox’s co-founder and chief technology officer. The pair spent the next four months coding a prototype in a tiny Cambridge apartment.

With a working prototype in hand, Houston came up with an innovative approach for testing demand for a minimum viable product. He had produced various recruiting videos for his college fraternity; with this know-how he created a three-minute screencast of a product demo and uploaded it to Hacker News, a popular forum for developers. “I did this out of necessity. There was no way I could ask for people’s files before we were 100% sure our code was reliable. But I had a prototype that showed off the product’s best features.”7 Houston used the screencast to recruit beta testers and to solicit feedback on features that Dropbox might include. He added, “Not launching is painful, but not learning can be fatal. We got a lot of feedback through that video, so we were learning while we were building.”

Houston had another reason for posting the video on Hacker News: he hoped to connect with its founder, Paul Graham, who also was the founder of the prestigious and selective Y Combinator seed fund and incubator program. He recalled, “I had just submitted my application to Y Combinator and as a gambit to get their attention, I submitted the video to Hacker News. I hoped it would work.”8 It did: in April 2007, Dropbox received $15,000 in funding from Y Combinator (see Exhibit 1 for excerpts from Dropbox’s Y Combinator application). In exchange for a small percentage of a startup’s common equity—usually 2% to 10%—Y Combinator provided up to $20,000 of seed capital as well as mentoring, workspace, and introductions to other advisors and investors over a three-month period. Many startups applied to Y Combinator’s program, which had a track record for matching strong technical teams with elite venture capital firms.

Upon conclusion of the Y Combinator program in September 2007, Dropbox raised $1.2 million of convertible debt from Sequoia Capital. “We fit into Sequoia’s sweet spot: we were two young technical founders, working out of an apartment, targeting a big market. It helped that we were ranked at the top of our Y Combinator cohort,” Houston recalled. He and Ferdowsi moved to San Francisco to continue building the company, but despite the capital infusion, they continued to run lean. Dropbox delivered its service through Amazon’s S3 cloud storage platform, avoiding the need for infrastructure investments and positioning the company to scale rapidly. The co-founders created a private beta program for a limited group of users who registered through a simple landing page. The page contained a short description of Dropbox and requested an email address from visitors interested in participating in the beta test (Exhibit 2). Houston commented:

There’s a spectrum of well-informed opinions about when to launch your product. At one end, Paul Graham tells entrepreneurs, “Launch early and often” to accelerate learning. At the other end, [respected software guru] Joel Spolsky says, “Launch when your product doesn’t completely suck.” We were managing people’s files, and it’s a big deal if you lose or ruin them. That meant moving toward Spolsky’s end of the spectrum and keeping our beta test small. Next, Houston devised ways to generate demand for the beta service. In a guerilla marketing move, he produced another short demo video and posted it in March 2008 on Digg, a site that showcased web content deemed popular by Digg’s users. Houston felt it was essential to communicate in an authentic manner with the tech enthusiasts who frequented Digg.

He sprinkled “Easter eggs” into the video, for example, references to Chocolate Rain (a YouTube phenomenon), TPS reports used in the movie Office Space, MIT’s Killian Hall, and the 09 F9 key for decrypting Bluray disks (dissemination of which, in the face of movie studio legal threats, was a hacker crusade). With this tongue-in-cheek nod to its tech-savvy audience, the Dropbox video soared to the top of Digg, generating 12,000 “Diggs” (user votes) and hundreds of thousands of views within a few days. Overnight, the list for Dropbox’s private beta jumped from 5,000 to 75,000 names, far exceeding the team’s expectations.

Building the Company
Make something people want.
— Y Combinator motto
Based on consumer response to the second video, it appeared that the promise behind Dropbox— “It just works”—resonated with potential early adopters, especially those who were familiar with the performance limitations of existing online backup/storage services. Houston shifted his focus to product development.

The Dropbox team was comprised almost entirely of engineers during the first two years of the firm’s existence. Early on, board members tasked Houston with hiring a product manager to help coordinate engineering efforts and prioritize features. Houston reflected: If you ask ten people what a product manager is, you’ll get ten different answers. They tend to fall on a continuum with the end points being “poet” and “librarian.” A librarian is focused on blocking and tackling, coordination, and facilitating communication. This type of PM is inherently organized and follows up relentlessly. A poet PM listens to the voice of the customer during usability tests and focus groups and based on that insight formulates an aesthetic vision, a grand strategy, and a product roadmap. Our first product manager was more of a librarian than a poet, because we needed a librarian’s discipline: even today we don’t have enough of that DNA in the company. But he just drove people nuts. It was painful, but we had to let him go after six months.

For the next year, until Dropbox hired another product manager, the company relied on Houston and Ferdowsi to drive the product roadmap. Development proceeded more slowly than Houston had originally expected. In his April 2007 Y Combinator application, Houston had projected availability of a version that he could charge for within 8 weeks, but launching Dropbox to the public actually took 18 months. Houston said, “As a result of doing a few things well, we left a lot of other things behind. We had no business people, we were terrible at getting mainstream PR, and running fast and loose didn’t make for the most predictable engineering organization.”

Public Launch
Dropbox opened its beta to the public in September 2008 at TechCrunch50, an annual competition showcasing high-potential startups. Dropbox was one of 50 startups selected to present at the event from a pool of over 1,000 applicants. TechCrunch50 served a dual purpose: it would generate buzz for Dropbox’s launch and also provide a product development deadline for the team. Houston mused that since Dropbox was following a tried-and-true blueprint for launching a consumer Internet service, his next step would have to be devising a marketing plan. Dropbox retained an online marketing consultant to help with this task. Houston said, “What do most web companies do? Apply to TechCrunch50, check. Buy Adwords, check. Get real marketing people, check.”

Early on, Dropbox attempted to acquire new customers through paid search advertising. However, incumbents had bid up the cost per click for obvious search keywords. As a result, it cost Dropbox more than $300 to acquire a paying customer (Exhibit 3). This was not sustainable, since an annual subscription for 50 GB service was priced at $99.

Dropbox had tweaked its sign-up process to increase the conversation rate from free user to paying customer. The company also experimented with hiding the free service option for visitors who arrived via search ads. Houston recalled, “Our average acquisition cost per paying customer went from thousands of dollars to hundreds, but we still had a problem with our economics. And we didn’t feel good about doing sneaky things to our users to get them to pay.”11 Sequoia Capital and Accel Partners subsequently led a $6 million Series A round of financing in October 2008, but even with additional capital in the bank, relying on paid search would not be a viable long-term option. In addition, the team had experimented with display ads and affiliate programs, but these efforts also yielded unacceptably high acquisition costs per paying customer. Houston realized that with a freemium strategy, optimization of marketing messages and pricing would be critical to Dropbox’s success; consistent with this priority, the company hired an analytics engineer as its eighth employee.

Inspired by the Facebook “growth” team dedicated to user acquisition and engagement, Houston later assigned 30% of engineering resources to optimizing customer acquisition efforts. This team closely tracked metrics across Dropbox’s conversion funnel by cohort,a for example: the percent of landing page visitors who registered as free users; the percent of registrants who still were active free users after X months; and the percent of free users who upgraded to paid subscribers after Y months. Houston said, “We run our business based on the ‘Startup Metrics for Pirates’ framework developed by investor Dave McClure. He says firms should a A cohort was a set of prospects or users acquired at the same time and/or via the same marketing method.

Closely track metrics around the acquisition of landing page visitors; activation of those visitors into users; retention of users; referral of new visitors by satisfied users; and revenue earned from users.” The team used A/B testing to fine tune page layouts and content.b Such tests also informed Dropbox’s decision to decrease the amount of free storage given to users. Analytics showed that gigabytes were not necessarily the best measure of value for Dropbox users. “We had all kinds of people paying us for Dropbox but not even bumping against their quota,” Houston said.12 Analytics likewise revealed that few users were accessing past versions of their files, all of which—including deleted files—were being permanently stored by Dropbox at a significant and rapidly growing cost. The company modified its policy, offering 30 days of undo history free of charge and making unlimited undo history a premium option. Houston said, “Just a tenth of a percent improvement in conversion rates, or a small decrease in the cost of serving a customer can have a huge impact on profitability. Freemium is a spreadsheet game—one you win with lots and lots of little moves.”

Fourteen Months to the Epiphany
Despite improvements through analytics, Houston and his colleagues struggled to make the company’s marketing programs profitable. Nevertheless, the service grew rapidly, reaching 200,000 users ten days after launch and 1 million users seven months later. The vast majority of these users were acquired through word-of-mouth referrals and viral marketing efforts, rather than paid advertising.

A relentless focus on ease of use and reliability had paid dividends in the form of loyal users who encouraged friends, family, and co-workers to try Dropbox. Houston commented, “The power of focus can’t be understated. If you look at a feature matrix of Dropbox versus everyone else, we would never come in first. We would rather do a few things well rather than present Dropbox in a confusing way.”

To identify ways to improve ease of use, the Dropbox team tracked support forums closely. Houston said, “We get feature requests for things we already have. These are particularly bad because it means that even though we’ve implemented something, our users can’t find it. We pay close attention when that happens.”15 The company also maintained a “Votebox” on its site, allowing users to vote and comment on features they would like to see added. Since the team gained insight on users’ preferences through support forums and the Votebox, the company did not conduct regular consumer surveys, but it did conduct occasional usability tests. In one instance, the entire team watched as not one of five typical consumers recruited from Craigslist could successfully install and interact with the application. Houston recalled: Watching them fail was excruciating. Imagine if your coffee maker just spit coffee all over the counter every third time you used it or your car stopped in the middle of the road. That’s the computer experience for a normal person. The PC is always conspiring against you to lose your stuff or break in some weird way. You have no idea what happened or what you did wrong. Watching those five consumers struggle to try to figure out how to use our product was probably the most painful day we ever had as a team, but afterward, we created a list of 70 things to fix.

b A/B tests divided a set of similar individuals into a control group that experienced a status quo product and a test group that experienced a product with one modified element, to determine if the modification yielded a statistically significant improvement in conversion rates.

In mid-2009, Dropbox management decided to abandon paid search advertising entirely in favor of an exclusive focus on organic customer acquisition efforts. Houston commented, “It dawned on us that Dropbox was different. It’s not like the average user wakes up in the morning wishing to get rid of their USB drive. If you don’t think you have a problem you’re not going to look for a solution. Search is great for harvesting demand, not creating it.”16 The team devised better tools for happy users to spread the word about Dropbox. The most successful was a referral program through which an existing user referring a new user to Dropbox would receive 250 megabytes of additional free storage.

Additionally, upon sign-up the new user would receive 250 megabytes of space on top of the 2 gigabytes allocated to a free account. This twosided incentive structure, modeled on one used by PayPal in its launch phase, served to reduce the distrust normally associated with spam-inducing one-sided marketing campaigns. Houston and his colleagues improved other viral features, including password-protected shared folders that were accessible by multiple Dropbox users. Public folders also encouraged users to refer Dropbox. When users placed a file in their public folder (which was automatically nested within their Dropbox folder), they were given a link that they could share, making the file accessible to anyone with Internet access.

The shift in mindset around word-of-mouth referrals and viral marketing generated strong results. In April 2010, Dropbox’s 4 million users produced 2.8 million direct referral invites. Thirtyfive percent of recent signups had originated from the referral program and 20% from shared folders and other viral features.17 The rest were acquired through word-of-mouth referrals and PR efforts. Houston reflected, “It’s hard to master freemium products unless you can build an organic customer acquisition engine. If you think of your free user costs as your marketing budget, then things begin to make more sense.”

Decisions: June 2010
Offering a Professional Version
With a viral marketing engine in place, Houston was ready to turn his attention back to improving the product and setting a strategic direction to accelerate Dropbox’s growth. One question was whether to continue to offer a single version of Dropbox for both consumers and business users. Houston commented:

You can categorize Dropbox users along two dimensions: whether or not they share files with others, and whether or not they use the application for business. These dimensions define a 2×2 matrix, and we have lots of users in all four cells. Dropbox is a general-purpose application, much like Microsoft Word. My mom uses the same version of Word to record recipes as my lawyer uses to mark up a 40-page contract. Deciding to offer a single product for consumers and enterprise users was a big hurdle for us, and building a product that was compelling for both types of users was no small task.

Before I launched Dropbox, I worked at a security software startup, where I got a formative lesson about targeting enterprise customers. Their decision cycles seemed endless, and involved lots of gatekeepers. You run into this Catch-22 where you can’t make sales unless you are certified by IT, and you can’t get certified until you have a track record. It’s especially hard if you call on small and medium-sized businesses. They don’t talk to each other, so you can’t rely on references. And as a startup, the customer is always worried about whether you’ll be around to support their product.

Based on these lessons, we decided to target Dropbox to individual users, both consumers and business people. The idea is to get people using it inside companies without IT’s permission. Once IT sees that Dropbox is in heavy demand and that it works reliably, we’ll get certified for use across the company. This approach worked with WiFi equipment and Blackberrys. That’s been our go-to-market strategy for enterprise: personal use as a Trojan Horse.

Syncing Outside Folders
Houston wondered whether Dropbox had enough features to make significant inroads into enterprise markets. Should the company create a professional version of the product? The team had solicited feedback on potential new features from users since launch, but it had deliberately avoided implementing the feature most requested on Votebox: enabling the service to sync files outside of the Dropbox folder, in particular, the “My Documents” folder within Windows (or its Macintosh counterpart, “Documents”). While a Dropbox folder could contain any number of other user-created folders, it could not hold folders generated by the PC operating system (e.g., “My Documents”). Moving such a folder into the Dropbox folder could break crucial connections and cripple the operating system.

Allowing Dropbox to sync outside folders would make the service more flexible but also more difficult to use. Users would have to make potentially confusing, high-stakes decisions about synchronization priorities across multiple devices. Mistakes by users could generate complex support issues. Houston explained:

Imagine you’re a new user at home and you link to your My Documents folder and everything goes just great. Then you go to work and you blaze through the installer and you say, “Yeah, yeah, just sync it all.” You don’t think carefully about the implications of telling Dropbox to merge the contents of your My Documents folders on your home and work machines. You discover you’ve created this giant, ugly conglomeration of home and work files on both machines, and there’s no undo button.

Partnering was another strategy for accelerating growth. The company had been approached by a number of PC and mobile phone manufacturers in the past few months about pre-installing Dropbox on their devices. These companies saw a parallel between online storage and antivirus/security software or search toolbars, which had generated hundreds of millions of dollars in bounties for OEMs while significantly expanding their partners’ customer acquisition funnels. Houston commented:

It was clear early on that there were strong similarities between our business and PC security software. We both have a product you probably don’t know that you need. You’re not looking for it. You’re happy when you have it, but if you don’t have it, life goes on. Products like this probably should come pre-installed on a PC, so you only have to think about them once.

Houston had pursued OEM partnerships shortly after Dropbox’s launch—against the advice of his co-founder Ferdowsi, who was skeptical that large companies would ever sign deals with an unknown startup. Houston said, “I figured we’d get our first 100 thousand users through expensive search marketing, then we’d need an awesome Plan B to make our economics work. Before we conceived our referral program, my best idea for Plan B was distribution deals.” After wasting weeks on discussions that invariably stalled, Houston decided to scrap idea. He recalled:

Big companies sometimes seem happy to talk to a startup. They’ll bring in 12 middle managers—none of whom have any authority—to kick the tires and learn all about your technology. They’ll spin your wheels for months. We got close to a deal with one of the antivirus software providers. At the 11th hour they brought in an SVP who announced that they were going to bury our brand in a white label deal, contrary to everything we’d discussed prior to that point. And the SVP said, “Oh-by-the-way, we’ll need all this customization.” I came back and looked at my board slides, which showed how we’d take over the world with distribution deals. I felt like an idiot. Arash was furious; he said, “I told you this would happen.” Since then, I’ve realized that no significant tech company has been built solely through distribution deals without having a strong brand of its own. Partly due to the way I got burned in these discussions, we still don’t have a VP of business development. We’re looking for one, but I’m worried that if we hire the wrong person, we could get pulled in too many different directions.

Perhaps the situation had changed, now that Dropbox had millions of users and a strong reputation. Houston asked:
Shouldn’t every Android device ship with Dropbox? This could be a powerful differentiator for a device maker. And it could drive customer acquisition for us. A big barrier to adoption for Dropbox is that we require a client installation, which can be a high friction experience. Having the service bundled and pre-installed on millions of devices would remove this obstacle.

Opportunities to partner with Android device makers raised a related question for Houston: What were the odds that Google—Android’s creator—would move aggressively into Dropbox’s space? Houston said:

Imagine a day when Google flips the switch and gives away a terabyte of free storage to 100 million machines. We think about this a lot; it pushes us to get big fast and lock in customers. We don’t want to become a fallen star like Netscape, which was crushed by Microsoft. Past efforts around cloud storage at Google have failed for internal political reasons. It’s not like they don’t have the technical talent to make this work, and cloud services are certainly aligned with their mission. But the project has been a black sheep inside Google since 2005. At first they were worried about run-away server costs, like they had with YouTube. More recently, they’ve viewed file management as a feature of Google Docs.

But deep down, all the ugly, grungy engineering we’ve done to make Dropbox work across multiple PC platforms seems irrelevant in their eyes. They think that PCs in their current incarnation, with local storage, will disappear as the cloud takes over. But with the grandeur of their vision, trying to move everything to the web, Google is not solving problems that real people have today. As he arrived at Dropbox’s San Francisco office, Houston wondered if his team was ready for the rapid expansion ahead. He reflected on the company’s long-range goals: What we want to do as a company is let you sit at any computer or device and have access to all your stuff. For example, in college I could go from one workstation to any of the thousands of others on campus and not only could I see all my files but my entire desktop and environment. But after I graduated, I was on my own. So we’re trying to build that kind of seamless experience for the rest of the world. It’s a simple idea, but very challenging to build— certainly enough to keep us busy for the next five years.

# What is your company going to make?
Dropbox synchronizes files across your/your team’s computers. It’s much better than uploading or email, because it’s automatic, integrated into Windows, and fits into the way you already work. There’s also a web interface, and the files are securely backed up to Amazon S3. Dropbox is kind of like taking the best elements of subversion, trac and rsync and making them “just work” for the average individual or team. Hackers have access to these tools, but normal people don’t.

There are lots of interesting possible features. One is syncing Google Docs/Spreadsheets (or other office web apps) to local .doc and .xls files
for offline access, which would be strategically important as few web apps deal with the offline problem.

# Please tell us in one or two sentences something about each founder that shows a high level of ability.
Drew – Programming since age 5; startups since age 14; 1600 on SAT; started profitable online SAT prep company in college (accoladeprep.com). For fun last summer reverse engineered the software on a number of poker sites and wrote a real-money playing poker bot (it was about break-even)

# What’s new about what you’re doing?
Most small teams have a few basic needs: (1) team members need their important stuff in front of them wherever they are, (2) everyone needs to be working on the latest version of a given document (and ideally can track what’s changed), (3) and team data needs to be protected from disaster. There are sync tools (e.g. beinsync, Foldershare), there are backup tools (Carbonite, Mozy), and there are web uploading/publishing tools (box.net, etc.), but there’s no good integrated solution.

Dropbox solves all these needs, and doesn’t need configuration or babysitting. Put another way, it takes concepts that are proven winners from the dev community (version control, changelogs/trac, rsync, etc.) and puts them in a package that my little sister can figure out (she uses Dropbox to keep track of her high school term papers, and doesn’t need to burn CDs or carry USB sticks anymore.) At a higher level, online storage and local disks are big and cheap. But the internet links in between have been and will continue to be slow in comparison. In “the future”, you won’t have to move your data around manually. The concept that I’m most excited about is that the core technology in Dropbox — continuous efficient sync with compression and binary diffs — is what will get us there.

# What do you understand about your business that other companies in it just don’t get? Competing products work at the wrong layer of abstraction and/or force the user to constantly think and do things. The “online disk drive” abstraction sucks, because you can’t work offline and the OS support is extremely brittle. Anything that depends on manual emailing/uploading (i.e. anything web-based) is a non-starter, because it’s basically doing version control in your head. But virtually all competing services involve one or the other. With Dropbox, you hit “Save”, as you normally would, and everything just works, even with large files (thanks to binary diffs).

# What are people forced to do now because what you plan to make doesn’t exist yet? Email themselves attachments. Upload stuff to online storage sites or use online drives like Xdrive, which don’t work on planes. Carry around USB drives, which can be lost, stolen, or break/get bad sectors. Waste time revising the wrong versions of given documents, resulting in Frankendocuments that contain some changes but lose others. My friend Reuben is switching his financial consulting company from a PHP-based CMS to a beta of Dropbox because all they used it for was file sharing. Techies often hack together brittle solutions involving web hosting, rsync, and cron jobs, or entertaining abominations such as those listed in this slashdot article (“Small Office Windows Backup Software” – http://ask.slashdot.org/article.pl?sid=07/01/04/0336246).

# How will you make money?
The current plan is a freemium approach, where we give away free 1GB accounts and charge for additional storage (maybe ~$5/mo or less for 10GB for individuals and team plans that start at maybe $20/mo.). It’s hard to get consumers to pay for things, but fortunately small/medium businesses already pay for solutions that are subsets of what Dropbox does and are harder to use. There will be tiered pricing for business accounts (upper tiers will retain more older versions of documents, have branded extranets for secure file sharing with clients/partners, etc., and an ‘enterprise’ plan that features, well, a really high price.) I’ve already been approached by potential partners/customers asking for an API to programmatically create Dropboxes (e.g. to handle file sharing for Assembla.com, a web site for managing global dev teams). There’s a natural synergy between Basecamp-like project mgmt/groupware web apps (for the to-do lists, calendaring, etc.) and Dropbox for file sharing. I’ve also had requests for an enterprise version that would sit on a company’s network (as opposed to my S3 store) for which I could probably charge a lot.

# Who are your competitors, and who might become competitors? Who do you fear most? Carbonite and Mozy do a good job with hassle-free backup, and a move into sync would make sense. Sharpcast (venture funded) announced a similar app called Hummingbird, but according to (redacted) they’re taking an extraordinarily difficult approach involving NT kernel drivers. Google’s coming out with GDrive at some point. Microsoft’s Groove does sync and is part of Office 2007, but is very heavyweight and doesn’t include any of the web stuff or backup. There are apps like OmniDrive and Titanize but the implementations are buggy or have bad UIs.

# What tools will you use to build your product?
Python (top to bottom.) sqlite (client), mysql (server). Turbogears (at least until it won’t scale.) Amazon EC2 and S3 for serving file data.

# If you’ve already started working on it, how long have you been working and how many lines of code (if applicable) have you written?
3 months part time. About ~5KLOC client and ~2KLOC server of python, C++, Cheetah templates, installer scripts, etc.

# How long will it take before you have a prototype? A beta? A version you can charge for? Prototype – done in Feb. Version I can charge for: 8 weeks maybe? (ed: hahaha)

# Which companies would be most likely to buy you?
Google/MS/Yahoo are all acutely interested in this general space. Google announced GDrive/”Platypus” a long time ago but the release date is uncertain (a friend at Google says the first implementation was this ghetto VBScript/Java thing for internal use only). MS announced Live Drive and bought Foldershare in ’05 which does a subset of what Dropbox does. Iron Mountain, Carbonite or Mozy or anyone else dealing with backup for SMBs could also be interested, as none of them have touched the sync problem to date. In some ways, Dropbox is for arbitrary files what Basecamp is for lightweight project management, and the two would plug together really well (although 37signals doesn’t seem like the buying-companies type). At the end of the day, though, it’s an extremely capital-efficient business. We know people are willing to pay for this and just want to put together something that rocks and get it in front of as many people as possible.

# If one wanted to buy you three months in (August 2007), what’s the lowest offer you’d take? I’d rather see the idea through, but I’d probably have a hard time turning down $1m after taxes for 6 months of work.

# Why would your project be hard for someone else to duplicate? This idea requires executing well in several somewhat orthogonal directions, and missteps in any torpedo the entire product.
For example, there’s an academic/theoretical component: designing the protocol and app to behave consistently/recoverably when any power or ethernet cord in the chain could pop out at any time. There’s a gross Win32 integration piece (ditto for a Mac port). There’s a mostly Linux/Unix-oriented operations/sysadmin and scalability piece. Then there’s the web design and UX piece to make things simple and sexy. Most of these hats are pretty different, and if executing in all these directions was easy, a good product/service would already exist.

# Do you have any ideas you consider patentable?

# What might go wrong? (This is a test of imagination, not confidence.) Google might finally unleash GDrive and steal a lot of Dropbox’s thunder (especially if this takes place before launch.) In general, the online storage space is extremely noisy, so being marginally better isn’t good enough; there has to be a leap in value worthy of writing/blogging/telling friends about. I’ll need to bring on cofounder(s) and build a team, which takes time. Other competitors are much better funded; we might need to raise working capital to accelerate growth. There will be the usual growing pains scaling and finding bottlenecks (although I’ve provisioned load balanced, high availability web apps before.) Acquiring small business customers might be more expensive/take longer than hoped. Prioritizing features and choosing the right market segments to tackle will be hard. Getting love from early adopters will be important, but getting distracted by/releasing late due to frivolous feature requests could be fatal.

# If you’ll have any major expenses beyond the living costs of your founders, bandwidth, and servers, what will they be?
None; maybe AdWords.

# Do any founders have other commitments between June and August 2007 inclusive? No; I’ve given notice at Bit9 to work on this full time regardless of YC funding.

# Are any of the founders covered by noncompetes or intellectual property agreements that overlap with your project? Will any be working as employees or consultants for anyone else? Drew: Some work was done at the Bit9 office; I consulted an attorney and have a signed letter indicating Bit9 has no stake/ownership of any kind in Dropbox

# If you had any other ideas you considered applying with, feel free to list them. One may be something we’ve been waiting for.
One click screen sharing (already done pretty well by Glance); a wiki with version-controlled drawing canvases that let you draw diagrams or mock up UIs (Thinkature is kind of related, but this is more text with canvases interspersed than a shared whiteboard) to help teams get on the same page and spec things out better (we use Visio and Powerpoint at Bit9, which sucks)

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