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The Dropbox Effect

"Tom Cruise in Minority Report is not carrying around a thumb drive"

Dropbox co-founder, Drew Houston

Numerous reports, papers and presentations have been given in recent years to explain the rise of Dropbox, the file backup and synchronisation service which has taken the world by storm. In reality the reason for its success is simple: it realised the easiest way to access your data was not by carrying it, but by having it delivered.

For those not in the know, Dropbox is a file hosting, backup and synchronisation service. It works by giving users a single folder which automatically synchronises content added or deleted across multiple devices as well as backing up online. Edited or removed files are kept for up to 30 days online and 'sharing' folders can be setup between friends, family or colleagues. Dropbox offers users 2GB of storage space for free, premium subscriptions provide 50GB, 100GB or 'Team' accounts for companies.

Dropbox wasn't the first company to stumble upon this formula, but it has been the breakout success story. We look at why.

The Landscape before Dropbox

Houston is right, there may not have been thumb drives in Minority Report, but when the Science Fiction film was released in 2002, the real world was overrun by them. IBM and Trek Technology were first to market in 1999 with 8MB devices and as capacity increased and size reduced the tech savvy would even boast about whose thumb drive was the best. The technology was impressive, but blinding. Users lost sight of the fact they were mere extensions of the floppy disk and actually a backwards step from the lightening fast Intranets of their schools and universities.

"I graduate and for me it's back to the Stone Age," argues Houston. "Where I am emailing myself stuff I'm carrying on a thumb drive. A couple of times I must have put it in the wash... and prayed I hadn't destroyed it. But I felt like I was just always one stupid move away from disaster."

Even Intranets were limited in scope. Connecting computers together and manually transferring content between them removed the need for a physical middle-man like the thumb drive, floppy disk or external hard drive, but remained a glorified system of cut and paste. Keeping track of changes from computer to computer and file to file was as complicated as maintaining any paper filing system. Thumb drives may disappear down sofas and into washing machines, but the common flaw with Intranets is copying over the wrong files. It quickly became the 21st century equivalent of 'the dog ate it'.

The last resort for the most important files was (and for many continues to be) Houston's experience of emailing files to ourselves. In a sense this was actually the most advanced method, putting files online where they could be accessed from any computer. The flaw is that email attachment sizes (to this day) are proportionately tiny and the whole process remained manual. There was good reason why academic essays never felt truly safe until printed out.

The Rise of Dropbox 

Dropbox was founded in 2007 by a pair of MIT graduates, Drew Houston and Arash Ferdowsi. It got a soft launch in September 2008 with a beta release and limited invite-only sign ups, but the reaction was almost immediate. "We were shocked to see like people selling invites on eBay," explains Houston. "We had 100,000 users at launch at TechCrunch50 in 2008, that doubled in ten days... we had probably a million six months after that."

By January 2010 that number had reached four million registered users. By April 2011 it was 25 million and as of April 2012 that number now exceeds 50 million. To date Dropbox has spent no money on advertising. So what had driven the rise? Word of mouth was a factor, but only a by-product. In short Dropbox had found a solution to a problem years of Intranets, thumb drives and self emailing had conditioned us to forget was a problem at all.

"Dropbox created a market for something we didn't really know that we needed," argues Markus Rex, CEO of ownCloud. "Now that it's out there, it's hard to be without it."

Equally important was the Dropbox founders' quick realisation that in order for the premise to succeed your data must be ubiquitous. Dropbox launched on Windows and Mac, quickly ported to Linux and then to the mobile platforms: iOS, Android, BlackBerry OS and Windows Phone. The company also released an API that allowed third parties to support fading platforms like Symbian, Maemo and webOS. The result was, no matter what the user's hardware combination, their data was always available.

Dropbox by the numbers

Today Dropbox saves over one million files every three minutes and 500 million files are saved daily. Both figures have risen 40 per cent in the last eight months. Dropbox doesn't reveal the storage capacity required for all this data, but Houston admits it is well into double-digit petabytes (one petabyte = 1,000 terabytes). By comparison experiments in the Large Hadron Collider produce approximately 15 petabytes of data per year as it tries to unravel the foundations of the universe.

Dropbox has received $257.2m in venture capital funding and is valued at over $5bn, the same amount Facebook hopes to raise through its stock market flotation and roughly the same value placed on BlackBerry maker RIM. Remarkably Dropbox has just 75 employees, a figure which itself has tripled in the last 12 months. It expects numbers to top 200 by the end of 2012, Facebook has over 3,000 employees, RIM over 17,000.

Perhaps the most incredible figure is 96, the percentage of Dropbox customers currently using the free 2GB service. Yet the adoption of premium services is apparently so fast that even if the company didn't sign up a single new customer in 2012 its sales ($240m in 2011) would double. "But we will sign up many, many customers," says Houston.

The Competition

It could all have been very different. In December 2009 Apple came calling. Steve Jobs didn't need a demonstration, he knew all about Dropbox and offered a nine-digit sum to buy the company. The founders declined. "Jobs smiled warmly as he told them he was going after their market," reports Forbes. He did just that. Apple announced iCloud in June 2011, a Dropbox-a-like baked into the heart of OS X and iOS which automatically backed up and synchronised contacts, calendars, photos, documents and even an entire iPhone or iPad. Its flaw was typically Apple: it only works with Apple products.

Apple was relatively late to market. Microsoft's SkyDrive had launched in 2007, a year before Dropbox's first stable release and again offered cloud backup of files and folders as well as integration with Microsoft Office. Users even got 25GB of storage free, but again it locked users into the Windows Live ID service and was slow to launch on other platforms. Notably SkyDrive on iOS was first released in December 2011 and has not been updated since.

Such stumbling by industry giants has not deterred others. Today more than 50 high profile Dropbox competitors exist, the most prominent of which include SugarSync, SafeSync and Mozy. We will publish a group test comparing a number of these competitors to Dropbox next week.

The Future for Dropbox

He may not have got his hands on Dropbox, but in a parting shot Steve Jobs delivered perhaps the most damning insight to the company's long term future. "He said we were a feature, not a product," says Houston.

Jobs might be right. As ever more content is created, stored and replicated online it has little need for Dropbox. For example Microsoft Office or Open Office users may find the service invaluable, but for those who use Google Docs it is largely irrelevant. Granted there is fragmentation of content between services, but then no single company has control over our content and it is still exactly where we need it when we need it.

In addition Dropbox may soon face its greatest opponent, Google. For years the search giant's 'Drive' cloud storage and synchronisation service has been the stuff of Internet legend, but strong rumours suggest it could this month.

"When Google is playing is your space, you should be worried," claims Forrester infrastructure and operations analyst Andrew Reichman. "Google has much deeper pockets... it's very tough to be in a price battle with Google. It's a fairly open market, so the established players shouldn't be petrified, but they should be worried."

Just the Beginning

Dropbox is ready for the fight. It has increased free storage rewards for customers who introduce new users to the service and plans to launch Facebook-style 'Dropbox buttons' in the near future so users can easily access, save or share content from any site. It has also begun making deals with hardware manufacturers to integrate its service directly into their products. The most significant of these is with HTC, which will see the handset maker build Dropbox into the core of HTC Android smartphones. Take that Google.

"We are just getting started, both from a product standpoint and from our audience standpoint," argues Houston. "So when you look at a number like forty or forty-five odd million users, the way we think about it is that's actually a pretty small number in comparison to how many people out there have a computer or phone or an internet connection. So we are only a couple of per cent [of] the way there."

Given Dropbox's slowly stirring rivals some may consider this ambition more suited to Mission Impossible than Minority Report, but whatever the outcome Tom Cruise still won't be carrying a thumb drive...