When Drew Houston applied to Y Combinator, his business model included offering a freemium cloud based data storage platform that was easy and reliable for consumers that could be integrated by large corporations and bundled as part of their products at some point. The version that Houston was able to charge for was supposed to be ready and deployed 8 weeks after his application. While a few of Houston’s hypothesis were correct, he missed the mark on his initial predictions of 8 week development time and the benefits of corporate parternerships/bundling. Missing the mark on these hypothesis is related to not having a distinct set of rules or clear cut image as to how Dropbox would grow. Houston acknowledged this with his analysis of why corporate partnerships and bundling did not take off each client wanted customizations to the file storage, which is at odds with Dropbox’s areas of success. Through trial and error, Houston was able to identify the core competencies of Dropbox and work within a defined set of rules going forward.
An area of success for Houston from the early stages of Dropbox through 2010 was the identification of the market’s need for a simple and reliable data storage product with a freemium platform. As I mentioned above, these two principles hold true to the company’s simple rules and allowed expansive organic growth. Staying true to these two rules, as well as the others mentioned in appendix2 will allow Houston and Dropbox to recognize success in the SMB space.
What should Houston do about the decision posed at the end of the case, i.e., creating a separate version for small and medium-sized business (SMB) customers? What process should he use to make this decision?
Based on the simple rules that Dropbox has been utilizing for the past few years, Houston should create a new version for SMB customers. The freemium product offering and organic growth has helped create a strong brand amongst everyday consumers, but there is still a lot of revenue that can be recognized by SMB customers. This innovation should not be incorporated with the current Dropbox offering as it much larger than a minor tweak and could certainly stray away from `staying the course’, but it can be isolated and developed as a new product. This new development would allow Dropbox users to mirror their personal use functionality, but only access files and cloud storage from the office, and not integrate their consumers PC documents and changes. If reliability and ease of use are focus points for innovation, Dropbox can dominate the SMB space.