Dropbox delivers strong Q1 results as it targets upsell in mid-market

Profile picture for user ddpreez By Derek du Preez May 7, 2021
Dropbox CEO Drew Houston said that the company has spent this quarter streamlining promotions for users, to ensure that they can focus on their content and their work.

Drew Houston, CEO, Dropbox speaks at Work in Progress 2019

It has been another strong quarter for SaaS collaboration vendor, Dropbox, as the world continues to embrace distributed and hybrid work environments. The COVID-19 pandemic has seen the collaboration sector thrive as users have had to adapt to new ways of working, forcing years worth of change in just a short few months. 

However, despite a solid set of numbers in Q1, Dropbox announced earlier this year that it would be laying off 315 employees and that its COO would be stepping down, citing the need to streamline its team structure and focus on top priorities. 

What's becoming evident, which was partially outlined by Dropbox CEO Drew Houston during an analyst call this week, is that the company is largely going to continue to focus on the SMB and mid-market, rather than pursue large enterprise customers. That's not to say that Dropbox doesn't have large enterprise buyers, but it's pretty clear that it's not it's number one selling priority for the business. 

But first, let's take a look at the numbers for Q1. The headline figures are: 

  • Total revenue was $511.6 million, an increase of 12% from the same period last year. 

  • Total ARR ended at $2.112 billion, an increase of 13% from the same period last year. 

  • Paying users ended at 15.83 million, as compared to 14.59 million for the same period last year. Average revenue per paying user was $132.55, as compared to $126.30 for the same period last year.

Commenting on the results, CEO Drew Houston said: 

Around this time, last year, we along with many of our customers were managing through an unprecedented global pandemic and the sudden shift to distributed work. It was certainly a challenging time and I'm proud of the way our team showed up and supported our customers. While many companies are still adjusting to this shift in grappling with decisions about hybrid flexible or remote work, one thing is clear, the traditional way of working has changed forever.

As I shared previously, we reoriented our entire product roadmap to address the challenges that our customers face in this new environment. At the same time, we also reorganized and streamlined our teams against some new strategies. And now we're focused on execution. This new era of distributed work has given rise to new opportunities for us instead of several trends that were already in play.

This quarter demonstrates there's never been a better time in history to be building collaboration software and I'm excited about our road ahead.


Houston explained that Dropbox's top priority of late has been improving the product's functionality for users, making collaboration around content more seamless and helping organize users, content tools and workflows. 

Dropbox's hope is that with further product improvements it can drive higher levels of engagement, better retention and ultimately deliver higher revenue. Recent months have seen it focus on improving the upsell features in Dropbox, in order to create a better experience for users. Houston said: 

This quarter was [focused on] streamlining our in-product promotions to ensure people can focus on their content and their work. We were successful in maintaining our overall conversion volumes while reducing the total number of Dropbox promotions.

We're now able to more purposefully surface in-product prompts at optimal moments to encourage upsell and cross-sell of our products. This simplified experience gives our users a more seamless way to engage with Dropbox while still retaining the flexibility strategically leveraging product prompts to drive adoption of our newer products. 

Evolving the core is also about delivering more value to our basic users to promote conversion to our paid skews. For example, last year, we launched Dropbox passwords to all our paid users to help them stay organized and better connect their tools.

And we recently launched a Freemium version of passwords to our basic users to deliver more value beyond file, sync and share - and introduce them to some of the premium capabilities that we offer as part of our core product. As more basic users are exposed to and find value in these premium features, we believe this will help drive activation retention and migration into payment plans.

Second to this, Dropbox is also investing in new products, which are focused on scaling additional capabilities beyond the core experience. Houston said that given the shift to distributed work, Dropbox has an opportunity to build on the success of its core business and expand into new and adjacent product areas. 

He cited the company's recent acquisition of DocSend, as well as the integration with Telesign, as two examples of this. Houston added: 

The acquisition of DocSend expands on our sharing capabilities, offering users added security along with powerful analytics on how viewers are engaging with their content. It's also a great fit within our broader product portfolio. The combination of Dropbox, HelloSign and DocSend will give our customers a full suite of products and help them manage critical document workflows end-to-end. And ultimately drive meaningful business results. 

For example, client services, teams and creative professionals who already rely on Dropbox to organize and collaborate on documents, presentations and projects can use DocSend to deliver proposals and track engagement and use hello, sign to sign contracts.

Not only does this acquisition unlock greater value for our customers, but the combination of these products can help drive adoption and up-sale across our product portfolio. 

Houston said that Dropbox will continue to invest in new products, both through M&A and through organic development. 

Executing in the mid-market

Houston said that whilst there was a huge surge in demand in Q2 last year, as the realities of the pandemic took hold, overall business for Dropbox has been "pretty stable". Houston said: 

I mean our customers needed a Dropbox before lockdown, during lockdown and they'll need it afterwards - is kind of the way I see it. We think the world moving to distributed work will be a big deal for our business. And as, as we move towards reopening, as most companies have some kind of hybrid model, there's a lot of room for improvement in the tools we use to manage that.

But it was interesting to note that there appears to be a lack of appetite for Dropbox to pursue the top end of the market, the large enterprise players, with Houston preferring to focus on what Dropbox knows well - mid-market, SMB and freelancer buyers. He said:

So I mean, our rationale for this is, is, you know, we'll continue to serve larger customers. And one of our strengths is that Dropbox is organically adopted by companies of all sizes, including large companies, and that's going to continue. But when it comes to paid customer acquisition, we want to play to our strengths and be disciplined in our investments and streamline some of our efforts.

So our land and expand model and self-serve motion is really scalable and profitable in general. And we find that our outbound efforts in the mid-market segment tend to be more efficient and profitable than some of the high end of the enterprise. So these changes are more just about focus and, and really doubling down on our most efficient go to market motions. And we find that the revenue coming from very large customers sees less than 10% of revenue.