A Dropbox IPO? Not yet 'yes', but probably 'probably'

Profile picture for user mbanks By Martin Banks December 7, 2016
Summary:
It may have 500 million registered users, but really, Dropbox is now far more interested in adding to its 200,000 corporate user base and sees collaboration tools, together with a rich array of technology partners adding a wide range of specialised tools, as the way to get both there, and possibly onto the public stock market.

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With the possibility of a 2017 IPO peeping over the horizon, there is an obvious need for cloud storage service provider Dropbox to go on something of a charm offensive to make sure users and possible investors know and understand what the company is really all about. 

It is a move that is needed because the company has a history that may still leave a perception of it that is increasingly wide of the mark.That leaves Drew Houston, Co-Founder and CEO of Dropbox, and Chief Operating Officer Dennis Woodside with some work to do. 

Of course, many people are going to see Dropbox as an online storage service for the individual consumer, a place to host all those holiday snaps, and sometimes share them with friends and family. But while it now claims some 500 million registered users worldwide, most of whom use the limited free service, DropBox also now has some 200,000 paying customers.

What is more, many of these are large, multi-seat organisations, ranging in size, as Woodside describes it, as being from five seats to 5,000 seats. What this means is that Dropbox, having started as one of the ultimate cloud-based give-aways, is now operating cash-positive, and with at least one and a half eyes fixed firmly on making the revenue-earning numbers grow.

IPO talk

Having got to this point the company is now casting its remaining half an eye at the prospect of an IPO some time next year. Not surprisingly, both Houston and Woodside decline the opportunity to reveal any details of the IPO plans to diginomica. However, Woodside does address the issue of why they would be interested in the idea, and reading between the lines, it seems likely that the key issue is maintaining good access to the capital markets, while meeting the inevitable aspirations of its early Venture Capital investors for a cash-positive exit strategy.

On that basis, it also suggests that Dropbox is now well-enough grounded in its marketplace to stand on its own, rather than be sold off to one of the acquisitive major systems vendors as a useful in-house add-on. Woodside says: 

If you have a business that is growing and making money then you can be happy either public or private, so it can be an implementation detail or involve access to capital markets. But yes, [going public] can also be a distraction and draw your focus away from the long term. We have been able to get some good shareholders, like Fidelity, which have been shareholders for a while. So we have been able to get financing from the private markets and to get investment early in the company’s progression.

Collaboration is the goal

One of the problems DropBox set out to tackle was helping people work across the cloud and Houston claims the company has done a great job of that. But looking forward he still sees a lot of challenges. There are new applications coming along to sit alongside a lot of stuff that doesn’t go away, such as the old file servers and email servers. And there is a by-now-traditional problem of the new stuff not being designed to work with the old stuff:

So everyone is caught in the cross-fire, trying to make this stuff work together. What users want is to be in control, but users are distracted and overwhelmed.  We are finding the companies are putting all their data into Dropbox so that they have it all available in one place. They are even doing it because they realise it means they don’t have to invest in more file servers. But we are not going to solve all the problems all at once.

In real life, users often face long, tedious, manual searches to find files or documents that are `somewhere’ on one of the servers or storage systems within a corporate infrastructure. The company is working towards resolving such issues and squaring the circle of having multiple-terabyte DropBox environments that are fully synchronised to everybody’s laptop and allowing more collaboration across all of it. Houston says:

It also includes much more collaborative working on the same documents in real time, rather than having a pretty static view of it that can really only be accessed and worked on serially.

This is now available in the form of Dropbox Paper, a collaboration tool that the company has been working on, which goes a long way towards the creation of real time, working teams that can be global in nature, rather than requiring them to be on a single campus intranet or similar infrastructure. Users can embed other files in the document, such as photographs as well as files from other applications such as PhotoShop or Google Docs. Users can also search across all of those documents and files.

Brexit

There is also an interesting sidebar here for the company when it comes to the UK and the issue of Brexit, as Woodside observes:

To date we haven’t seen much of an impact, but regardless of what happens, we still see a need for businesses to collaborate both within and outside of those businesses and across borders, so we will continue to build our customer base here and see how things turn out.

It is quite possible to predict a post-Brexit future where the breadth and diversity of collaboration requirements may end up far greater than from remaining as members of the EU.

The growing strength of Europe as a market for the company is also behind it working with partners in Germany to establish a European data center service in that country for those users where data sovereignty is a particular issue.

DropBox's growing range of technology partners are of increasing importance in giving the company traction in the enterprise marketplace: 

Last year we announced the partnership with Microsoft where we are integrated into Office 365 in a native way. We have done the same with Adobe and we have several thousand partners in the security space, and a large number of partners in the business productivity/utility space. So yes, we think that is a huge advantage and we will continue to invest in that.

The key thing here is that he sees this as a useful by-product of the company’s consumer market roots. Rather than build its own enterprise-focused tools and applications, joining with technology partners offering a wide range of specialisms has now given users a far wider range of options and flexibility in meeting their own specific requirements when building enterprise-capable collaboration environments.

My take

Many businesses start with the idea of starting with a consumer-facing service and the aim of moving up to serve enterprise customers, and most find the transition difficult at best; many fail. Dropbox has not only made that transition to the point of contemplating an IPO. but may also be now better placed than most to match enterprise user expectations.