Dropbox targets deep-pocketed businesses to increase revenue

Reuters News
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Posted: Jan 30, 2017 11:50 AM

By Heather Somerville

SAN FRANCISCO (Reuters) - A decade after its founding as a file-sharing business, Dropbox Inc is trying to become a new kind of company.

On Monday, the highly valued digital storage company is unveiling two new products - file synch and content collaboration tools - as part of a years long effort to build up its business offerings.

Dropbox started as a free and easy service for consumers to share and store photos, music and other large files. But that business became a commodity as tech giants including Alphabet Inc's Google, Microsoft Corp and Amazon.com Inc began offering storage for free.

Now Dropbox must fight for hotly contested business accounts even as it tries to keep a foothold in the consumer market.

"Dropbox is clearly moving in this direction but still has some catch-up to do," said Forrester analyst Cheryl McKinnon.

At a highly promoted event in San Francisco on Monday, Dropbox plans to unveil Smart Sync, a feature that allows users to see and access all of their files, whether stored in the cloud or on a local hard drive, from their desktop. Smart Sync is part of Dropbox Business, which requires companies to pay a fee based on the number of employees who use it.

Dropbox also rolled out Dropbox Paper, which allows groups to create, edit and collaborate on projects in a single workspace.

"Where we see the most important problems to solve for are certainly around workplace productivity and collaboration," Dropbox senior product management director Rob Baesman said in an interview. "A lot of investments we make are to solve those challenges."

Dropbox says about 200,000 of its 500 million users were paying businesses customers, about double the number in that category two years ago. Many of Dropbox's users pay nothing.

It remains to be seen whether Dropbox can serve both businesses and consumers well enough to justify its $10 billion valuation, based on the price tag it earned in its last round of private financing.

Aaron Levie, chief executive officer of Dropbox competitor Box Inc, said it was "both massively important and massively hard" to make deals with large corporations and government agencies that provide substantial recurring revenue.

"It only happens if you decide to fully focus on it," Levie said.

Sequoia Capital venture investor Bryan Schreier, who led his firm's investment into Dropbox, said the company's business strategy was working.

"This is the fastest growing SaaS (software-as-a-service) company we have ever worked with," Schreier said.

Dropbox has raised more than $600 million from venture capitalists and private investors, and some IPO advisers say the company's public market debut could come as soon as this year.

Public cloud computing companies are trading at 4.9 times their revenue on average, according to data from Bessemer Venture Partners. According to that standard, Dropbox would have to reach roughly $2 billion a year in sales to justify its current valuation.

Sources close to the company put its current annual revenue at $750 million to $800 million. Dropbox declined to comment on its finances.

(Reporting by Heather Somerville; Editing by Jonathan Weber and Lisa Von Ahn)