Dropbox Built an IPO Based on Business Users, but It Cannot Ignore IoT and AI For Long-Term Success

On March 22, 2018, Dropbox had its Initial Public Offering (IPO), raising US$750 million and giving the company an overall valuation of US$9.2 billion. In its prospectus, the company did announce some respectable metrics:

• Dropbox generated US$1.1 billion in sales in 2017, a 31% increase on the US$844.8 million it achieved in the previous year.
• Of course, like most hip and trendy “tech unicorns,” the company has not been profitable to date. In 2017, Dropbox lost US$111.7 million, but that is 47% less than the US$305.0 million it lost in 2016.
• Overall registered users around the world have stayed the same at 500 million, but the company stresses that 11 million of those are paying for additional collaborative and business-friendly features and that its core corporate software product, Dropbox Business, now has 300,000 users up from 150,000 a year ago.

These are fairly positive metrics, and Dropbox has been prudent to focus on the enterprise and business users that have valued the additional features such as collaboration tools, advanced security and control, unlimited file recovery, user management, etc. that the mainstream cloud storage services (Google Drive or Microsoft’s OneDrive) have not provided to date.

Nevertheless, the cloud storage sector is very competitive. The consumer side of cloud storage is increasingly being commoditized, which Dropbox caters for but is not dependent on. The numbers speak for themselves. Google Drive offers 1 terabyte for US$9.99 per month, while Dropbox Plus is the same price for the same amount of access. Dropbox Professional is US$19.99 per month and offers enhanced image and text search functions as well as syncing capabilities. Dropbox Enterprise involves higher tier pricing for additional features and policy control options.

While the enterprise cloud storage services will provide the mainstay of Dropbox revenues, ABI Research suspects Dropbox will need to diversify into additional value-added cloud services. One of the most rapidly expanding aspects of cloud services is the integration of IoT device management as well as big data analytics, even artificial intelligence (AI), into the cloud service experience.

The cloud is going mainstream, but it is the multiplier opportunity of potentially managing up to 28 billion Internet of everything (IoE) devices (as of 2017) as well as the ability to layer in AI and machine learning that could really unleash the full potential of cloud services. And there are signs that this is occurring. A case in point, I recently moderated a panel session at IoT Asia 2018, where Microsoft Azure, Tata Communications, and Surbana Jurong (an urban development consultancy) have formed a partnership to offer a lift monitoring system(LMS) that uses embedded sensors in the lift (aka elevator) and lift shaft, as well as encrypted 3G traffic-enabled modules to backhaul maintenance telemetry to a Microsoft Azure cloud center for 24/7 analysis. The partnership argues that this can lead to substantial savings and reduced downtime for out of service lifts. Surbana Jurong, Tata Communications, and Microsoft Azure intend to proof test the LMS business model in Singapore and then start to offer the service in China. It is estimated there are approximately 6 million lifts in China that require ongoing servicing. In the United States, there are an estimated 1 million lifts. There is therefore a significant cloud-based IoT lift maintenance market worldwide.

Five to 10 years from now, valuations of cloud-based service companies are likely to be primed more by the number of IoT devices connected to it as well as the level of AI/big data analytics functionality the cloud service can command. Dropbox should keep its focus on the enterprise and business user market, but if it completely ignores the AI and/or the IoT management market opportunity it could miss out on a growing cloud service opportunity. ABI Research hopes Dropbox invests its US$720 million IPO windfall wisely.

Note:Jake Saunders commented on the Dropbox and wider cloud services market opportunity on the BBC World News on March 23, 2018.