Dropbox and Box: A Tale of Two Boxes

The business models of Dropbox and Box, their challenges facing Microsoft, product evolution and more.

What does Dropbox and Box have in common, other than sharing the same word in their names and having a similar business? Hint: something to do with Microsoft.

For those of you who aren’t familiar with Dropbox and Box, they are basically a cloud storage solution, much like your Google Drive or Microsoft OneDrive (okay, there’s actually more to their products, which we will get into shortly).

First, a bit of history. Although Dropbox is the more well-known of the two boxes, Box actually came into existence first in 2004, and Dropbox wasn’t launched until 2007. Both started off as a B2C file storage and link sharing solution. But Box soon arrived at the juncture to decide whether they should stay in the B2C space or pivot to B2B, and chose the latter. On the other hand, Dropbox made the decision to stay B2C, but much later they also decided they should go B2B too.

Because of that, Box is much more advanced in its enterprise offerings and has a stronghold in their enterprise sweet spots (basically any industry that is heavily regulated), while Dropbox is a lot more entrenched in the consumer and SMB space (700M users worldwide, converting ~4% into paid customers). One point to also note is that, as an enterprise solution, Box is first and foremost a security company, which explains why they are very popular among customers from the natural science, financial services and government sectors.

Both were once a darling from the Silicon Valley, growing at well over 30%. However, their growth has slowed down significantly in the last couple of years, at less than ⅓ of their peak. What happened?

Answer: Microsoft 365.

In 2017, Microsoft introduced Teams and made a slick move in bundling all of Teams, OneDrive, Sharepoint, World, Excel, Powerpoint and so on as a single M365 bundle. From a cost perspective, a customer could be in a position where the per seat cost for Dropbox/Box is higher than the entire M365 bundle. If you are a business owner or the CIO, it is really difficult to justify the extra spend if the M365 bundle gets the job done (and it does).  

Can't mess with this dude

What’s more. When you are selling against Microsoft, you are not just selling against Satya Nadella and his team; you are selling against the entire Microsoft partner ecosystem. For every dollar that Microsoft makes, partners generate $9 of revenue by selling additional products and services. (Note: this might explain why their products are never that user-friendly?)  

On the flip side, when Microsoft is selling, they are selling not just what they have today, but they are selling a product roadmap. They can walk into a meeting with a customer, and say “Yes we know Dropbox/Box has features X, Y and Z, but trust us, we are also developing these and will have these ready soon.” They are the largest software company in the world; it’s hard for a customer not to trust them right?

One additional point about Dropbox. They started as a dominant player in the B2C space and only much later began their upmarket sales motion. In going upmarket, there’s simply no greenfield. Every single business beyond a certain size will have a storage solution, whether it's on-premise or in the cloud, whether it's OneDrive or Box. In situations like that it becomes tremendously difficult to convince a customer to switch. A typical customer will be like “Okay, Dropbox seems nice but we are already using OneDrive and it gets the job done.”

In seeking growth, the 2 boxes have evolved to become a collaboration tool, not just a storage solution. Both have introduced collaboration, e-signature, and a range of other features to their offering. But if you are a collaboration tool who is the dominant leader in the enterprise space? M365 (see the pattern here?) How about the SMB space? Microsoft is not going away, and you also have Google, Asana, Notion, and a dozen others all competing in different ways and approaching from different angles.

All the above means the long term prospects of Dropbox and Box aren’t great. That’s why investment story for these boxes have become one of rule-of-40 (which both of them meet) instead of high growth. And the moral of the story is, it’s really difficult to mess with Microsoft.

Thank you for making it this far! If you liked this post, consider subscribing as a paid member to get exclusive deep dives and insights delivered to your inbox!