Case 2: Freemium Pricing at Dropbox
In this case, we are asked to provide Dropbox some recommendations in order to address three major issues: the customer growth in B2C and B2B markets, the free-topay user conversion and the competitive threats. First, it is important to describe how each of these issues came about and why they are critical for Dropbox going forward.
When A. Ferdowsi and D. Houston launched Dropbox in 2007, they knew that getting business customers would be tough due to bureaucratic delays in getting them to integrate the services into their operations. Another problem was that getting individuals to pay for Dropbox was hard because mainstream consumers were still not used to using cloud-storage services. To overcome that, they first focused on the individual consumer market (rather than corporate clients) and adopted a new pricing concept called “Freemium” which consists in giving away basic services for free (and thus only charging for premium versions). By coupling this “free way” to try the service with an efficient incentive program allowing people to get free storage upgrades, Dropbox was able to hold a large share of the consumer cloud storage market but also to indirectly penetrate the corporate world. Indeed, Houston’s goal was to get individuals to use and like Dropbox so much that they, in turn, got their employers to sign up as well. All this worked so well that they grew from 4 million users in 2010 to 200 million in 2013. The next step for Dropbox was to directly target corporate customers. Therefore, Dropbox for business was launched and became another success (by the end of 2013, roughly 40% of their annual speculated $400 million revenue came from this product). The issue here was that 96 to 98% of
Dropbox users were still individual consumers using the product for free! Concretely, it means that Dropbox was