ENTREPRENEURSHIP 5: Dropbox Business Model Analysis Report

This report provides a comprehensive analysis of Dropbox's business model, examining the opportunities identified by Drew Houston, the key elements of its business model, and the hypotheses he held when applying to Y Combinator. The report delves into Dropbox's customer value proposition, technology and operations management, go-to-market plan, and profit formula. It also assesses the hypothesis testing approach used by Houston and evaluates the decisions the management team should consider when launching a version targeted at Small Medium Businesses (SMEs). The analysis includes financial data, customer acquisition strategies, and the challenges Dropbox faced in a competitive market. The report utilizes the case study 'Dropbox: It Just Works' to provide insights into the company's journey, strategic decisions, and the factors contributing to its success in the cloud storage and file-sharing industry.

Running head: ENTREPRENEURSHIP
Entrepreneurship
Name of the Student
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Executive Summary
The report has been helpful in understanding and analyzing the position and business model
efficacy of Silicon Valley Start up named DropBox which was incorporated in the year 2006. It
is helpful in providing online storage along with back up services to millions of customers in the
market using the different hypothesis which have been created in the respective report and it has
been explained effectively.

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Table of Contents
Analysis of Opportunities Seen by Houston....................................................................................3
Key Elements of Business Model of DropBox................................................................................3
Analysis of Hypothesis held by Houston Regarding Key Elements of Business of DropBox
Business Model while applying to Y Combinator...........................................................................5
Analysis of Assessment of Hypothesis Testing Approach Used.....................................................5
Analysis of Aspects Used by DropBox Management Team to make Decisions Regarding
Launching Version targeted to SMEs..............................................................................................6
References........................................................................................................................................8

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Analysis of Opportunities Seen by Houston
DropBox was a late mover in the service of File Hosting, however, it was successful in
creating niche market through which they were capable of increasing their market share
effectively. All the different file hosting services did not have an option of fluent synchronization
services and therefore, Drew Houston had team for developing the proper prototype that has
allowed instantly synchronization for the files of different sizes. DropBox was targeting mass
customers and later on targeting early adapters1. It helped them in increasing their overall
presence which was based on referral program wherein the users had to utilize DropBox for
downloading any file. They later on mainly focused on reliability along with flexibility of the
aspect2.
Key Elements of Business Model of DropBox
The key elements of the DropBox’s business model helped in building up the single
version as the respective strategy helped them in saving large expenditures for acquiring the IT
permission of company that was the entry barrier for the new start-up companies which had
really limited capital3. Through the referral program, they were capable of attracting new users,
1 Eisenmann, Thomas R., Michael Pao, and Lauren Barley. "Dropbox: 'It Just Works'." Harvard Business School
Case 811-065, January 2011.
2 Daou, Alain, et al. "The Ecocanvas as a business model canvas for a circular economy." Journal of Cleaner
Production (2020): 120938.
3 Joyce, Alexandre, and Raymond L. Paquin. "The triple layered business model canvas: A tool to design more
sustainable business models." Journal of cleaner production 135 (2016): 1474-1486.

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retain them and earn money from the ones who have the willingness to pay extra for the storage
capacity. In such aspect, the main key element is the ease of utilization that was user friendly and
it has been capable of attracting users through word of mouth prospect. Its present aspect is high
effective and the niche is that the different users can be downloading and sharing files from
multiple Platforms of PC. The key elements of business model of DropBox include:
Customer Value Proposition
 It helped in keeping easy track of the
older version of files
 It helps in automatic back up of
different online data
 Proper creation of easy for utilizing
cloud data
 Different professionals working in
Information Technology Industry
Go to Market Plan
 It is capable of utilizing Amazon’s
storage related service for eliminating
requirement for huge infrastructure
Technology and Operations Management
 Spreading through Word of Mouth
 Engineers were competent along with
founders for developing code
 Viral type of marketing
Profit and Cash Flow Formula
 Free up to 2GB and it is payable
afterwards
 In the mid 2010, estimated revenue is
between $10 million to $15 million.
Assuming that by the mid 2010,
DropBox had more than 3 million

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users.
Total customers= 6.8 million
It has been noted from the case study that DropBox initially had four million users who
were capable of referring 2.8 million users through invitation. Therefore, the total number of
customers of DropBox includes 6.8 million. Out of the same, 2-3% of the users were paying
customers which imply that there has been $10 to $15 million annual revenue. In addition, the
monthly spending for storage or the bandwidth (also known as variable cost) are being calculated
to be $0.11 per free user (mentioned in the case study) and $3.18 per paying customer
(mentioned in the case study).
Let’s assume that paying customers to be the average of 2.5% of the total customers which can
be shown as: 2.5/100*6.8 million= 170000
Total revenues= $12.5 million
Analysis of variable costs from free and paying customers is
(0.11) * 6,630,000 + (3.18) * 170,000 = 729,300+540,600 = $1,269,900
And assuming that the average salary of employee is $150000
Total fixed cost= 150000*21= $3150000
Profitability is calculated= total revenues – cost (fixed plus variable)
= 1250000- {1269900 + 3150000}
= $8080100

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Analysis of Hypothesis held by Houston Regarding Key Elements of Business of DropBox
Business Model while applying to Y Combinator
The different aspects which were learnt regarding the product were the accessibility along
with simplicity. In order to maintain the respective aspect, Houston asked VC who came to
interview him whether they are using same product or any other sort considering the fact that,
there were different other solutions present in market4. The product tried to work in an automatic
manner along with deal with complex problems in simpler manner. The User-Friendly
application is the other highly efficient aspect which is easy for utilization and it assists the users
in working on latest kind of technologies of provided document for making sure that the
premium quality is the first and foremost aspect. Houston defined the fact that quality is the
quick process along with safety of documents through using interface of web and there was high
level of security for file backing up system up to Amazon S35.
Analysis of Hypothesis and Testing
 First hypothesis is the user friendly and accessible product
 The other hypothesis is related to have good quality along with safety
 Releasing of the single version for all users specifically for the targeted individuals
4 Kraus, Sascha, and Coen Rigtering. "Strategic corporate entrepreneurship: a configuration approach-based case
study." International Journal of Entrepreneurial Venturing 9.2 (2017): 101-121.
5 Menke, Charlott. "Unravelling entrepreneurial competencies and their relation to entrepreneurial
intent." International Journal of Entrepreneurial Venturing 10.6 (2018): 663-687.

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Analysis of Assessment of Hypothesis Testing Approach Used
Moreover, Houston was capable of figuring the fact that his target customers, the IT
professionals were technologically adaptive and as the product DropBox was highly reliable and
simple in nature, it rapidly grew6. Therefore, the following key element was release of single
version for different users and utilizing Trojan Horse strategy for expanding in the competitive
market. As to earn high level of revenues in the market, DropBox tried to utilize the freeware
model wherein 1GB were provided for free and additional GB was charged on monthly basis.
From the respective analysis, it can be made clear that Drew Houston had quite clear and proper
idea of final product when he was being asked for his first venture Capital. Therefore, from the
analysis, it can be said that business model of DropBox relied on simplicity and accessibility that
made it highly popular.
Analysis of Aspects Used by DropBox Management Team to make Decisions Regarding
Launching Version targeted to SMEs
It will be considered to be a heavy and difficult decision for Drew Houston and it could
be solved in an efficient manner with the proper corporation from his employees. In the current
scenario, the entire teams of DropBox including Drew Houston do not have to rush as the
different customers who are the target ones are happy with the different products and services
which are delivered by them. In addition, they do not need any other additional element at the
particular moment7. In the current span of time, the DropBox Management team do not have to
6 Will, Andreas, Dennis Brüntje, and Britta Gossel. "Entrepreneurial venturing and media management." Managing
media firms and industries. Springer, Cham, 2016. 189-206.
7 Spiegler, Anna B., and Jantje Halberstadt. "SHEstainability: how relationship networks influence the idea
generation in opportunity recognition process by female social entrepreneurs." International Journal of

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make the decisions regarding the launching version targeted to SMEs as the business is running
in a smooth manner which is the key element that is required for the business for generating
success and profitability in the market successfully. However, it is highly essential for the
company (both employees and employers) to keep a proper track on the different happenings in
the market place for following up with the trends that might pop up which needs to be analyzed
by them whether to input it or not in their system8.
Entrepreneurial Venturing 10.2 (2018): 202-235.
8 Toro-Jarrín, Miguel Angel, Idalia Estefania Ponce-Jaramillo, and David Güemes-Castorena. "Methodology for the
of building process integration of Business Model Canvas and Technological Roadmap." Technological Forecasting
and Social Change 110 (2016): 213-225.

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References
Daou, Alain, et al. "The Ecocanvas as a business model canvas for a circular economy." Journal
of Cleaner Production (2020): 120938.
Eisenmann, Thomas R., Michael Pao, and Lauren Barley. "Dropbox: 'It Just Works'." Harvard
Business School Case 811-065, January 2011.
Joyce, Alexandre, and Raymond L. Paquin. "The triple layered business model canvas: A tool to
design more sustainable business models." Journal of cleaner production 135 (2016): 1474-
1486.
Kraus, Sascha, and Coen Rigtering. "Strategic corporate entrepreneurship: a configuration
approach-based case study." International Journal of Entrepreneurial Venturing 9.2 (2017): 101-
121.
Menke, Charlott. "Unravelling entrepreneurial competencies and their relation to entrepreneurial
intent." International Journal of Entrepreneurial Venturing 10.6 (2018): 663-687.
Spiegler, Anna B., and Jantje Halberstadt. "SHEstainability: how relationship networks influence
the idea generation in opportunity recognition process by female social
entrepreneurs." International Journal of Entrepreneurial Venturing 10.2 (2018): 202-235.
Toro-Jarrín, Miguel Angel, Idalia Estefania Ponce-Jaramillo, and David Güemes-Castorena.
"Methodology for the of building process integration of Business Model Canvas and
Technological Roadmap." Technological Forecasting and Social Change 110 (2016): 213-225.

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Will, Andreas, Dennis Brüntje, and Britta Gossel. "Entrepreneurial venturing and media
management." Managing media firms and industries. Springer, Cham, 2016. 189-206.