A storage company with 600 million users and a problem

Dropbox was started in San Francisco in 2007 by two MIT graduates, Drew Houston and Arash Ferdowsi. The idea was simple: put a folder on every device you own and keep its contents in sync through the cloud. It became one of the fastest-growing consumer internet services of its era and listed on Nasdaq in March 2018.

Here is where it stood in mid-2020, as the pandemic pushed office work online:

Dropbox was profitable and growing, but investors watched Zoom, Google and Microsoft capture most of the excitement around remote work. Dropbox's stock briefly jumped in spring 2020, then slid back.

Two customers, two playbooks

Dropbox sells the same product to two very different buyers. Flip between them:

Keep this contrast in mind: it matters for which resources can cross borders on their own (Part 1, Q3).

Going global by accident

Dropbox didn't plan its first foreign markets. Users shared folders and links with friends and colleagues abroad, and those people signed up too. By 2012, with about 100 million users, roughly a third were in Europe and another third in Asia. By 2016, about three quarters of users lived outside the US.

Our localization strategy and plan was a "Follow the users" approach.ChenLi Wang, who led Dropbox's international expansion (Reforge, 2016)

Wang contrasted this with enterprise software firms, where products must be adapted to each country's laws and a sales team has to create demand from scratch. Dropbox's product works the same way everywhere. Click through the timeline:

Where to plant a flag

Once foreign growth was real, Dropbox had to decide where to invest in people and offices. Its team sized each market by counting internet and mobile users, and found that people used Dropbox the same way everywhere, but how much they paid tracked income per head. A user in a rich country was worth more.

• Why Dublin first (2013)? Customers wanted sales and support in their own language and time zone. In a blind ranking of candidates from Dublin, London, Amsterdam and Zurich, Dublin's sales and support profiles won. A time zone that overlaps with California and a low corporate tax rate (analysts noted) helped.
• Then: London and Paris (2015), Amsterdam and Hamburg (2016). Each city was chosen for a skill: outbound sales in London and Paris, engineering in Zurich.
• Small local touches: billing in local currencies, local payment methods (Carte Bancaire in France, direct debit in Germany), and in Japan, boxed cards sold in shops.
• A surprise: once customers knew Dropbox had a team in Europe, they treated it as a local company and became more trusting.

Data has a passport

Some European businesses, especially in Germany, hesitated to put their files with a US company. After revelations about US government surveillance, the worry was less about technology than about trust and who controls the data. In October 2015 the EU's top court struck down Safe Harbor, the framework that had allowed EU personal data to move freely to US companies.

Dropbox responded by promising to host business customers' files inside Europe. From the third quarter of 2016, European business data could be stored in Germany, the market with the strictest data protection rules in Europe.

The bundlers

Storing files is hard to differentiate. By 2020 Dropbox's toughest rivals weren't storage start-ups but giants that included storage in products people already used:

When storage is "free" inside a suite you already pay for, a standalone app has to justify itself. Dropbox's answer was to be the neutral connector: it built partnerships so files could flow into Zoom calls, Google Docs, Slack, Microsoft Office and learning platforms like Canvas. A partnership that pre-installed Dropbox on Samsung phones, however, ended in 2019.

Think about it: if your friends and colleagues already use Google Drive, does Dropbox's network still pull you in?

October 2020: the offices go quiet

On 13 October 2020 Dropbox announced it was becoming a "Virtual First" company: remote work would be the default for every employee, including leaders. Offices in San Francisco, Seattle, Austin and Dublin would become "Dropbox Studios" for meetings and team events, not daily desk work. A Dropbox-commissioned study by the Economist Intelligence Unit found knowledge workers were more focused at home but missed in-person connection.

That raises uncomfortable questions for a firm that spent years building offices abroad:

• The growth opportunity from remote work lies mostly with businesses, which need sales teams, support and infrastructure. Should Dropbox shift its focus from consumers to businesses?
• Should it keep investing in going global, and if so, in what: people, offices or data centres?
• How can it defend itself against Google and Microsoft bundling storage into their suites?
• What are foreign offices for in a Virtual First company?