9/16/2020
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`What Is Dropbox's Competitive Advantage? | The Motley Fool
`
`What Is Dropbox's
`Competitive Advantage?
`
`Here's a review of how Dropbox got to be one of the leaders in
`the file-sharing market, despite going up against the biggest
`tech companies in the world.
`
`John Ballard (TMFRazorback)
`Aug 21, 2018 at 9:36AM
`Author Bio
`
`The file-sharing market is quite crowded, with tech heavyweights like Apple
`(NASDAQ:AAPL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Microsoft
`(NASDAQ:MSFT) fighting against fast-growing small companies like Dropbox
`(NASDAQ:DBX) for a piece of a $50 billion file-sharing market. This isn't an easy
`market to compete in, especially when Apple's iCloud and Microsoft's OneDrive
`are integrated with those companies' respective operating systems.
`Yet Dropbox has managed to double its revenue since 2015 to $1.2 billion. How
`has Dropbox been able to deliver such good results going up against the biggest
`tech companies in the world? Why would someone go out of their way to sign
`up with a third-party service like Dropbox when they can use an integrated
`service like iCloud or OneDrive?
`
`https://www.fool.com/investing/2018/08/21/what-is-dropboxs-competitive-advantage.aspx
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`Exhibit 2028
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`9/16/2020
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`What Is Dropbox's Competitive Advantage? | The Motley Fool
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`IMAGE SOURCE: GETTY IMAGES.
`
`First-mover advantage
`One thing going for Dropbox is that it was founded the same year the iPhone
`launched, in 2007, and by the time Apple launched its iPad in 2010, Dropbox was
`one of the top apps available for file syncing. By simply making itself available in
`the earlier days of smartphone adoption, Dropbox cemented its name as a
`trusted, go-to service for those who wanted to keep their documents handy
`while on the go and synced across all devices.
`Today, Dropbox boasts more than 500 million registered users. It's added 100
`million since the beginning of 2017. This puts Dropbox at No. 2 in market share
`with 32%, just behind Google Drive's 36%. 
`Over the last five years, Dropbox has been focusing more on the enterprise
`market by offering premium features through subscription plans, which is how
`Dropbox makes money. Through the second quarter, there were 11.9 million
`paying users, roughly double the number of subscribers in 2015. 
`User-friendly open platform
`One of the things management has always recognized is that clients choose a
`file-sharing solution mostly on user friendliness. Dropbox has designed very
`clean apps that are easy to navigate. Its subscription services are compatible with
`many third-party business apps from companies such as salesforce.com, Adobe
`Systems, and many others. 
`This is a key selling point for many, as more than 75% of Dropbox's customers
`who subscribe to a premium business plan have linked their Dropbox account to
`at least one of these third-party services. 
`Interestingly enough, Dropbox also has a partnership with Microsoft, giving
`premium subscribers full integration with Office 365. Dropbox offers similar
`integration features for Google Drive users. The combination of user friendliness
`and an open-platform strategy has been a winning card for Dropbox so far.
`Because of these partnerships, Dropbox has made its service ubiquitous for
`potential business employees who are looking for a file-sharing option to use
`with co-workers. In its S-1 registration filing, Dropbox states, "Our 500 million
`registered users are our best salespeople." Since millions of people are already
`familiar with Dropbox, there's a good chance a given business looking for the
`right file-sharing service for its employees may choose Dropbox Business over a
`competing service.
`
`https://www.fool.com/investing/2018/08/21/what-is-dropboxs-competitive-advantage.aspx
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`9/16/2020
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`What Is Dropbox's Competitive Advantage? | The Motley Fool
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`Competitive technology
`Additionally, Dropbox has several features that make its offering very
`competitive, including Smart Sync and a slick team collaboration tool called
`Dropbox Paper. 
`Dropbox Paper features a minimalist interface of just a blank screen with
`advanced technology running behind the scenes, which allows multiple users to
`easily create new templates from scratch and drop files into the document,
`including music tracks and video files.  
`All changes are updated in an instant, which highlights Dropbox's sync speed as
`another advantage. Sync speed is what Dropbox is known for. The company has
`been recognized for delivering the fastest upload and download speeds among
`its peers. It does this by only syncing changes to files instead of updating the
`entire document like Google Drive.
`Staying ahead of competitors will require big investments
`Delivering new features and expanding its service offerings is crucial for Dropbox
`to keep growing its user base. In order to do that, the company has to invest
`heavily in marketing and product development. In the first half of 2018,
`Dropbox's research and development expense increased 178%, and sales and
`marketing expense expanded 79%. This caused the company's net loss to swell
`to $467 million compared to a loss of $59 million a year ago. 
`Losses on the bottom line are not something the big boys have to worry about.
`Microsoft and Apple spend more every year paying out dividends than
`Dropbox's current market capitalization of $11 billion. Still, there's something to
`be said for a company like Dropbox that is purely focused on doing one thing
`very well.
`One indicator that Dropbox's investments are paying off is the company's
`increasing average revenue per user, which increased 4.9% year over year in the
`second quarter, reflecting a sales mix shift to higher-priced upgrades like the
`new Dropbox Business Advanced plan. This is a good sign that customers are
`happy with the service.
`Dropbox clearly has advantages in technology, which has helped it grow to this
`point. But going forward, its success may require additional sacrifices to
`profitability in order to stay ahead of the competition.
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`https://www.fool.com/investing/2018/08/21/what-is-dropboxs-competitive-advantage.aspx
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`9/16/2020
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`What Is Dropbox's Competitive Advantage? | The Motley Fool
`David and Tom just revealed what they believe are the ten best stocks for
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`*Stock Advisor returns as of August 1, 2020
`Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors.
`Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of
`directors. LinkedIn is owned by Microsoft. John Ballard has no position in any of the stocks
`mentioned. The Motley Fool owns shares of and recommends Adobe Systems, Alphabet (A
`shares), Alphabet (C shares), Apple, and Salesforce.com. The Motley Fool has the following
`options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple.
`The Motley Fool has a disclosure policy.
`
`https://www.fool.com/investing/2018/08/21/what-is-dropboxs-competitive-advantage.aspx
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