The Dropbox downward spiral. Or is it their biggest chance?

In recent weeks, there has been a lot written and discussed about cloud-hosting company Dropbox. First, we discovered that Dropbox employees can decrypt and see our stuff, although the company said the opposite all along (which, some claim, gave them an unfair competitive advantage). Then, they had a security bug, which allowed anyone to log into any account, with the wrong password. Dropbox waited too long to communicate about this with their users, who learned about it on third party websites. Finally, they updated their Terms Of Use to include some very controversial Facebook-like copyright ownership granting them some rights, which could potentially be abused into, say, publishing your content publicly.

To sum up, Dropbox was loved for its simplicity and ease of use, and because it was perceived as a safe way to use the cloud. It is still dead-easy and very useful, but suddenly it may not be so safe anymore, and Dropbox now appears as a company who can’t deal well with security, communication, and privacy.

The business of Dropbox

The model of Dropbox is what’s called “freemium”, where the basic version is free but limited, and users can get additional features if they become paying customers. Usually, this should work well on several levels for the company, who can convert free users into customers as their needs and loyalty increase.

But there is one drawback to this model: online consumers got used to services being free on the Net, almost as a norm, and they tend to expect much more from a service if they are to pay for it. It is a fair assumption that a large percentage of Dropbox’s users are actually not paying for it. But this service still bears a cost to Dropbox nonetheless. The freemium model in that case can be somewhat of a gamble, and the company needs to convert casual users into loyal paying customers, if it wants to grow its business.

Vicious circle

This is precisely where the recent change in perception from users (and partners) can mean the death of Dropbox.

When a product is seen as “less trustworthy” than it used to, everything shifts down one step. Customers who used it for business won’t leave all at once of course, but they may tend to remove their most valuable content first, and use the service for less sensitive data, until they trust it again. At the same time, free users tend to hesitate more before crossing over the symbolic step of taking their credit card out.

And it goes down from there. Paying customers spending money for a service that they now only use for not-so-important things start questioning the justification of paying for it in the first place. They look for alternatives that are either free (for the non-sensitive data), or providing higher level of safety (for the sensitive data).

Since there is a free version, and it is still quite a convenient service, they simply don’t renew their membership, and naturally downgrade to the free option, while reviewing the competition. Meanwhile, free users still use the service to host and backup their everyday stuff but commit even less. Quality of what is hosted goes down, and users occupy space and bandwidth for data they don’t “care” about.

All this ends up costing money to Dropbox, while bringing no revenue.

Eventually, money runs out, investors get upset and encourage to kill the free version altogether, Dropbox’s give users an ultimatum, and their reputation as a business gets permanently stained because of their history and the online ecosystem they’re in.

Jumping back up

There is an alternative to this. If well executed, it could not only rejuvenate Dropbox, but actually get it to grow stronger, fast.

It goes like this:

  1. Make your service appear not secure (done);
  2. Make your business appear not privacy-friendly (done);
  3. Get people to talk about you, through lack of transparency (done);
  4. Offer new and improved 100% privacy & 100% security in the paid version, ideally with a new very affordable low-end plan for an easy no-brainer switch from the free version (to do);
  5. Leave the free version alive for a while, but explicitly as a “semi-public” service (optional);
  6. Profit!

In other words, this would mean to upgrade paying customers into a higher level of privacy and security, while offering hesitant free users an option to get what they thought they already have, for a small — but justified — fee.

I don’t think they had this plan in mind all along, because it would have been really risky to play it like they did. Even if they had, they probably won’t brag about it anyway, because what they need to show now is that they “listened”.

One year from now

Everybody likes predictions, so here is one: in the next few months, Dropbox will either get smart and become the native solution for automatic backup and synchronization embedded in every application you can think of, with only Apple’s iCloud as serious competitor, or keep slipping into the grave they have seemed determined to dig, and see their partners gradually replace them with new alternatives, pulling their users away even faster.

Hopefully for them, they will listen, and read this post.

You’re welcome, Dropbox.

Comments welcome at @ZLOK