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Case Assignment- Freemium Pricing At Dropbox

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Questions:

Freemium Pricing at Dropbox

Dropbox provided remote-storage over the internet, also known as cloud storage, of any type of computer file. The name of the company came from the idea that their cloud storage service would allow users to drop files into a folder that could be accessed anywhere using the internet. This enabled file sharing, synchronization and backup. In six years, Dropbox had grown into a business with 200 million users saving more than a billion files per day, outpacing internet giants such as Amazon, Google, and Microsoft. Using a freemium pricing strategy whereby a basic service was free- of-charge and premium services were paid, Dropbox’s user base was still growing quickly. But only an estimated 1.6 to 4.0% of its users provided any revenue to the company. Going forward, could Dropbox, an internet company with only a few hundred employees and one product offered to businesses and consumers, compete in the cloud storage space? If so, how? And should Dropbox continue with its freemium pricing or not?

Required:

1. Describe Dropbox’s “Freemium Pricing strategy” to get users and revenue. What was this strategy? What did the company hope to accomplish with this strategy?

2. What were the positive results of this strategy?  

3. What were the negative results or failures of this strategy, if any?

4. What was the strategy that Dropbox used for corporate/business customers? Describe this strategy and its results.

5. What other strategies can you think of that Dropbox could have chosen, instead of Freemium Pricing?

 

Answers:

1. The “Freemium Pricing Strategy” was a customer driven strategy that led the Dropbox to hold large share in the market of cloud storage. Drop was considered to be the first successful organizations that offered this freemium pricing strategy in the market of cloud storage services. This strategy provided the users an opportunity to try their products at risk-free level (Gannes). This strategy was implemented by the organization in order to provide incentives to users for sharing this product with their employers and friends in exchange of more storage capacity. As per the services that Dropbox offers, the Freemium plan of action is clearly the model that it receives. Dropbox offers free services and charges cash if clients oblige more space. In 2011, 96% of its clients paid nothing, nonetheless, the organizer and CEO of Dropbox Drew Houston guaranteed it was at that point beneficial yet wouldn't uncover edges.
 
2. The pricing strategy had prior been on a B2B model which in the end multiplied to a B2C model through the freemium model. The layered pricing models are a Value based framework that identifies with an extensive variety of customers. Dropbox has some solid competitors; like iCloud which gives comparable services furthermore has simpler access to the 222 million users of Apple. In any case, among a huge number of organizations that offer comparative services now, Dropbox appreciates some different peculiarities. This method functioned admirably and prompted noteworthy new client procurement. In 2010, Dropbox's 4million present clients delivered around 2.8million direct referral welcomes which was around a referral rate of 70%. Through this the organization reported around 30% of the client referrals with respect to the services. Dropbox has more than 50 million clients, and another client is being included each second (Eisemann). The reason that Dropbox has encountered such hazardous development is that its tackled the issue of information being spread crosswise over different gadgets like telephones, tablets and machines.
 
3. The users however can face few failures for using this strategy for instance (Gobry):
  • For success of this freemium strategy, there is a need of lots of users. This idea would work effectively, if there is lots of millions of users, or else it is better to use premium route.

  • There is also need of lot of returning users. This is very important that the users stick to the product and provide huge return to the company. If they see that the users are not returning even after using this freemium, it is better to shift towards advertising strategy.

  • Gaining profit takes long time: Since clients take more time to change over as the estimation of the item to them increments over the long run, and in light of the fact that you continue including new free clients, freemium organizations take quite a while to achieve breakeven point. When they do they can be exceptionally beneficial, in light of the fact that your income every dynamic client becomes speedier than your expense every dynamic client, however it takes a while to reach breakeven. Equity financing (VCs and angels) or option wellsprings of income can help you cross over any barrier yet not everybody has that opportunity or needs to do that.
4. Drew Hotson, the CEO of Dropbox recognized to turn on their target towards the corporate customers. This was done after outpacing the giants of internet market like Amazon and Google. The consumer version of the Dropbox started at the price of $120per year in the year 2013. Dropbox started a new business product named “Dropbox for Business”. This featured unlimited administrative and storage control which will permit the employee to manage the documents of the employees. Further, this featured Single-Sign-On option that permitted employees to share and access to the important documents without any signing in process.

Further, the Dropbox also partnership with the Salesforce, that provided the IT departments of many enterprises, to set different rules through their management tools (Re/code).  The organization also joined hand with Microsoft to make the office apps available on the phones and tablets so as to make the sharing process easier (News.microsoft.com).

5. Apart from “Freemium Pricing Model”, the DropBox can also utilize:  
  • Perpetual License Model- This is a one-time payment system which the users has to pay upfront along with some additional fee for support and maintenance of the service.

  • Consumption Model- This model permits the users to manage their own cost through managing of product quantum usage.

  • Tiered Model- the main idea behind this model is to tie up the user with some pricing based on usage and value which can usually be servers, data volumes seats, modules etc.
 

References

Eisemann, Thomas R. 'Dropbox, It Just Works'. iknowbase.com. N.p., 2012. Web. 3 Feb. 2015.

Gannes, Liz. 'Case Studies In Freemium: Pandora, Dropbox, Evernote, Automattic And Mailchimp'. Gigaom.com. N.p., 2010. Web. 3 Feb. 2015.

Gobry, Pascal-Emmanuel. 'EXPLAINER: What Is The Freemium Business Model?'. Business Insider. N.p., 2011. Web. 3 Feb. 2015.

News.microsoft.com,. 'Microsoft And Dropbox Announce Strategic Partnership To Give People More Freedom In How They Work | News Center'. N.p., 2014. Web. 3 Feb. 2015.

Re/code,. 'Dropbox Zeros In On An Enterprise Strategy'. N.p., 2014. Web. 3 Feb. 2015.

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