Can Dropbox and Box survive as independent services?

Can Dropbox and Box survive as independent services?

Summary: As the big platform owners turn cloud storage into just another feature, how do the independent services survive? History isn't comforting for the owners of those companies.


As the price of online storage plummets, can independents like Dropbox and Box survive?

If history repeats itself, then all those smaller companies are about to get squeezed by some very powerful market forces.

Over the past year, the per-gigabyte price tag for online storage has been driven down by a handful of slashing moves from the biggest platform players around:

  • Last March, Google upended the cloud storage market by increasing the default storage allotted for free Google Drive accounts to 15 GB and cutting upgrade prices by 80 percent, to to $2 for 100 GB and $10 per month for a terabyte of space.
  • Apple followed suit at this year's WWDC, announcing a new iCloud Drive offering 200 GB of storage for $4 a month. That's the same price per gigabyte as Google for that storage allotment. A terabyte of iCloud Drive space costs $20 a month, double Google's price but still a relative bargain compared to third-party services.
  • And now Microsoft has joined the party, matching Google's 15 GB of free space for OneDrive and its $2 per 100 GB per month upgrade price. But the real deal comes with Office 365 Personal, which will soon include a terabyte of OneDrive cloud storage (along with the full Office suite) for $7 a month or $70 a year. The $100-a-year Office Home lets up to five people in a household get that terabyte along with Office apps on each of their devices.

Update: On October 27, Microsoft announced that it was removing storage capacity limits for Office 365 subscribers. See Microsoft offers unlimited OneDrive storage with Office 365 subscriptions.

Those prices make independent cloud storage services like Dropbox and Box look like terrible deals.

Dropbox is still asking $20 a month or $199.00 per year for its 200 GB package, which is five times what the competition is now charging. And if you want a terabyte of data you have to move to the Dropbox for Business platform, which costs $15 per user per month, with a five-user minimum.

Box is also overdue for a price cut, with its price list still showing the $15-per-month (five-user minimum) Business plan as the "recommended" option. Personal account holders have to pay $10 a month if they want more than the basic 10 GB of free storage, and then they're capped at 100 GB, a rate that's five times higher than what Google/Apple/Microsoft charge.

If you were around at the pre-dawn of the Internet, this story should be eerily familiar.

Back in 1992, NetManage Inc. shipped the first third-party TCP/IP stack that was compliant with the then-new Windows Sockets standard.

By mid-1996, a handful of companies had turned that niche into a very lucrative one, with IDC predicting that TCP/IP networking software for PCs would be a $725-million-a-year business, up nearly 50 percent year over year.

Companies like Frontier Technologies, Hummingbird Communications, and NetManage were flying high. But there was definitely a dark cloud on the horizon, as that same 1996 report noted:

Microsoft Corp. recently began embedding TCP/IP stacks in Windows 95 and Windows NT. IDC predicts that by 1999, 89 percent of all desktop computers will be shipped with integrated TCP/IP stacks.

And sure enough, that's what happened. Within a few years, no one needed to pay for a TCP/IP stack or deal with the hassle of installing and configuring it, because TCP/IP networking support became a checklist feature of operating systems, included for free with Windows, the Mac OS, and the soon-to-debut Linux.

It's the same thing that happened to Web browsers. In the mid-1990s, you could take your choice of nearly 70 independent browsers, including Apple's CyberDog, variations on Mosaic from Quarterdeck and Spry, and IBM's WebExplorer. Within a few years, virtually all of those products had disappeared.

What happened at the dawn of the Web was that cool independent products became features of the dominant OS platforms. By the middle of the next decade, Microsoft had Internet Explorer, Apple had Safari, and Firefox and Opera were the only survivors among the independents.

Dropbox and Box (and all of the tiny third-party services still clinging to a fraction of a fraction of a percent of market share) are in that same boat. Their product has just been turned into a feature, available for free (or nearly so) to anyone who buys an Apple device, a Microsoft Office subscription, or a Google Apps account.

It's very, very hard to compete with free, as those long-defunct networking companies will tell you if you hop in the Delorean and go back to 1998.

The good news for Dropbox and Box is that they can probably increase their allowances at every price level without incurring a matching hit on their storage arrays. People may pay for a terabyte, but they typically use only a tiny part of that storage allotment.

The bad news is that the race isn't over yet. All of those competitors see cloud storage as a marginal-cost item that can be sold at or below cost to increase the attractiveness of the platform.

Box has delayed its IPO as it struggles to find its new place in the cloud. Dropbox is working to maintain a unique identity as the landscape shifts around it.

The best possible outcome for either company is a merger with a platform company, which can turn its brand goodwill into a feature. The nightmare scenario is that cloud storage becomes a feature with zero revenues, just as web browsing and TCP/IP stacks did just before the turn of the century.

Maybe Dropbox needs to talk to the founders of Frontier Technologies and Hummingbird Communications. If they can find them, that is.

Topic: Cloud

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  • Could data visualization products be next?

    Microsoft may be doing this again with Power BI. Data visualization companies like Qlik Tech and Tableau must be worried. According to their latest 10 Q filings neither one is making a profit and here comes the big dog with a rapidly improving product embedded in Excel as a feature.
  • Bubble is about to burst!

    I saw a company on kickstarter not to long back with a litle cloud box that was offering a better value than Box und Dropbox combined. I expected them to buy that company and pivot instead of continuing to raise more and more money on a flawed bizness modle. Investors last in will suffre the most . if I were uno of them I would force a sale or put presure to pivot but both founders of these companies are to blame along with the lead VCs who backed them.
    • No one is to be blamed

      for being pioneers of an ever-evolving tech world. If anything, the companies simply couldn't keep up with competitions. These early cloud storage providers have introduced some disruptive technologies that have benefited many of us, now or in the future.
    • Its all idiocy anyway.

      Here we have "cutrate prices" for cloud storage, and the kinds of prices are; $10 per month for a terrabite, another example, $4 per month for 200MB.

      So basically, in less than 10 months of paying for this crap, you could have bought your own HD of the same size or larger without further fees.

      The software producers are brilliant. They find ways not only to rent you your software but your hardware too.

      Here we go. Follow the yellow brick road.

      No thanks.
      • True but that data will only be accessible from one place

        Put that same data in the cloud and get to it from anywhere at any time from any device. At one time, a 16 GB tablet was pretty limited. No more. Even a 64GB Windows tablet is fully functional with 200GB in the cloud!
        M Wagner
        • Most of the "Boxes" are Cloud Storage

          I can put a disk box even at home and make it into a "cloud". The issues with Cloud usage, though, are still associated with security and privacy. We know that public cloud vendors have employees that read all of your documents and email and claim they have a right to publicly display your data. So, how do YOU know that your personal data that you have entrusted to an organization or government office is not being read by workers in some foreign country? The answer is, you don't. I worked in criminal justice and we really could not use most public clouds because they were not compliant with federal law. (Even as a system administrator, I was not allowed to see the data). That is why many companies will opt for a private cloud. So, if we could get a "cloud-in-a-box" that would make information available in a private and secured manner, that would be much better. Sometimes, you don't want the data available all over the place. Especially if it doesn't really belong to you.
        • In an ideal world maybe...

          Sorry folks but I live in a state where net connections fail and speed is often limited. As a system admin I still go back to the 'back up to what you can hold in your hand' idea. My user love Drop Box until of course our network or even Drop Box fails (which it will from time to time). Much less than the issues with security of the Cloud for many of us it comes down to consistent reliability and for some of us the infrastructure, similar to the interstate highway system of the pre-war era isn't that developed yet.
      • You are dead on

        A box at home (with pogo or something) is just as easy. My house is in the 'cloud' as much as somebody's data center as long as I have an internet connection.

        And to the guy who says you can get your data anywhere, you must be one of the last folks with an unlimited dataplan. You will spend far more money downloading your data via your cell carrier than you pay to have it stored
  • The Problem

    Are the platform integrators (PIs) (Apple, Microsoft, Google) with pricing tiers any more effective at converting the cheapskate like me than Box and DropBox?

    If all that happens is that the all-cost customers (like me) leave Box and DropBox, their profitability improves.

    Would PIs try to lock out independent storage-sync competitors? If they do, it's clearly a problem for Box and DropBox.

    Still, aren't the PIs clearly signaling that cloud storage is a necessary adjunct to a devices and services strategy and the feature and pricing is a loss leader for the consumer platform buy? (Above you anticipated my question with a "yes" answer.) So, what's the upside for the PIs to go all out and eat DropBox and Box's lunch? The size of the sync-storage market is dwarfed by the size of devices-services.

    Meanwhile as the PIs chase the lower-end, do they hope to win with volume? What were the margins in the storage-sync business any way and how would the PIs improve that by price-cutting or expanding the size of their free-tier?

    Let's look for paying customers. Apple, Box, DropBox, Google, and Microsoft would be competing for entities who a) need a lot of storage for sync and understand that up front, b) won't have built their own data centers, servers, or infrastructure, and c) are casual about their data residing in someone else's control. What does that mean for storage-sync market size? I don't think it's great. It looks like small businesses with mobile workers.

    Adding in that Apple is platform-only and Microsoft is multi-platform — but the truly seamless sync-storage is via an os api — and Google does not have a significant user base for its os (yet), Box and DropBox are the ones who offer platform agnostic solutions and apis that developers can put into cross-platform apps. Would the PIs chase Box and DropBox into cross-platform in-app save/open services? Microsoft and Google might, but the desktop leader, Microsoft, doesn't look ready to cross that Rubicon, yet.

    I don't suggest your question and points are invalid, but I think we have to answer some questions about conversion rates and where the value and profit is today and where the value and profit will be tomorrow. Long-term, I don't think sync-storage will support many specialist vendors. I think that's a consequence of the decreasing cost of storage. Short-term, there's an opportunity for a non-PI who has insight into where the value is for paying customers, because the PIs want a check-list item, not a profit-center.
    • A lot of good points...

      Some of your questions are partially answered already. For example, MS is doing some cross-platform. OneDrive does have iOS apps. If there is a thought that an iOS/app type device is the mainstream product in 5-10 years, then they may already be cross-platform. Follow that with the just released Office on iOS and that Office has been on OSX, then you can see that coming. It is a key point though, that people I know are staying on Dropbox for now because they can use it on any platform.

      There's also more to the story than simply storage space and direct $. For example, there is big money in search engines. MS integrated BING search with their "spotlight" (Apple term) search in Windows 8. It actually works pretty well to simultaneously search local docs and programs, OneDrive, and the web for anything matching your search criteria. Whether it's the search engine drive or simply owning and having access to the data (even for NSA purposes), there is a push to host the storage despite the profit margin of the actual data hosting. This is also evident with MS and it's integration of Office 365 and OneDrive files. A biq question will be if Apple chooses to simply sync it's devices or offer full, open file storage (which has been suggested with iOS 8) - and also, will they start their own search engine.

      Another future consideration is cloud networking. The more cloud storage, syncing and sharing grows - and as SAAS grows, there will be less need for internal networks. If the big players are considering offering a complete network solution, (i.e., open a new business, ensure all devices can connect to the internet, and pay no more attention to servers, IT support, etc.), then they'll pretty much have customers waiting if they are already hosting and sharing your files.

      I think the win-win (for the providers at least) is the big guys buying Box, Dropbox, etc. Hard to imagine considering the resources they've devoted to the current infrastructure, but it's possible the small guys have some gimmick that works better - such as more granular security with Box. Still, it would ensure the small guys make another million before being shutout, and the big guys would have a simple conversion process to steal up all the current Box/Dropbox users.
    • The problem is that Box and Dropbox cannot afford to ...

      ... support commodity price points without customers who are willing to pay a premium for lots of storage. The other problem is the need for fast access to the cloud. As more customers demand streaming, the per-customer cost of commodity cloud storage goes up.
      M Wagner
    • Good Points

      I think part of the decision for businesses as to what "public" provider they can or will use is dependant on privacy and security policies and laws. As I mentioned elsewhere, Google and Dropbox are not CJIS (criminal justice data regulations) compliant while "Box" said that they could do CJIS, with a contract. Also, Microsoft Office 365 is CJIS-compliant. (It all has to do with having background checks on employees). So, for government work, choices can be limited by regulation, much the same way that medical facilities are regulated by HIPAA and HITECH laws.
  • It's a bit more than simple storage, though.

    Things like Dropbox are a bit more than mere storage though.

    It's a cross-platform, cross-app way of sharing documents. Nearly all iOS apps support it, and some apps even use it as a primary means of enabling them for cloud use. YNAB, a budget app, uses Dropbox specifically as a background service to synchronize its budget between my desktop, laptop, and iPhone.

    Perhaps they will be forced to respond to the lower prices, perhaps they will not be able to keep up, perhaps it won't matter because of their compatibility across many apps and platforms. Whatever the case, they'll likely have my money until there's a good reason to abandon them, and it's going to take a bit more than cheap storage for me to switch (especially since my budgeting app doesn't work with anything else).
    • That's great but....

      they have to turn a profit at some point; and even with the equity that an IPO might bring in they will still be faced with shrinking profits from there number one product/service. Box and Dropbox cant compete if the price continue to fall. An even with APPs using them, that isn't something that is set in stone, a developer could update the app to use some other vendor and create a data migration process. When the other players make more in a quarter profit than the value of your company they can cut prices even lose money without worrying about the bottom-line.
      • that's a nuanced discussion itself

        "they have to turn a profit at some point"

        Yes, they do. But that's a nuanced discussion itself, as it would require an analysis of their income and expenses. Somebody making a competing move does not immediately turn them into an unprofitable business.
  • Competition is good which is likely to reflect in the cost to the consumer

    Services such as Dropbox are no doubt already in the process of altering their pricing structure. Now that the alternative Cloud options are available it is quite likely there will stiff competition throughout all the Cloud storage providers. However with Cloud it is not just about price but more importantly storage space included in the deal and the caps that are placed on file size. Extremely compelling deals are now available like the OneDrive 1TB storage reported by MJF
    That being said the consumer needs an Office 365 account to be able to take advantage of it.
  • Dropbox is the only truly cross-platform solution

    The one thing lacking is independent, user-controlled encryption. In parallel with the availability of walled-garden products like OneDrive are the numerous concerns for external or in-house hacking of accounts. After the demise of TrueCrypt (which never worked well on Dropbox anyway) I moved to a combination of BoxCryptor and various Linux and Android that use the same encryption to manage encrypted folders on my devices: three products with three interfaces.

    Dropbox could and should purchase and unify an encryption solution providing common interface across platforms and take another leap ahead of the crowd.
    • Spider Oak blows away Drop box and is cross platform too

      Spider Oak has is cross platform with encryption and it is the only truly totally private no knowledge highly secure cloud service available today.

      Drip Box doesn't even come close.
    • I think...

      ...Box offers an encryption option. May just be on the business model though; not sure.
    • encryption will not change the economics

      encryption will not change the economics; falling prices will hurt their bottom-line and affect there ability to raze more capital to continue growth. Without that growth potential it makes it harder for them to launch a successful IPO. Venture capitalist will not keep pumping money without know that there's a good chance to profit from the IPO