Can Dropbox and Box survive as independent services?

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.
Written by Ed Bott, Senior Contributing Editor

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.

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