Mark Trefgarne

Dropbox is an awesome service. The product is beautifully simple and does exactly what you’d want - sync files automatically across multiple users and machines. We use it at LiveRail and love it. Reading a recent article in techcrunch, it looks like the company is about to, or just has, closed a massive funding round at a 4-billion dollar valuation.

What concerns me  is not that the product or revenue doesn’t deserve this sort of recognition, but that the defensibility of their position is weak at best. From an outsider’s perspective, it seems that any serious attack by the majors would severely impact their existing customer base and cut their growth prospects; and do it almost overnight.

Although operating a secure cloud storage service at scale is clearly non-trivial, I can’t see anything that is beyond what could be developed by Google/Apple/Microsoft and integrated natively into their respective OS’s, providing an even simpler, more powerful user experience, with zero sign-up friction. Sure, any of these companies could choose to buy instead of build, but with Dropbox’s new investors now demanding a multi-Billion dollar price tag, that path would only be attractive if Dropbox’s product/position became literally unassailable. 

Instead, I believe cloud storage will prove to be a re-run of IE vs Netscape… The OS-bundled solution need not even be inherently better - at least not on day one - because native availability in the OS eliminates the biggest friction to using the service… signing up! But the big-guy’s advantages over Dropbox run much deeper than just being “pre-installed” on people’s devices. Although the first generation of services like iCloud may lack complex rights-management capabilities for controlling the sharing documents with certain 3rd parties, that feels like a very thin veil of protection for Dropbox. And for consumers, that will probably matter far less than things like having a new song instantly sync’d to both your iPod and Desktop iTunes the moment you click buy, or your photos syncing from your iPhone camera to your desktop iPhoto the moment you snap. Native app integration is a features that Dropbox will struggle to deliver, but will be easy for the likes of Apple/Microsoft/Google who’s deep bench of incredibly popular applications from iTunes to Excel could all benefit from native cloud storage integration.

On top of their OS and native cloud-integratable applications, AAPL/MSFT/GOOG also have long standing, deep and well-run relationships with 3rd party developers. Imagine if Apple made iCloud API’s available to every iOS developer… suddenly every app in the App Store that wanted to access your photos/music/documents would be looking for them via iCloud… not Dropbox. 

Combine zero sign-up friction, native app/device integration and 3rd-party developer support via APIs, and its clear that a strong move by AAPL/MSFT/GOOG could crush Dropbox very quickly. They may be a great business today, but their investors clearly have a view of its long term defensibility I’ve missed.