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Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

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Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#21

Post by mattmaroon »

netcan wrote: post #7
patio11 wrote: post #6

Earlier quoted context omitted.

I wonder why they need so much money. Pretend I have a machine where you insert a quarter and, a year later, a dollar pops out. Do you a) insert the quarter you have in your pocket, wait a year, and then put all four quarters back in or b) go to the bank, borrow as much money as they'll give you, get it changed into quarters, and start stuffing the machine? A freemium startup which has a good idea of what customer li…

I appreciate the tone. That aside, you are assuming growth is constrained in some way that money relieves. IE they need money to promote or they need money to support their free users until they mature into premium users. Either one of those is a sufficient answer.

What he's saying is that perhaps Dropbox can buy a user for $1 (via adsense, whatever) and make $2 off them. In that case, it makes sense to take all the money you can and plow it into customer acquisition.

At some point the law of big numbers becomes a limiting factor, but probably not at any point that would make it unwise to take $7m.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#23

Post by qeorge »

patio11 wrote: post #18
qeorge wrote: post #17

Earlier quoted context omitted.

Thanks for sharing your customer acquisition cost. Do you ever buy traffic from anywhere else or are you happy with the volume from AdWords? BTW, still chuckling at Peak Bingo. Well put.

Today is November 25th. A click on November 25th turns into a purchase by, on average, November 27th. I have to pay Google on December 20th, with a credit card. My next statement date is January 7th, and my payment is due somewhere around January 20th. So, basically, if I get N clicks today, I get $30 two days from now and have to pay $15 two months from now. This is a long way of saying that, while I'm happy with my…

That makes sense. Since you seem to have found your own quarters-to-dollars machine I've been wondering why you aren't exploiting every possible source of profitable traffic. Sounds like a case of diminishing returns.

I'm surprised prices @ Bing are higher, I'd assumed lower volume would mean lower competition and thus lower prices. But I definitely understand how the volume they can deliver isn't worth the time spent optimizing their system.

Thanks for elaborating.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#24

Post by patio11 »

netcan wrote: post #13
patio11 wrote: post #6

Earlier quoted context omitted.

I wonder why they need so much money. Pretend I have a machine where you insert a quarter and, a year later, a dollar pops out. Do you a) insert the quarter you have in your pocket, wait a year, and then put all four quarters back in or b) go to the bank, borrow as much money as they'll give you, get it changed into quarters, and start stuffing the machine? A freemium startup which has a good idea of what customer li…

I understand the principle of taking investment to enable growth. It is not just a principle. It has mechanics to it. one option A common way this works is putting that money to work acquiring more customers. This can mean sales staff. It might mean advertising. It might mean outlets. etc. It works if you have some way of converting money in to customers in a reliable way. Since dropbox appears to be growing virally…

I understand what you're saying and think it is plausible given your assumptions. For example, you think that Dropbox's primary acquisition engine is viral referrals, that the number of referrals it gets over a certain interval is the number of new users times some constant conversion rate, and that you can't just increase that number of referrals by dumping money at it like you could increase the number of new users by dumping money on an effective CPC campaign.

I think your assumptions are likely to be contrary to material fact. In particular, I think that the embedded assumption of "constant conversion rates" is false. For example, I think that inducing a customer to give a referral is a conversion like any other, and that one could spend a non-trivial amount of engineering resources to instrument one's site and then spend engineering/marketing resources to A/B test the "#$#$& out of it, and this process would predictably result in increased conversion rate. (Test the call to action. Test the design of the form. Test integration directly with Facebook. Test how much free space you offer for a signup.)

Do I have to mention that A/B testing in the context of a viral loop is hypereffective because of compounding? You get exponential returns to linear improvements. This is on top of A/B testing tending to give exponential improvements to linear work, because today's improvements compound on yesterday's.

The combination of these two factors means... wow. That's like a repeatable recipe to... wow. Crimety. I think I have to spend some more time thinking about this later, but my snap impression is that you could have Zynga-esque growth in an arbitrary niche (i.e. selling to people who pay money for things) without scamming anyone.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#25

Post by uuilly »

mattmaroon wrote: post #21
netcan wrote: post #7

Earlier quoted context omitted.

I appreciate the tone. That aside, you are assuming growth is constrained in some way that money relieves. IE they need money to promote or they need money to support their free users until they mature into premium users. Either one of those is a sufficient answer.

What he's saying is that perhaps Dropbox can buy a user for $1 (via adsense, whatever) and make $2 off them. In that case, it makes sense to take all the money you can and plow it into customer acquisition. At some point the law of big numbers becomes a limiting factor, but probably not at any point that would make it unwise to take $7m.

Not to mention that there is a lot more that can be done in that space from an engineering perspective. Files syncing could be just the beginning. What about consumer MVC from files to web services? Edit a photo on iphoto and it automatically changes on every service that uses it.

The "data keeper" role is like an octopus, big in the middle, tentacles everywhere. I could imagine a world where that role becomes as important if not more than the OS / services.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#26

Post by doug_m »

netcan wrote: post #2

- Over the summer Dropbox raised a $7.25 million Series A round from Accel, adding to $1.5 million in seed money it brought in from Sequoia Capital and Y Combinator in 2007 - San Francisco-based Dropbox has just 20 employees. I wonder why they need so much money. If the Freemium model is working, shouldn't they at least be breaking even?

I think Dropbox is valuable enough to become ubiquitous but one imagines they need to grow to a certain size before such a feature exactly is rolled into a version of one of the big operating systems. Not that what they've done isn't technically difficult of course, but it just seems like something so valuable it might be on a Chrome wishlist.

Cool thing if the guys who make the software are reading this - started a new job earlier this year at a mostly non-software company managing a few development projects. I doubt most of my colleagues are aware of this startup culture or have heard of .NET much less Y Combinator.

First week "You've got to see this program we have the sales team using, called Dropbox... its tremendous there's about a thousand things we can use it for". Not only are they using it its their "we're showing this off to the new guy" thing.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#27

Post by mikek »

It seems that this article is inaccurate:

http://www.techcrunch.com/2009/11/24/dropbox-sequoia-funding...

"Dropbox did close a Series A funding round, but it was for $6 million, and it was back in October 2008. And it was led by Sequoia, not Accel (though Accel did participate in the round)."

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#28

Post by netcan »

patio11 wrote: post #24
netcan wrote: post #13

Earlier quoted context omitted.

I understand the principle of taking investment to enable growth. It is not just a principle. It has mechanics to it. one option A common way this works is putting that money to work acquiring more customers. This can mean sales staff. It might mean advertising. It might mean outlets. etc. It works if you have some way of converting money in to customers in a reliable way. Since dropbox appears to be growing virally…

I understand what you're saying and think it is plausible given your assumptions. For example, you think that Dropbox's primary acquisition engine is viral referrals, that the number of referrals it gets over a certain interval is the number of new users times some constant conversion rate, and that you can't just increase that number of referrals by dumping money at it like you could increase the number of new users…

$7m to optimise for more referrals?

BTW, my original comment was not 'what idiots' it was, 'I wonder what they need all that money for?' If they are going to spend it all on split testing their 'refer a friend' system, well that is something of a wonder.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#29

Post by hyperbovine »

doug_m wrote: post #26
netcan wrote: post #2

- Over the summer Dropbox raised a $7.25 million Series A round from Accel, adding to $1.5 million in seed money it brought in from Sequoia Capital and Y Combinator in 2007 - San Francisco-based Dropbox has just 20 employees. I wonder why they need so much money. If the Freemium model is working, shouldn't they at least be breaking even?

I think Dropbox is valuable enough to become ubiquitous but one imagines they need to grow to a certain size before such a feature exactly is rolled into a version of one of the big operating systems. Not that what they've done isn't technically difficult of course, but it just seems like something so valuable it might be on a Chrome wishlist. Cool thing if the guys who make the software are reading this - started a…

It's unlikely that one of the big operating systems would come forth with a feature that worked with all of the other big operating systems as well.

Re: Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

#30

Post by ssharp »

netcan wrote: post #28
patio11 wrote: post #24

Earlier quoted context omitted.

I understand what you're saying and think it is plausible given your assumptions. For example, you think that Dropbox's primary acquisition engine is viral referrals, that the number of referrals it gets over a certain interval is the number of new users times some constant conversion rate, and that you can't just increase that number of referrals by dumping money at it like you could increase the number of new users…

$7m to optimise for more referrals? BTW, my original comment was not 'what idiots' it was, 'I wonder what they need all that money for?' If they are going to spend it all on split testing their 'refer a friend' system, well that is something of a wonder.

While I'm sure buying online ads will be a large part of their strategy, they may be using this money to start experimenting with other forms of advertising: magazine, radio, etc. I'd assume they are also ramping up to a more aggressive corporate sales strategy.
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