Hacker News Reader

Comment by johnrob | Hacker News Reader

I'm somewhat surprised that a file sharing company can get a valuation this large. Don't get me wrong, the product is great, but I'm skeptical that the "file sharing industry" is big enough for valuations like this. Some quick math:

A 5 billion valuation implies earnings of at least 250 million/year. Assuming paying customers are worth 240/year and represent 5% of the user base, dropbox would need roughly 21 million users. Maybe 5% is high; if 4% is better then the number jumps to 26 million, etc...

There may be billions of people on earth, but how many are sophisticated enough to really need file sharing? Also, there are other players such as box that will claim some of those users.

Dropbox is awesome, but I can't understand the numbers on this one.

View on HN

Well, they don't just have the $240/yr plan. And file sharing isn't quite as sophisticated as you might think - it passes the grandparents test.

I wish Dropbox would have a smaller priced tier (like $5/mo). The free plan is more than ample for my needs, but I like to pay for premium service from companies I use to support them. But $10/mo is a bit steep in comparison to, say, the value I get out of Netflix streaming for $10/mo.

I think Netflix isn't the best thing to compare things to. It's absurdly cheap for what it is, and they might not even be able keep it at that price point (undervalued, and the content companies know it).

21 million seems pretty easy to achieve to me worldwide; every one of my social circles and peer groups, both technical and non-technical, in the US and South America, seem to use dropbox. my parents love it. my wife is non-technical to a fault and can't live without it; she just paid for the upgrade to 100gb because it represents safetey to her of her photos. even my under 10 year old son knows that saving in dropbox means he won't lose his homework assignment.

i think they have a huge, huge opportunity.

Just until windows and apple both offer the service. Apple is already on the way with iCloud.

Microsoft has had such a service for a few years now, they call it SkyDrive. Unfortunately it wasn't a very good user experience when I last looked at it. It's been a while though (and I just use Dropbox now), so it might have gotten better.

Microsoft may have just been too early. Once they recognize the success they can clone the usability in no time. Or patent troll Dropbox off the map. Very risky investment if you ask me.

That said, Dropbox is a great product and the free version is good enough for the small number of documents that I have that are not somewhere else in the cloud.

But the question is wether that justify the high evaluation . I thing ms and apple are going to get their act together before that prize is ver realized. But that's just me.

It does not justify the high valuation. That's what I meant with "clone the usability in no time".

Dropbox already has 25 million[1] users.

1. http://techcrunch.com/2011/04/17/dropbox-hits-25-millions-us...

But how many are paying users?

I believe that everybody will have a least one "cloud storage" account. Actually probably multiple "cloud storage" accounts since cloud storage providers will try to specialize and differentiate (i.e., you will have Google Docs account, Dropbox account, iCloud account, etc.). So 21M is a conservative number.

And don't forget companies of all sizes are going into cloud: so replace 21 million users with 21 millin users via their employeer. (Ever tried sharing documents using MS SharePoint?)

I believe that cloud storage accounts will find widespread usage, I just don't think it is a $5 billion industry. I think it is more something that will exist as a free bonus within some other business model (eg. buy one Amazon album, get many gigs for free, or use Google Docs storage so google can have even more info on you for ad targeting).

In short, I think Dropbox got on to something big early on, but they will eventually be like the early Netscape of this area.... Other competitors are pretty much guaranteed to come in and erode their value with "free" (enough) alternatives that exist to prop up other business models.

Dropbox got on to something big early on

Early on? Just the opposite. The space was so saturated that new entries into it were considered a cliche joke. http://www.joelonsoftware.com/items/2008/05/01.html

The other great example of successful late entry into a saturated space, of course, is Google.

I'm an enthusiastic Live Mesh supporter that has been using Live Mesh from the beginning, so I'm aware that Dropbox (or Mesh for that matter) is not the first way to share files over the Internet, but none of what Joel is talking about in that piece was really both consumer facing and as simple as "run the app and forget about it" back then, so it is basically irrelevant to the value Dropbox (and the current Live Mesh) bring to the table.

Claiming the existence of those older services diminishes the value of Dropbox (or current Live Mesh, etc) is like saying that the iPad is no big deal because Fujitsu was making tablet computers almost 20 years ago.

iPad is most certainly a big deal, but if Apple doesn't keep innovating they won't be half as relevant five years from now when tablets are a commodity. They're already resorting to patents to fight off competition.

Dropbox's simplicity is it's own undoing in the long run; it's too easy to commoditize. They'll be forced to lower their price to the cost of storage and that's when Apple and Microsoft will just subsidize their own offerings and kill them, unless a regulator notices it on time.

Google is not a good counter example; it seems simple to the user, but as Bing has shown, it's very hard to replicate. Dropbox on the other hand is trivial to clone. Any IPO event would just increase the likeliness of big companies noticing and putting some effort into it.

Facebook too. Can't think of many recent instances where the winner of the early adopters won the space. Netflix?

RedHat appears to have won the overpriced linux distro space. Amazon. People think of gmail as a late winner, but the numbers aren't quite there.

I understand your point.

However, it might be that as cloud services become a critical for businesses and individuals will not be going for "free" solutions. Reminds of "Starbucks dilema": wanna a cup of coffee for 50c and have diarrhea or Starbucks coffee for $4? And how hard could be to make a good coffee?

Agreed. My first reaction was "way too high". The problem imo is that they don't have a huge edge over the competition. Hell even Ubuntu has a semi comparable product. Not quite as user-friendly, but do a few easily duplicated UI difference really justify billions?

Justifying billions is of course a stretch, but having a really, really smooth UI definitely does make a difference. Its easy to underestimate these things in favor of technological advantages, which dropbox doesn't really have compared to every other personal file hosting site. But normal people really don't know/care about that, for them all that matters is an easy UI that just works. And dropbox does just that, IMO better than any others

> do a few easily duplicated UI difference really justify billions?

A large (paying) customer base would. But, just like johnrob, I'm not sure dropbox has that many users.

1. Why is a 20x P/E ratio appropriate for a high-growth tech startup?

2. http://tech.fortune.cnn.com/2011/04/18/reviewing-dropboxs-vi...

3. File sharing is, like, what the Internet was originally invented for. Quite a few people use the Internet (>1billion), and it's still hard to share a photo album with your family.

People have always wanted to do certain things online: search (google et all), shopping (amazon, ebay, et all), communication (email, aol, facebook, et all) are good examples. I've never really sensed a similar demand for syncing and backing up files. The idea that a single player has a 5 billion valuation implies the industry is significantly larger than that. That's what caught me by surprise.

The numbers I threw out there were just guesses (including the 20x P/E ratio); I was trying to understand the basis of such a valuation. There are some good explanations in this mini thread, yours included, but I still struggle to imagine there will be this much money in a such a service. It seems like competition would drive the free offerings to the point where the paid usage gets pretty low.

I guess what I'm really saying is that file sync/backup as a service doesn't feel like a 10s of billions industry. I don't have much real data to back that claim though ;)

I really, really don't understand this valuation.

But I also don't understand why MS and Apple are not pushing their own services more aggressively. And Google could add that in a month (I guess they still have the GDrive code somewhere)... good for dropbox ;)

Reply on news.ycombinator.com