Dropbox, the ultimate Mouse Hunter

I’m late to the party here, I know. Dropbox went public a bit more than a month ago and I’ve finally had a chance to take a close look at the company’s S1. I’ll be sharing a few specific observations from the S1 review, but let’s start with some more general thoughts about the company.

The mighty king of Freemium

Like Zendesk, Yammer, and a few other SaaS companies that were all founded around 2007-2008, Dropbox was one of the early champions of the “consumerization of the enterprise” movement. In contrast to Zendesk (and I think, Yammer), which eventually moved upmarket and now generates an ever-increasing percentage of revenues from larger customers, Dropbox is still getting most of its revenues from individual users and small teams. The company hasn’t disclosed how much revenue it is generating from larger companies, but according to its S1 filing, a staggering 70% of its 11 million paying users are on an individual plan as opposed to a “Dropbox Business” team plans. More than 90% of its users are acquired via self-service channels, presumably driven in large part by the inherent virality of the product. These characteristics make Dropbox the “King of Freemium”, as Tomasz put, or the ultimate “Mouse Hunter”.

And what an almighty King it is! Dropbox was the fastest SaaS company ever to hit $1B in ARR. As every aspiring SaaS entrepreneur knows, getting a hundred million dollars in ARR within around eight years is incredibly hard and extremely rare. Getting to more than one billion within the same timeframe is completely nuts. If the improbability of reaching a $1B valuation is epitomized by a unicorn, getting to $1B in SaaS revenues within eight years is as unlikely as seeing a unicorn with three heads.