Dropbox and Uber: Worth Billions, But Still Inches From Disaster; Investors Drop Big Money On Dropbox So It Can Beat Box; Dropbox is now worth two Ubers and a Snapchat

Dropbox and Uber: Worth Billions, But Still Inches From Disaster

BY MARCUS WOHLSEN

01.14.14

Dropbox went dark over the weekend.

According to the company, the widespread outage was the result of a bug it introduced while updating the hundreds of computer servers that drive its massively popular file-sharing service. But the problem was bigger than that. The San Francisco-based startup not only faced countless complaints from users across the net, it was forced to deflect rumors that the service was hacked, something that turned out to be a hoax.On one level, a dust-up like this is just part of life as a startup. Things go wrong, people get upset, problems are solved, lessons are learned. But the stakes are higher when you’re Dropbox — or any other tech startup that has ascended to the misty heights of the billion-dollar club. This weekend’s Dropbox outage, along with recent problems for Uber and Snapchat, show just how close such companies skate to complete disaster — not because of anything they necessarily did wrong, but because of the very nature of their businesses.

In those tender days between two-scrappy-founders-in-an-apartment and established business, these burgeoning outfits have hundreds of millions of dollars invested in their future, and that future is far from certain. In an age when people can so easily abandon one web service for another, a single screw-up is all it can take to bring things crashing down for good. And the best of these companies know it.

The most successful tech giants — think Google and Facebook — have been able to insulate themselves from the big SNAFU by performing well for long enough that we become inescapably dependent on them. For many of us, Gmail would have to delete our entire accounts before switching became even plausible anymore. But even for billion-dollar companies still in a period of massive growth, such cushions aren’t always there to catch them. If they fall, the landing could still be hard.

Do One Thing, Do It Best

In an interview with WIRED this past fall, Dropbox co-founder Drew Houston acknowledged that his company has almost no margin for error. If Dropbox accidentally destroyed just one person’s file, he said, it could erode the trust of all its users. “This is like the same sort of genre of problem as the code that you use to fly an airplane. Even if it’s a little bug, it’s a big problem.”

The risk for Dropbox is that at its core, it essentially does only one thing: It syncs your files across all your devices. On the one hand, this single-mindedness has brought Dropbox its tremendous success. Founded in 2007, the company concentrates on doing thing and doing it well. But that strength is also its greatest vulnerability — Dropbox is not diversified. Many other companies large and small now offer much the same service. If Dropbox loses your trust by messing up the one thing you thought it did best, you could easily switch your allegiance to another company.

‘This is like the same sort of genre of problem as the code that you use to fly an airplane. Even if it’s a little bug, it’s a big problem’

— Drew Houston

In my several years using the service, I have never had a file lost or corrupted. Its tool for uploading photos from mobile devices is a breeze. And like the best-designed products, it works so effectively that it fades into the background.

This weekend, it didn’t work. But files weren’t lost or destroyed, the company says. It’s just that people couldn’t reach them. “Your files were never at risk during the outage,” Dropbox engineer Akhil Gupta wrote. The databases affected, he said, “do not contain file data.”

Rather than diversifying, Houston has worked to hire some of the smartest talent in tech, including the inventor of the Python programming language, to find the best answers and buffer against problems like this weekend’s outage. So far, that seems to have paid off.

This weekend’s blip won’t put many people off Dropbox. If they’re like me, users have come to rely heavily on Dropbox for quickly storing and sharing files and generally getting work done. And Dropbox has created a strong well of trust from which it can draw. If it had branched into other services at the expense of its core syncing service, you can bet that trust wouldn’t be there.

How Uber Goes Under

Uber, the ride-sharing startup, is facing its own moment of crisis. Over the past months, many people — and many news stories — have complained about the company’s “surge pricing,” where it raises fares during times when lots of people want a ride, such as during snowstorms and over holidays. Now, a different kind of anger has surfaced: Paris-based blog Rude Baguette reports that, in France, protestors are attacking Uber cars, throwing eggs, slashing tires, and breaking windows. Uberconfirmed the attacks.

The violence comes as the French government attempts to address complaints that app-based car services like Uber are undermining the traditional taxi industry. The U.S. taxi industry feels similar ill-will toward Uber for undermining its business model, but it has turned to the courts and city councils to protect its interests.

‘If you are unreliable, customers just disappear. The thing is that nowhere in any of the press are you hearing about us being unreliable’

— Travis Kalanick

Surge pricing and conflict with taxi services might seem like separate issues. But both reflect the consequences of Uber’s choice to stake its success, like Dropbox, to an unbending vision of doing one thing exceptionally well. It too is not diversified. Uber could make the recent complaints go away fairly quickly. It could drop surge pricing. And it could acquiesce and change its service in cities where government and industry have come out against it. But Uber doesn’t do either of these things, because in the eyes of its outspoken CEO Travis Kalanick, backing down would compromise the foundation of his business: to provide a great ride.

Surge pricing, according to Uber, is intended to stimulate supply and curb demand to ensure the two match. Otherwise, the logic goes, would-be riders are left stranded without a car. Last month, during the height of the backlash against Uber over fares reported at seven times the usual during a New York snowstorm, Kalanick told WIRED that the bad publicity his company faced over surge pricing would pale compared to the impact of Uber not being able to offer a ride at all.

“If you are unreliable, customers just disappear,” he said. “The thing is that nowhere in any of the press are you hearing about us being unreliable.”

If rides don’t come through, or are slow to arrive, the reason for Uber’s existence disappears. Kalanick is a professed admirer of Amazon founder and CEO Jeff Bezos, an Uber investor. Amazon now does a lot of things well, but if it stopped delivering the products people ordered from the site quickly and accurately, it would fold. Uber sees itself as offering a similar level of service for rides. If it backed down, if the rides stopped showing up, in Uber’s eyes, it would be like the Amazon box you ordered not arriving on your doorstep.

This is also why Uber believes it can’t compromise once it begins to offer its services in a new city, or a new country, like France. It strives to work with regulators to accommodate its existing service rather than changing how it works. As a company, Uber is as much a designer of algorithms as a provider of rides. On the streets, Uber guides cars to certain places at certain times. Back at its San Francisco headquarters, teams of mathematicians and data scientists are figuring out how to guide them. And the math is hard enough without additional constraints.

Yes, the constraints still come. A new French law that requires drivers to wait 15 minutes between taking a reservation and picking up a passenger. But the company has shown a defiant reluctance to put constraints on itself.

Such stubbornness is often seen as arrogance: the hotshot, elitist startup that believes it’s above the rules. But Uber has made the choice that getting bashed on Twitter — or by City Hall — isn’t as bad as customers opening up the app and seeing no rides on the map. The first threat is manageable. The second is existential — customers just open up another ride-sharing app to see if an Uber competitor has cars instead.

Snapchat Disappears

Snapchat’s moment of weakness was more acute, and the company appeared to deal with it the worst. Recently, a group of hackers exploited a known security hole in the private messaging service, leaking the phone numbers of millions of users. Snapchat co-founder and CEO Evan Spiegel faced a barrage of withering criticism for failing to apologize quickly for the incident and the sometimes peevish posture the company has taken in the wake of the leak.

For a company whose whole business is based on privacy, such a breach is a serious threat to its livelihood — not least because so many others are now angling to offer similar services.

The cautionary tale here is Friendster. As the startup that was Facebook before Facebook, Friendster was the one of the first companies to gain genuine traction in what was then widely called “Web 2.0.” But then it stopped working the way people wanted it to. It didn’t even screw up that badly — accounts of its demise describe fairly typical management and technical issues. But even this can bring down a startup in a digital world that moves so quickly. Facebook arrived and also did the one thing Friendster did — connecting people — but better. And for Friendster, it was too late.

For Snapchat, a meaningful apology isn’t about good manners. It’s about showing it appreciates the gravity of its violation of trust. As is making sure it doesn’t happen again. As with Dropbox and Uber, Snapchat has earned the love of its users by doing one thing they love really well. Take that thing away, and the love goes with it.

Investors Drop Big Money On Dropbox So It Can Beat Box

Posted 1 hour ago by Josh Constine (@joshconstine)

Dropbox is raising between $250 million and $400 million at a $10 billion valuation according to the Wall Street Journal and Re / code. Why? Because Dropbox has spent the last year rebuilding its product to make it work for businesses, and now it’s time to sell that product. How? Because a source says Dropbox has been doing well and felt it had the buzz behind it to take advantage of an easy fundraising market.

The money could also fund poaching top talent from other tech giants and big acquisitions. But with more competition than ever, Dropbox needs to do a big enterprises sales push before potential customers jump into bed with Box, Google Drive, Microsoft SkyDrive, or Amazon WorkSpaces.

Dropbox Grows Up

Dropbox built its name as a light-hearted consumer product. “Your files everywhere” was its motto, cutesy pencil drawings were its style, and its mascot? A Tyrannosaurus Rex wielding an AK-47…riding a shark…with a bald eagle on its back. The company even has a statue of the T-Rex in its San Francisco office’s foyer. Notice the lack of anything in this branding that would give businesses the assurance that Dropbox is secure, scalable, and great for complex teams.

Yet in terms of becoming a techie-household name, its viral strategy worked. Handing out gigabytes of free storage for signing up friends let it grow quickly. By November 2012 it had 100 million users. A year later, it had doubled in size to 200 million. Plus the fun-loving culture helped it poach big names like Google’s Guido Van Rossum – the father of Python, and veteran Facebook designers Soleio Cuervo and Rasmus Andersson.

But Dropbox couldn’t shake its amateur reputation. A year ago, I’d hear businesses say the Dropbox didn’t have the permissions and security features it needed to make sure employees only had access to the right files and to watch who was downloading what.

Dropbox apparently heard those criticisms too. And it saw the heaps of money it could make in enterprise. For personal use, most people get enough gigabytes of space for free to satisfy their needs. If they wanted more for free, they could recruit friends and score storage bonuses. Few laymen need its $9.99 a month Pro plan with 100+ gigabytes of room. But at around $175 a year per enterprise user, Dropbox could quickly grow its bottom line.

So over a year ago, Dropbox embarked an ambitious quest to rebuild its product architecture. The goal was to enable users to simultaneously access their personal files as well as an overhauled version of its enterprise service from the same account.

In November 2013, co-founder and CEO Drew Houston unveiled the new Dropbox For Business. He highlighted dual-wielding of personal and professional files from the same account, powerful permissions controls, Sharing Audit Logs that detail what each employee is accessing, blocks for preventing unauthorized sharing, and options for transferring an employees files to someone new or wiping them from all their devices if they leave the company.

The beefed up Dropbox For Business product is rolling early this year. Its viral consumer strategy has given Dropbox a foot in the door with employees at companies around the world using it personally. But scoring huge enterprise installations with hundreds or thousands of $175 a year seats is still a war won with a sales army, and that takes capital to hire soldiers and generals.

Fundraising In A Frothy Market

Lucky for Dropbox, right now the getting’s good. Spurred by massive, hundred million dollar-plus funding rounds for Pinterest, Uber, and its enterprise competitor Box, a source close to the company tells me Dropbox wanted to strike while the iron was hot.Facebook’s share price resurgence and Twitter’s blockbuster IPO have also contributed to a frothy market where it’s easy to raise big money for cheap at big valuations. The thinking is that this window could close eventually, and no fast-growing company wants to be left with a thin wallet when that happens.

The source tells me Dropbox’s strong momentum made the new $250 million to $400 million raise a lot easier. 2x year-over-year user growth; high-profile talent poaches; and interest in its enterprise potential all likely contributed the hype.

Dropbox has closed the $250 million investment led by BlackRock and featuring previous investors, according to The Wall Street Journal’s Douglas MacMillan. Re / code’s Liz Gannes says Dropbox may pull in another $100 million to $150 million from big mutual fund Fidelity and T. Rowe Price. The funding builds on the $250 million Dropbox raised in 2011 from Goldman Sachs, Sequioa Capital, Index Ventures, and Accel Partners.

The new financing will bring Dropbox to between $507 million and $657 million in total funding.

Spend Money To Make Money

Now that Dropbox has plenty of cash and a product fit for enterprise, it can get serious about sales.

First, that means staffing up with proven sales execs. In late 2012 it poached Kevin Egan who built and led Salesforce’s sales team for the last 10 years. More recently, Dropbox has been beefing up its business development team, which could help it establish partnerships and integrations with other popular enterprise software products and mobile device makers. It just poached Henri Moissinac, Facebook’s director of mobile partnerships, and Tom Hsieh, who helped Spotify partner with a variety of companies.

The funding could help Dropbox pay for these types of key hires, which can often require offering big compensation packages to get execs to leave cushy tech giant jobs. It could also fill out their teams with sales infantry. Dropbox expanded from 200 to 500 employeesover the course of 2013, so it’s not scared to grow its head count.

With a deeper sales bench, Dropbox can focus on recruiting new enterprise clients. The company says that over 4 million businesses use Dropbox, though it’s not clear to what extent. Most companies on Dropbox’s customers page are on the smaller side. Thereal cash cows are huge company-wide installations with hundreds of subscriptions at Fortune 500 companies.

To win these clients Dropbox will have to beat Box and its charismatic leader Aaron Levie. Box cites only 200,000 business clients, but despite Levie’s penchant for punky red converse sneakers, his company has a reputation for the security and permissions features enterprises want. That’s how Box has signed big names like Procter and Gamble, Nationwide insurance, LinkedIn, and MTV. A quick glance at the home pages of Dropbox (above) and Box (below) say a lot about where their focus has been to date.

Dropbox will also have to fend off Google Drive, which benefits from its integrations with Google’s other enterprise offerings, SkyDrive which fits with businesses using Microsoft’s Office suite, and Amazon WorkSpaces with its affiliation with Amazon Web Services. Each of these companies’ empires give them an advantage over Dropbox’s independent platform.

Houston and his CTO Arash Ferdowsi will have to make up the gap with nimble product development and savvy marketing. They’ll also have to minimize outages like the one Dropbox suffered last week which scare away enterprises.

As more and more companies enter the big data age, and as media files continue to grow, enterprise cloud storage, sharing, and syncing is becoming of increasing interest to enterprises. Dropbox’s modern bottom-up distribution method gives it a beachhead, but it will still need money to finance traditional CIO wine-and-dining.

A few hundred million extra dollars could also help Dropbox buy more full-fledged products like itsacquisition Mailbox, as well as smaller teams likeEndorse, Snapjoy, and Sold that can bring special features or expertise to its staff. If Dropbox can identify holes in its enterprise product (one big one right now is synchronous collaboration) and fill them with acquisitions, it could be more appealing to prospective clients.

Last year, there was widespread speculation that Dropbox could IPO in 2014. But going public is a lengthy, clumsy process, and who knows whether the market will be as friendly by the time Houston and Ferdowsi might ring the bell in New York. With plenty of combatants vying for the increasingly-powerful enterprise storage throne and venture capital there for the taking, it makes sense for Dropbox to fill its war chest now.

Dropbox is now worth two Ubers and a Snapchat

By John McDuling @jmcduling

January 17, 2014

Cloud storage firm Dropbox just raised $250 million, the Wall Street Journal reports, in a deal that puts the value of the company at close to $10 billion. For now, that puts the company in the running to be possibly the most valuable venture capital-backed startup in America, and possibly the world.

Privately-held Chinese smartphone maker Xiaomi is also worth a reported $10 billion. Palantir, a big data company which provides surveillance services to the US Federal Bureau of Investigation and Central Intelligence Agency, raised $108 million in December in a deal that valued it at $9 billion. Snapchat’s last funding round valued it at $2 billion, though it turned down bigger offers from Google and Facebook.

Dropbox itself last raised money in November, and at the time was valued at $8 billion.

According to the WSJ, Dropbox is expected to generate $200 million in revenue in 2013, which would mean the company is valued at 50 times its revenue last year. That’s pretty steep, particularly in light of questions about its business model, including the threat of free competitors like Google Drive.

A quick glance at valuations of a few big-name startups makes Dropbox look particularly pricey:

Car service Uber last raised money mid-2013, valuing it at $3.5 billion, or about 28 times its revenue last year.

Box, another cloud storage firm raised $100 million in November at a reported $2 billion valuation, or 11 times its revenue last year.