[Andrew-Dufresne]

The article you quoted is confusing for me. It says they store only one copy of each file and serves it to all requests originating from different users. Sounds good!

But how can it be viable? Like most files in my account are personal. Only few are such that others too might have them. Isn't it same for everyone? I think most people have mostly unique files in their account.

So how can dropbox rely on the model mentioned in the link?

[marcamillion]

Great question Andrew. That's why I think most people underestimate the power of what Dropbox has done, because most don't understand it.

Well, this is what I think happens. For some people, the majority of their files will be unique - but for many people, they won't be. The more people they get using dropbox (with the free account) is the more files they can get, which means the more things they have access to that they can charge for.

In other words, as their network of files grows and their user base grows, their costs shrink and their margins get wider - because the higher the likelihood that they are to be able to charge for files that are already there.

So to put some numbers to it.

Say when they had 100 users, 5% share the same files. That means, essentially they are charging 5 people for access to the same files. However, when they reach 10,000 users more people upload similar files I suspect that 5% increases to say 7%. That means that they can now charge 700 people for access to the same files.

Imagine when they reach 1,000,000 users and 10% have the same files - that's 100,000 users they can charge for access to the same files.

I don't know what the true percentage breakdowns are, but I suspect they will be much higher than many people expect. Double digits.

In any case, even if it is not higher than people expect, network effects work for their model - like nothing I have ever seen before. The more people join, is the more files they have which increases the % of their userbase that they can charge for. So not only is the absolute numbers of users growing, but the portion of the userbase they can charge to the same files are growing too.

It's FRIKKIN BRILLIANT!!!!!

[Andrew-Dufresne]

Thanks. This makes sense. Numbers of similar files will surely increase with the increase in the number of users.

Also, there could be several users who do not consume the allocated space completely all the time. Using your argument, this too will have positive effect on their revenue model.

It IS brilliant!

[marcamillion]

Exactly...see the thing is, in my model - I never even accounted for that case (the users that don't use up all their space), because technically that is like a current liability. In that at any time, those users can lay claim to their free space - so Dropbox has to be able to give them that free space.

So technically, it wouldn't make much sense for them to really consider that against their profit margins. Although, over time I am sure they have realized that X% of their users never use up more than say 1GB (and various levels) of their storage - so you may be right. But I didn't want to get into all of that because of the questions surrounding it.

It's really the structure of the way they charge for storage and the way they pay for it.

I can't think of any other company that can do what they are doing.

Amazon with their web services can't. A car rental company can't. Neither can a restaurant, retail store, manufacturer of anything, nor a hotel or anything of that nature.

I can't think of any other business model (in history) that is as lucrative of what they are doing.

I would love for someone to provide a counter example, because I think I am going crazy - because it is very rare that you find something 'too good to be true'. But this might be one case, for the founders and investors, that truly is.

Unless they mess it up.