- Dropbox had its long-awaited IPO on Friday — and had a huge pop of almost 36% in first-day trading.
- Dropbox COO Dennis Woodside, largely credited with leading the cloud storage company to growth, sat down with Business Insider for an interview.
- In the interview, Woodside discussed what investors didn’t understand about Dropbox, why it doesn’t like being called an enterprise company, and how the company reminds him a lot of his days at a pre-IPO Google Google.
NEW YORK CITY — Another San Francisco unicorn made the trip to Wall Street on Friday, as the 11-year-old cloud storage company Dropbox debuted as a public company.
Dropbox’s $9.2 billion IPO was widely anticipated, on both coasts. And it had a first-day pop of almost 36%, with the stock worth $28.48 at the closing bell.
But with the champagne all poured out and the confetti settled, it’s time for the company to get down to business and start working toward maturity — not to mention profitability.
Leading that charge is Dennis Woodside, who joined Dropbox as chief operating officer in 2014, after a stint as CEO of Motorola. Woodside is largely credited with helping Dropbox mature its business, and spearheaded its push into business and enterprise sales.
Business Insider’s Becky Peterson sat down with Woodside at the NASDAQ in Time Square to hear about his thoughts on Dropbox’s future, Silicon Valley, and the changing nature of technology for businesses. He shared his thoughts on profitability, growth, why he doesn’t like it when Dropbox is called an “enterprise” company, and how Dropbox reminds him a lot of his experiences at at pre-IPO Google.
Here are some highlights from the interview.
‘Storage is really a starting point for a much broader opportunity that we’re focused on’
Peterson: I’ve heard that from other executives, […] that the IPO is not the finish line. What is the finish line for you?
Woodside: Well if you think about the state of the world, the state of cloud, and the state of work today, we see lots of problems that are unsolved.
The first one, that we’re focused the most on, is around enabling teams to collaborate regardless of what operating system they have, what device they have, around their most important intellectual property, which often is a file.
The Golden State Warriors — they have to collaborate around scouting reports, and they do all that in Dropbox. Or Expedia has to collaborate with its hotel partners around photography or imagery that’s going to go on their site, and that all happens on Dropbox. So that’s a big problem.
We think it’s still pretty early in the adoption of cloud generally. More than three quarters of our users are outside of the US. There is a big international opportunity, just with Dropbox, the product we all know and love. And then we see opportunities in collaboration around that content, and the first product that indicates the direction we’re excited about is Paper.
Paper is a collaborative text editing tool. It’s super easy to embed anything in your Dropbox into a Paper. And teams like the team that produces Saturday Night Life use paper to produce that show. They’re embedding images of wardrobe and video cuts and project cuts. It’s a much more 2018 way of working together than a lot of the other tools that are out there.
So that’s where we’re heading — How do we enable teams to be more effective and creative through technology?
Peterson: So you’re looking more at growing your collaboration tools than enterprise storage?
Woodside: Our business certainly started out as, “let’s move all files to the cloud so that you can access them anywhere.” But we really don’t get paid for that. There are other solutions that provide that. We get paid for the collaborative elements of Dropbox. For sharing content, enabling you to view content on any device. For all the integrations that we’ve built with Salesforce and Autodesk and Microsoft products. So it’s super seamless to pull a document from Dropbox and work on it, and get some work done.
Storage is really a starting point for a much broader opportunity that we’re focused on. We’ve built the enterprise “grade” security features, functionality controls. Those are table stakes to be able to compete in larger and larger businesses, but that’s not necessarily what’s going to drive users to move to Dropbox. So we focus on the end user. We deliver value for that end user. Of course we can provide the security that IT needs, but it’s that end user focus that differentiates us.
Dropbox isn’t profitable but it’s fully committed to its free service tier
Peterson: Dropbox has a freemium model for consumers. We see this at Spotify too, which is also going public soon, where neither company is profitable, and you both have this freemium model. Do you think that’s a necessary part of your business model, or do you ever see Dropbox phasing out that model?
Woodside: The 500 million registered users are important to us. They create network effects that are how we grow. People sign up for Dropbox. Usually they find out about it from a friend. Then they share a file with another friend and that friend signs up. What happens in many businesses, you already have many people using Dropbox as an informal solution before they even pay us. So those users effectively are sales people over time. And that enables us to spend less on sales and marketing than our competitors.
And the good news is, the cost of serving them that fundamental storage over time declines, which is why we’ve been able to expand our gross margins and drive 28% free cash flow margins, which is remarkable for a business of our scale and our growth.
‘Be worthy of trust’
Peterson: You joined Dropbox in 2014. How has the company changed? Are there any big programs that you think have been important in your time there?
Woodside: We’ve grown a lot. We were about 500 people then and now we’re about 2,000. Revenue has roughly quadrupled. From a business standpoint, Dropbox Business existed and was pretty nascent. We had not built some of the controls that were required to compete in larger and larger teams. So we have done that and obviously we’re winning in the market lots of larger companies.
I think from a cultural standpoint, Drew and Arash have been really focused on preserving the culture, codifying the values, trying to make sure that as we grow, we don’t lose touch with those values.
And that goes from who do we hire, to who do we promote, to how do we evaluate people?
Peterson: Can you share what those values are?
Woodside: I’ll share a couple. One of them, and one of the most important one, is be worthy of trust. If you think about our business, people are entrusting us with their most important information. It could be project plans, or videos related to Saturday Night Live. and we have to be worthy of their truth in how we secure that information and access that information at all points in time. That’s been fundamental to the business.
Another one is aim higher, so always be stretching yourself, stretching your team, trying to deliver experiences that are magical, and surprising and helpful and delightful. And that also informs our product vision. And we think Paper is that kind of experience where you ind of discover things along the way that you wouldn’t have expected the product can do.
Dropbox straddles the line between consumer and enterprise
Peterson: Is there anything about the Dropbox story that you think surprised investors?
Woodside: I think it’s not as well understood that our business, our future, and what we deliver today is about really enhancing the work experience and allowing people to collaborate around content. I think it did surprise people that we have four billion pieces of content, we have a billion AutoCAD files, we have billions of Office docs, and we have 500,000 developers working on the Dropbox platform that integrate Dropbox into all kinds of workflows I think some people who haven’t followed the story for a long period of time think of us as that consumer company that we started out as.
People like to put you neatly in the consumer box or in the enterprise box. We kind of transcend that in that we have this viral model of attracting users. Those users bring us into businesses and then the real value is in that business use case. And that also our business model — which is highly predictable and really is a software-as-a-service model. So that story is for more sophisticated investors who have followed us, they get it. But for others who are newer to us, it was definitely good to have a roadshow and to have those conversations and educate people.
Peterson: Were investors under the impression that Dropbox has an unpredictable business model?
Woodside: If your view of Dropbox was 2014, where the majority of the focus was on a more consumer use case — if that was still your vantage point then you might not have appreciated the traction that we’ve gotten in businesses. The fact that we have 300,000 paying teams which if you look at the scale of that, we added 80,000 teams in the last year, and Box has 80,000 and they’ve been at it a lot longer than we have.
We’ve added these huge accounts and if you were more of a casual observer of the story, you might not have realized that. The misconception was that we’re consumer, not business focused.
Dropbox doesn’t like being called an enterprise tech company
Peterson: Do you think it’s accurate to say that enterprise is the only way for you to reach profitability?
Woodside: The word “enterprise,” to be honest, we don’t like. Because it implies very big companies, where as we are able to profitably reach small and large businesses all around the world. And it’s rare that companies can do that. If you think about who has been able to profitably reach a five person company as well as 30,000 seat deployment, there’s not a lot. There’s in the ad business Facebook and Google. In the infrastructure business, Amazon. And it’s this self-serve model that we built that educates people when they’re in the free product and helps them understand the work use case so they take us into work. That’s a very unique approach. So we try not to categorize ourselves because at the end of the day we’re serving people at work, and some of them are in very small organizations and some of them are in huge organizations.
Dropbox is run a lot like Google was before it went public
Peterson: Let’s go back to company culture. I know you spent a lot of time at Google. How would you compare the two companies in terms of style and management?
Woodside: I started at Google in 2003, so before Google’s IPO. I want to say there were under 1,000 people at the time, so small than Dropbox is now. I want to say that there are some similarities in that both companies are led by deeply technical, product-oriented founders, and I think that’s super important in a technology company. You need that focus on what can technology do? How can it solve a real problem for people. You need that beating heart of innovation in your leadership and for both companies, the founder-led leadership team is super important as well because you have two people in Drew and Arash here who have their heart in the business and they’re going to be in it for a long time, and they deeply care about the customers and people here. And that was true at Google as well.
Now, different time, different place, and different competitive environment. All of those things are quite different.
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Peterson: What do you think Dropbox’s biggest challenges are in the next five years?
Woodside: We don’t have limitless resources so we have to pick our battles well. We’ve done a good job in the last couple of years, like when we moved to our own infrastructure, we did that well. Now we have Paper, and we’ve proven that the product is delightful and solves problems, and we need to get more people using Paper. That’s the next set of challenges ahead of us.