Freemium Pricing at Dropbox Case Solution

2. Background

Given the increasing need for people to carry important data and information with them wherever they travel Dropbox has been able to tap successfully an unmet need in a market with huge potential. Within six years, the company has outperformed in engaging around 200 million users that are approximately saving billions of files each day (Teixeira and Watkins, 2014). The huge profit potential that embedded within the industry was soon under consideration by other internet giants mainly Google, Amazon and Apple. This meant that Dropbox needed a strategy that could ensure its competitive edge in the market and to continue its increasing demand for the future too. Houston; one of the two owners of Dropbox was adamant to overcome the challenges that might hinder its development in the future. Dropbox at this time was entering into an industry that already had a competitor’s base. Moreover, they were the corporate clients who were the toughest for the company to grab. The major obstacle that was overshadowing Dropbox during this time was that it provided a service that people yet did not realize was something that they needed it. All this meant that it demanded the company to come up with a plan that prevented from these sufferings.

3. Pricing Strategies at Dropbox

Dropbox is one of those organizations that is focusing on providing a risk-free services by using a freemium, and this enabled the organization to earn a successful reputation in the online cloud-base market. Dropbox previously used to take advantage of paid search engine advertising in order to attract customers. Before adopting the freemium pricing strategy or the referrals, they made use of the cost per acquisitions of a paid user along with paid search ads on Google at a price of $194. In time, Houston realized the sensitivity of the demand for cloud storage given the crowd of small competitors playing an active role in the market. This was when the freemium strategy was formally introduced. Freemium is one of those techniques that initially allow the consumers to use the basic service free of charge and then with additional usage and features move to premium services by paying proper charges per month. The main objective for freemium was to motivate the users to have a friendly experience with the product which would eventually ensure positive word of mouth marketing for the company itself. When the same consumers would refer the service to their friends, this would mean an additional free storage for themselves.

Dropbox earlier offered 2 GB of storage completely free of cost and provided 50 GB for $9.99 a month and 100 GB for &19.99 per month. During 2013 when consumers used the referral service, it ensured 500 MB for the sender and the receiver too. This meant that Dropbox was able to gain a competitive edge over the other organizations offering the similar services. (Teixeira and Watkins, 2014). This strategy allowed the company to expand its consumer base by increasing the consumers through reference, and this meant continued development of the business.

Although this approach ensured an ever expanding consumer base but the main idea was to convert these free users into paid users. In 2013, the conversion rate changed from 1.6% to 4% displaying an increasing number of consumers willing to use Dropbox as a paid service.

4. Comparing Dropbox today with the other competitors; Google Drive, Sky Drive

While Dropbox today offers free 2 GB storage at the start, Google Drive 5 GB and Sky Drive providing an initial start of 7 GB, which implies that Dropbox might be not be offering the same value as the competitors. The Google Drive is freely accessible through the Gmail account and more interestingly offers a variety of packages offered at different prices. Unlike Dropbox that gives you only two premium option s one at $9.99 and the other at $19.99, Google Drive has emerged as a more flexible service provider with respect to cloud storage (Voo, 2012).

Just recently, Dropbox has decreased its price for its 1 TB storage. The reason is to attract more consumers to getting the highest storage.

5. Recommendations

Taking into account the competition that surrounds Dropbox today it can be clearly said that Google Drive is offering a much higher storages almost more than double to that of Dropbox. At the same premium rate of $9.99 Dropbox is offering 50 GB only while Google Drive has managed to offer much more than that at 200 GB. Same is observed when we see that at $19.99 Google Drive has yet again outperformed Dropbox by offering 400 GB storage while Dropbox is still hanging at 100 GB. This implies that whatever pricing strategy that Dropbox aims for the future it must account for what the competitors are offering at this stage. Skydrive, on the other hand, might not be a much direct competitor since they are not using much comparative pricing strategies as the other two competitors are involved in. Skydrive is currently offering yearly packages (Voo, 2012). Price eventually plays a key role in not only marketing the product in the future but helps in retaining and attracting new customers in the time to come.