DBX’s S-1: Bottom’s Up SaaS

The first companies that come to mind as one thinks about users as the gateway into an organization are Dropbox and Slack. While their individual mechanics are different, they’re very good at getting users to join orgs that then pay. In addition to building a 10x better product, they have the strong brand & community that it takes to be installed on day one of a new org; something which is incredibly difficult to nail down and continues to be a holy grail of the fabled land & expand distribution strategy.

  • Dropbox: Win the user in single-player mode and then become the first option as a user thinks about a service for their org (multiplayer mode).
  • Slack: Win the org on day one because there’s zero friction to start on multiplayer mode. Get users as the company’s get bigger and people move companies.

(More on Single-Player vs. Multiplayer here on CDixon’s blog)

On the topic of distribution channels for new products, Peter Thiel refers to a “sales dead zone” that sits in between needing sales people for complex transactions & advertising for simple ones (no sales people).  Eventually, as companies get big they develop multiple channels but it’s critical that there’s a product-channel pathway that works in the early-days for it to succeed and this bottoms-up distribution approach works very well in this dead zone as it offers distribution that can scale from the early days for products that sit in between the two ends of the spectrum. (as most productivity related tools do)

In light of the S-1 being shared for Dropbox’s IPO, here are a few tidbits related to this approach.

At Dropbox’s Launch:

  • There are some unannounced viral parts I didn’t get to show in thereit;ll be a freemium model. up to x gb free, tiered plans above that.-dhouston, 2007






The bottoms up approach continues to be a core focus for the business even after 10 years.What Sets Us Apart

Viral, bottom-up adoption

  • Our 500 million registered users are our best salespeople. They’ve spread Dropbox to their friends and brought us into their offices. Every year, millions of individual users sign up for Dropbox at work. Bottom-up adoption within organizations has been critical to our success as users increasingly choose their own tools at work. We generate over 90% of our revenue from self-serve channels—users who purchase a subscription through our app or website.

Industry Trends in Our Favor

Individual users are changing the way software is adopted and purchased

  • Software purchasing decisions have traditionally been made by an organization’s IT department, which often deploys products that employees don’t like and many refuse to adopt. As individuals increasingly choose their own tools at work, purchasing power has become more decentralized. A 2017 IDC report noted that new devices and software were being adopted at a faster rate by individual users than by IT departments.

Our Growth Strategy

— Early virality with a free user base continues to be a part of the plan to pay dividends —

Increase adoption and paid conversion

  • We designed Dropbox to be easy to try, use, and buy. Anyone can create an account and be up and running in minutes. We believe that our current registered user base represents a significant opportunity to increase our revenue. We estimate that approximately 300 million of our registered users have characteristics—including specific email domains, devices, and geographies—that make them more likely than other registered users to pay over time. Substantially all of our paying users share at least one of these characteristics. We reach our users through in-product notifications on our website and across hundreds of millions of actively connected devices without any external marketing spend. We define an actively connected device as a desktop, laptop, phone, or tablet on which our app has been installed, and from which our app has been launched, and made a request to our servers at least once in the most recent quarter.

Risks Related to Our Business and Our Industry

Our lack of a significant outbound sales force may limit the potential growth of our business.

  • Historically, our business model has been driven by organic adoption and viral growth, with more than 90% of our revenue generated from self-serve channels. As a result, we do not have a significant outbound sales force, which has enabled us to be more efficient with our sales and marketing spend. Although we believe our business model can continue to scale without a large outbound sales force, our word-of-mouth and user referral marketing model may not continue to be as successful as we anticipate, and our limited experience selling directly to large organizations through our outbound sales force may impede our future growth. As we continue to scale our business, an enhanced sales infrastructure could assist in reaching larger organizations and growing our revenue. Identifying and recruiting additional qualified sales personnel and training them would require significant time, expense, and attention, and would significantly impact our business model. Further, adding more sales personnel would change our cost structure and results of operations…

Growth & Conversion Metrics

to Summary:

  • 500m Registered Users
    • 100m signed up in 2017 (20% of total)
    • ~2% over all paying customers
  • 11m Paying Users
    • 2.2m started paying in 2017 (20% of total)
    • 30% Business Plan, 50% Individual for Work, ~20% Individual
    • $111.91 ARPU

User Growth: We can see that the user base continues to grow at a rapid pace; 25% in 2017.  The number of paying users has grown at the same rate as well which means that the conversion rates have likely stayed the same for new customers on an annual basis, assuming that customers who haven’t paid in their first year drop to a near zero chance of conversion. However, the S-1 filing gives little insight into what the consumer conversion curves look like so I’ll look to track these in future filings.

Conversion Channels: 90% of DBX’s current conversion comes from self-serve. This is remarkable and flies the other way of BOX.

Conversion: Currently about 2% of DBX’s users are paying customers. The parallel to this is BOX where 17th of their 57mm customers are paying customers. It’s hard to parse out the cost of supporting the free users because DBX doesn’t include this in their CAC (26% of Rev) while BOX does (63% of Rev) but given that their gross margins have nearly 2x’d one can assume that the cost of free users in ratio to their conversion rate works out well for the company.

Overall, this looks incredibly impressive for a company very rooted in the idea of bottoms up and is doing relatively well compared to BOX. In the long run, their bottoms up approach will be compared to Atlassian/Slack as opposed to their storage competitor.



What got you here won’t get you there.As has been pointed out in multiple discussions in-person and twitter: DBX’s S&M costs will trend towards BOX’s as they dive deeper into getting bigger corporate contracts via outbound sales.

However, there’s a dark horse with creative tools like Paper & Showcase which have strong network effects that could continue to drive low CAC biz user growth (vs. personal user growth that was the first wave). Also, there’s still a big pool of free users (personal) who don’t have a paid sub via a company converting but these customers will be harder as time goes on & DBX will sell like how Box sells.

This will be fun to see and whether it’ll be able to average out the increasing costs alluded to above. Personally, I continue to be incredibly excited about bottoms up adoption and how it plays out in the long-run and how it stacks up against two other wonderful bottoms up SaaS businesses TEAM & Spotify.

P.S This is a good read on SaaS


Dropbox Paper: A product that’ll help drive future bottoms up adoption. Also, pages 96-105 of the S-1 are the most fun from a product perspective.

Special Sauce


Bottoms-up consumer delight being a core part of DBX’s DNA

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By varadh

My general mission in life is to be helpful to people building products that have a positive impact on the world. If you're building something awesome, I'd love to chat: me@varadhja.in 🤖