Should Dropbox Enter the Cloud Business? (Part 1)

I recently wrote a piece on why Facebook isn’t in the cloud business, which sparked a lively discussion on Hacker News. When I was writing the piece, however, one other company’s name kept on popping up in my head as another, perhaps more suitable entrant to the cloud market than Facebook: Dropbox.

‌‌Should Dropbox be in the cloud business and compete with AWS, Azure, GCP, etc.? (“Cloud business” here refers to infrastructure and/or platform-as-a-service (IaaS or PaaS), not software-as-a-service, which Dropbox is already in.)

‌‌Let’s take a look from five different dimensions, all of which are necessary to becoming a real player in the somewhat crowded but still fast-growing cloud industry:

• Core Technology
• Product Differentiation
• Enterprise Talent
• Business Imperative
• Political Will

(In this post, I’ll focus on “core technology” and “production differentiation”, and discuss the other three dimensions in Part 2 of this topic.)

Core Technology

Dropbox’s technical chop is well-known and well-respected in the industry, punctuated by its impressive build-and-migrate project from AWS to its own private cloud, while still serving hundreds of millions of users. The whole process took about 2.5 years, which happened roughly between 2013-2016. It involved everything from physically building new data centers, to custom-designing servers, to building a brand new distributed storage software layer using two fairly new programming languages (first Go, then Rust).

‌‌The story is well-documented in this Wired article, which is an enjoyable read, because it’s both interesting on a technical level and dramatically told. While most of the subsequent headlines focused on its cost saving of almost $75 million USD over two years since the migration’s completion, the more interesting long-term business implication is this:

‌‌Dropbox knows how to build a custom cloud on a deadline, and migrate a massive amount (as in hundreds of petabytes) of data without service disruption.

‌‌Logistical experiences matter almost as much as technical ones. I believe one of the primary reasons AWS is the market leader by a mile is because it’s the logistics leader of the bunch, even though its technology is not as advanced or polished as say Google’s. AWS knows how to move stuff around at scale, efficiently and reliably; that’s no easy feat. The learning gained from shipping, delivery, and building warehouses at scale to support an e-commerce empire seems to translate well to building a cloud business. A lot of the fundamentals has to do with migration or “lift and shift” of data and customer workloads without causing service interruptions, or delivering a private cloud custom-built for a big customer on time.

‌‌Dropbox has lived through plenty of logistical hurdles, it seems, in its own race against time to drop its AWS contracts. At one point:

“[Dropbox] was installing forty to fifty racks of hardware a day, each rack holding about eight individual machines. At one point, they were slowed by some ill-timed crashes—and not the computer kind. In one twenty-four hour period, trucks carrying machines to Dropbox data centers in different parts of the country both had accidents.”

‌‌Dropbox is also notably pragmatic in that after it completed its own cloud and migration efforts, it still kept a small amount of AWS footprint in its infrastructure. Based on its most recent SEC 10K filing for FY2019, Dropbox has workloads in AWS data centers in “the United States, Australia, Europe, and Japan, which allows [Dropbox] to localize where content is stored.” This hybrid setup serves two purposes: (1) extra redundancy backing up its own cloud in the U.S. for its primary market; (2) allow international expansion into new markets while abiding by local laws and regulations with regard to data location and privacy (e.g. GDPR) by leveraging AWS, until growth in these new markets is stabilizing or predictable. In general, building your own cloud only makes sense if you are big enough and growth is forecastable enough that you can calculate the cost-benefit tradeoffs spanning multiple years. Dropbox reached that level in the U.S.; it has yet to do so in other markets.

‌‌Through all these experiences, Dropbox has inadvertently developed expertise in the entire gamut of the cloud business: operating a cloud to serve its SaaS products (“public cloud”), building its own cloud (“private cloud”), and running a mixture of workloads between its own infrastructure and AWS (“hybrid cloud”).

‌‌So on a technical, operational, and logistical level, Dropbox is well-positioned to build and deliver cloud services in many scenarios, as well as any of the current incumbents.

Product Differentiation

Of course, being able to compete just on the basics is not enough in a maturing cloud market. You need differentiation in your product. Where can Dropbox differentiate?

‌‌Dropbox’s origin as a consumer tech company could be an overarching product differentiator, if leveraged correctly. What fueled Dropbox’s rapid growth up until this point was its “just-work” user experience, allowing anyone to store and sync files in the cloud with zero technical expertise. Its track record in making successful consumer products dove-tails well with another industry trend: the consumerization of enterprise technology.

‌‌We are seeing this trend unfold on the application layer with Zoom, Slack, GSuite, Atlassian, and Microsoft’s suite of workplace products. Dropbox’s own recently-launched workplace collaboration application, Spaces, is playing into this too. But this “consumerization” trend isn’t stopping at the application layer, where most of the end users are still non-technical. It’s also moving into the developer layer, with GitHub launching its own mobile app and GitLab offering a similar portal via a third-party partner. There are many other younger startups popping up in the developer tool space, aiming to provide a consumer-grade experience with user-friendly workflow, low-code, or no-code.

‌‌By and large, most cloud platforms do not score well on their user experience; most of the consoles, dashboards, monitoring, etc. look like they are designed by machines for machines. The “consumerization” wave has yet to hit. Digital Ocean is probably the only vendor that has differentiated itself somewhat by its developer-friendliness, but it's a small player in the vast cloud world. This isn’t surprising. All cloud vendors begin quite literally from the ground up as an IaaS first, where it’s all about the machines: compute servers, storage units, network cables, VMs, etc. Some then move up the stack to become a platform-as-a-service (PaaS), with containerization and orchestration, managed databases, and other essential build blocks for developers to build applications. In short: they started with the machines then moved closer to humans. No wonder the user experience hasn’t been consumer-grade.

‌‌Dropbox is unique in that it began as a killer consumer SaaS application first, but it has also touched every part of building, migrating, and operating a cloud, which few SaaS companies have done. It has an opportunity to differentiate by building a PaaS offering, where the user experience of the tools, APIs, and services are more “consumerized” and friendly.

With Google Cloud’s $2.6 billion USD acquisition of Looker, a popular business intelligence analytics application, we are seeing signs that easy-to-use cloud application is strategically important for the big cloud vendors to “land grab” and gain market share.

‌‌It’s unlikely that Dropbox itself would be an acquisition target along the same vein, since it’s a public company that appears intent on staying independent. Dropbox is evolving into an enterprise software company, because that’s where the big contracts are, so we know its infrastructure will have to be enterprise-grade. The “consumerization” of the cloud in terms of user or developer experience is still an open lane where a “Dropbox Cloud” could fill. And as the rise of Zoom has shown, no matter how crowded an industry is (and videoconferencing is very crowded), there’s always room for ease-of-use to stand out.

‌(For my thoughts on the other three dimensions -- enterprise talent, business imperative, political will -- please read Part 2 of this topic.)

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