Why did Dropbox get valued at four times more than Box?

Ever since Dropbox entered the enterprise space with Dropbox for Business in 2013 it has gone head to head with its cloud storage rival Box, pitting the two 30-something founders Drew Houston and Aaron Levie, respectively, directly against one another, as well as against big players like Microsoft OneDrive and Google Drive.

Here we dig into the difference between the two pure-play companies, their different IPOs and the numbers that may have led the market to valuing Dropbox at nearly 4x that of its rival Box.

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Monica Basso, research vice president for digital workplace, content, insight and experience at Gartner said: "Dropbox came from the consumer space, where they attracted over 500 million users starting about seven years ago, with an innovative service: great to use, simple and highly reliable."

This 'stickiness' has gone a long way to allowing Dropbox to become a core part of many people's digital lives. "Dropbox is one of those consumerised technologies that have been disrupting the enterprise traditional workplace, driving transformation and forcing IT organisations to rethink productivity and collaboration with employees at the centre," Basso said.

Box, for its part, has always focused on the enterprise market, with regulatory, IT and security concerns at the forefront of its product offering. The user experience is also very good, however their enterprise focus has "limited the broader visibility that Dropbox leveraged," according to Basso.

Where they have differentiated, for Basso, is Dropbox focuses on content creation and Box on content management, a subtle but important difference.

Cheryl McKinnon, principal analyst at Forrester Research, added: "Box made the pivot to focus on larger enterprises earlier, including enhancing its administrative, security and governance capabilities to meet the needs of more regulated businesses.

"Dropbox has made some of these same moves, but it may take some time to expand into larger enterprise if their critical mass in terms of customers are clustered in the smaller to mid-market space."


Now that both companies have entered the public market we can start to finally compare the two companies, who are often at pains to say that they aren't rivals at all.

Box went public back in January 2015, pricing shares at $14 at a valuation of $1.7 billion, which was around $600 million less than the private markets' $2.3 billion valuation of the company. That valuation has calcified into a pretty steady market cap of between $2.5 and $3 billion.

Dropbox on the other hand floated earlier this year, with shares jumping as high as $31.60, giving the company a valuation of over $12 billion.

Read next: Biggest tech IPOs of 2018

That's a nearly 5x valuation discrepancy between the two rivals, and although both companies have refused to comment on the number for Computerworld UK, Basso has some thoughts.

"We cannot comment on the IPO per se," she said. "But I think the market success is probably related to brand perception and the potential of growing for Dropbox in the enterprise market (transforming usage of personal Dropbox into corporate Dropbox service)."

This is a pretty similar outlook to that taken with this year's other big tech IPO, Spotify, which has a lot of 'freemium' users that it wants to convert to paid subscribers to reach profitability. The market also backed the Swedish streaming company to do that by valuing it at $26.5 billion.

The numbers

Unfortunately Dropbox has not yet broken out the number of businesses that have bought plans, making an apples for apples comparison between the two companies difficult.

What we do know is that Dropbox has many more users than Box.

In its S-1 filing, Dropbox stated that it has "over 11 million paying users".

The statement read: "Of these subscribers, approximately 30% use Dropbox for work on a Dropbox Business team plan, and we estimate that an additional 50% use Dropbox for work on an individual plan, collectively totalling approximately 80% of paying subscribers."

It's a very rough calculation, but that means that Dropbox has around 3,300,000 users of Dropbox Business. If that directly correlated to revenue (30% of $1.1 billion) that makes the business unit responsible for $330 million of total revenues, which admittedly is less than Box makes from its entire, business-only, customer base at $506 million. Business users typically pay more however, for advanced features and additional storage, with individual plans starting at £7.99 and business at £10-15 for Dropbox.

Furthermore, Dropbox said that as of December 31, 2017, it had more than 300,000 paying Dropbox Business teams, which could range from a freelancer to an SME to a global corporation. It added: "approximately 56% of Fortune 500 companies had at least one Dropbox Business team within their organisation."

This number we can compare, as Box has 82,000 businesses as paying customers. Naturally the size of these companies is paramount, but Dropbox is again the clear winner in this metric.

Regardless, Dropbox still has almost double the revenue of Box with over $1 billion revenues in 2017 and 31% growth YoY to Box's $506 million in the financial year 2018.


So: Dropbox has been valued by the market at nearly five times that of Box but its revenue is only twice as much.

It appears that the market was right in valuing Dropbox at more than its pure-play business rival Box, but the huge discrepancy does somewhat come down to investor optimism that Dropbox can convert more users into paying customers, including the lucrative business and enterprise segments.

Copyright © 2018 IDG Communications, Inc.

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