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Dropbox Follows the Money into Crowded Market for Business Tools

Dropbox, the provider of online data storage, is adding productivity features as it wades into the corporate market dominated by Microsoft and Google.

Productivity tools can rewire how we get work done, and they can be extremely lucrative businesses.

The file-storage service Dropbox has grown to 300 million users on the strength of a cuddly consumer image and an easy-to-use system for storing and sharing files online. But Dropbox’s latest moves have more in common with corporation-courting software companies such as Microsoft.

Dropbox has long offered a version of its service tailored to businesses, but it has typically avoided presenting itself as an enterprise company (see “Q&A: Dropbox Founder Drew Houston Simplifies the Cloud”). It still serves consumers and rolled out a new photo-sharing feature for them early last year (see “Review: Dropbox’s Carousel Photo-Sharing App”). But this year Dropbox’s focus has seemed to shift more toward corporate customers. It has introduced and experimented with a series of business-centric collaboration and productivity tools, such as commenting, document editing, and a collaboration add-on for Microsoft Office.

“Our origins started off with a really simple idea—put your stuff in the cloud and have easy access to it from everywhere,” says Aditya Agarwal, Dropbox’s VP of engineering, who oversees work on the company’s products along with cofounder Arash Ferdowsi. “I’d say that what we’re trying to build now is the next generation of how we get work done together.”

One recent example of that strategy is a feature that allows people to chat in comments attached to a file stored in Dropbox. Another is a piece of software called the Badge, which appears whenever someone opens a Microsoft Office document stored in a corporate Dropbox account; it provides alerts when another person starts working on the same document and offers easy access to earlier versions of a file. In April, Dropbox confirmed that it is testing an online document-editing tool.

The company is adding productivity tools to its Dropbox for Business service to help its existing corporate customers more easily make use of their stored files, says Agarwal. That service is used by companies including National Geographic and Under Armour, but so far it has mostly just added additional access control tools to Dropbox’s core functions of file storage and sharing. Adding productivity features opens up new markets, he says. “If you are able to build software that makes people, say, just 5 percent more productive, that’s a huge opportunity.”

Dropbox’s fortunes are likely to be determined by what it makes of that opportunity. The company has raised $1.1 billion from investors and is widely expected to file to go public in the not too distant future. It gets some revenue from charging consumers to store more than two gigabytes of data. But it is unclear how many consumers are willing to pay for that. Dropbox offers less free space than online storage services from Apple, Google, and Microsoft, which also charge less for additional space and get to promote and integrate their services in their mobile and desktop operating systems. (Dropbox says its pricing is broadly competitive and that it delivers a better quality of service.) The corporate market for productivity and collaboration tools is a much more lucrative one.

However, that market is also crowded with large companies such as Microsoft, IBM, and Google, as well as younger ones such as the newly public Box and startups such as Slack. Vanessa Thompson, a research director at analyst IDC, says that Dropbox needs to bring its once simple offering more in line with the multifunctional productivity suites from companies such as Microsoft, IBM, and Google that currently dominate that market. “These things are table stakes as they compete with the larger suites which already have these types of functions,” she says.

Despite the fast growth and high profile of younger companies such as Dropbox, the established productivity suites are picking up the lion’s share of new business in the rapidly expanding overall market, says Thompson. Last June, IDC forecast that $10 billion would be spent on enterprise collaboration tools in 2014 (the equivalent figure for file syncing and sharing was just $940 million). Smaller entrants boast of the simplicity of their offerings, but large businesses with the most money to spend require expansive, fully featured productivity tools, says Thompson.

One point in Dropbox’s favor is that it has managed to attract an extensive community of developers who have integrated their own products with the service, effectively extending its feature set for free. More than 300,000 such integrations have been made so far. In 2013, Dropbox bought a mobile e-mail app, Mailbox, that is still standalone but will eventually be more integrated into its service.

Agarwal acknowledges that Dropbox’s new productivity tools have significant competition. But he says that just as the company won over millions of consumers with a simple, well-designed service that spread by word of mouth, it can attract business customers with tools that are just better.

“Just because something exists doesn’t mean people want to use it—you have to create something that’s simple and reliable and understandable,” says Agarwal. The new productivity tools his engineers are designing are ones that people can discover and use in the normal course of their work, he says. “Features like the Badge do not require the user to change any workflows or to install new software—it simply shows up and provides useful context as and when you need it.”

Still, despite the new emphasis on business tools, Agarwal claims his company will be sticking with consumers. “We have a good initial product, but now it’s evolving in ways that allow us to tackle not one but two really big markets,” he says. “Maybe the productivity one is in some sense more deeply understood, but on the consumer side there are going to be five billion people using mobile devices facing the challenge of having all their stuff where they want it.”

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