Dropbox tries to reinvent as Microsoft, Apple, Box crowd cloud-storage market

Tech can be a fickle business with a short memory. Today’s Uber could be tomorrow’s Zynga. The narrative arc can be swift and unforgiving.

Consider Dropbox, an online storage and file-sharing startup, that held its first user conference in San Francisco on Wednesday. Once a fairy tale in the land of unicorns, Dropbox is now more of a cautionary tale.

When Dropbox made its splash in online data storage for consumers several years ago, it had the market to itself and was the envy of Apple and Google, each of whom made offers to buy it. Still private, it’s worth $10 billion, placing it among the richly valued pre-IPO companies known as “unicorns.”

But Dropbox now competes with Apple, Google, Amazon, Microsoft and others for businesses and consumers.

Apple and Google have pursued aggressive pricing in storage to win over consumers. At the same time, Google, Microsoft and Box offer more popular apps in the enterprise market, where Dropbox has designs to expand its business and its revenue base.

“I’m a little bit concerned about all the (storage) players,” says Michael Facemire, an analyst at Forrester Research. “It is not a commodity yet, but how does one differentiate from others offering unlimited storage for free? For enterprises, they want an added value.”

That’s exactly what Dropbox CEO Drew Houston, 32, says he will deliver. He says Dropbox is in the midst of a major evolution.

“In a world of unicorns, we’re trying to build a business … with happy customers,” says Houston, who built a business out of his frustrations over not being able to remotely access files as an MIT student. “In the beginning, we built storage. But as it evolves, our product becomes a platform for collaboration, for the sharing of data among people, teams and industries.”

Houston’s vision is ambitious. Not only does he want Dropbox to be the online home of people’s photos and documents, he wants to build the world’s largest collaboration platform that connects every person and every company, regardless of the software or service they’re using. That means going after a growing and increasingly complex problem: the pain people face when they want to collaborate across different technologies, be it Google Docs or Microsoft Office.

Still, Dropbox — despite these goals and a splashy user conference at a historic venue (Bill Graham Civic Auditorium) with tech luminaries (Hewlett Packard Enterprise CEO Meg Whitman, Salesforce CEO Marc Benioff and Apple software head Eddy Cue), faces steep odds — and sharp-elbowed rivals.

Dropbox led the $1.46 billion worldwide market for file-sharing last year with a 27% share. Microsoft was second, with 18%, followed by Box (14%) and Apple (10%). Microsoft and Box grew at faster rates than Dropbox, according to researcher IDC.

“Dropbox has tried to play catch-up to our enterprise product strategy for years, but serving millions of free consumer users is profoundly different from powering the world’s largest enterprises,” Box CEO Aaron Levie, one of Dropbox’s chief competitors, said in an email to USA TODAY.

The worry: It’s in a commodity business

Nearly every tech company has experienced the highs, lows and in-betweens of Dropbox. Apple, Microsoft, Facebook and others have been tripped up  to varying degrees by competition, economic conditions, upper-management upheaval and bad luck.

“If you look at this market, with a multitude of vendors, the challenge that any company has is: How do you not let your solution get commoditized? How does your product price not become diluted?” says Ajay Arora, CEO of security company Vera, which announced a business partnership with Dropbox on Wednesday.

The big chill blows in from concerns the public markets may not be receptive to Dropbox’s lofty valuation. The middling post-IPO success of Twitter (TWTR) and Box (BOX), whose stock has skidded 44% from its IPO debut, has likely caused the market to lose its appetite. The $10 billion valuation, in essence, has become a millstone, says Facemire.

As a company, Dropbox has dismissed the obsession over its valuation as talk. Houston says he is laser-focused on building an enduring business. “Private companies aren’t traded. It’s like playing fantasy football, but with no stats,” he says.

The company is far from a charity case: It boasts more than 400 million users worldwide at 8 million businesses — though many of them get the service for free — and it’s hauled in hundreds of millions of dollars in funding. It employs 1,500 people in a dozen offices around the globe.

Dropbox for Business, a product introduced two years ago that lets IT departments manage employee accounts, has attracted more than 150,000 customers who pay $12.50 per month per seat. Over the past 10 months, it’s added 50,000 business customers, including Expedia and News Corp.

News Corp, for instance, used Dropbox to modernize data use of its 25,000 employees after the product had already become popular with staff. Many of the organization’s journalists, for example, depend on Dropbox to store and distribute video, says Dominic Shine, global chief information officer at News Corp.

On Wednesday, Dropbox introduced Dropbox Enterprise, a new product tailored for large businesses.

“People vote with their feet,” Houston says. Customers are drawn to Dropbox’s simplicity, design, reliability and speed, he said. “That doesn’t happen with the other folks: Allowing people to use whatever tools they want, and not forcing them to use certain things… that are ridiculously complicated.”

This summer, Dropbox snared Todd Jackson, who led Twitter’s content and discovery team, as its first vice president of product. And the company has attracted some big names to its roster, including chief operating officer Dennis Woodside, a Google alum who was CEO of Motorola Mobility, and chief financial officer Vanessa Wittman from Motorola Mobility. (It has also lost a few, including exec Ilya Fushman who joined Index Ventures).

“This year has been the tipping point” in adding big-business customers such as Under Armour and Zillow, Houston, Dropbox’s co-founder, says.

Don’t discount Dropbox yet. In the rags-to-riches  culture of Silicon Valley, story lines can change quickly.

Houston is a personable, whip-smart entrepreneur who did things his way — an uncompromising approach to user experience and software elegance that bordered on Wellesian (as in Orson) perfection. He also has powerful friends such as Facebook CEO Mark Zuckerberg and Benioff.

He’s also the rare tech executive who addressed his company’s diversity challenge head on. It was Houston who told USA TODAY he is personally determined to increase the number of women and underrepresented minorities going into technology and working at Dropbox.

There was a time several years ago when some suggested Dropbox had a bigger upside than Facebook. Times change quickly in Silicon Valley: Facebook, which was criticized for a lack of a mobile strategy two years ago, on Wednesday reported third-quarter revenue rose 41% to $4.5 billion on the strength of mobile advertising, pushing shares to an all-time high.

For all of Houston’s ingenuity and grit, it remains to be seen if he can engineer that same kind of comeback.

Jon Swartz