Dropbox: A case study of freemium profitability

Dropbox is a web based file hosting, sharing, backup and synchronisation service. Any files places in your Dropbox (which is just another folder) on your local computer is automatically synchronised to the cloud, and your other Dropbox devices.

Dropbox operates using the freemium model, meaning there are free account offering up to 2Gb storage as well as paid account offering more. With 25 million users, there is the potential need to store 50 million Gb of data (this figure will depend on the usage amounts of users, and the number of free vs paid users).

Michael Woloszynowicz of Web 2.0 Business and Development Lessons looks at the potential costs for storage and data transfer using Amazon S3 for Dropbox as well as the potential revenue generated. It’s an excellent read for anyone interested in start-ups, web services, pricing models or just wants a look at some of the potential figures behind the popular service.

Some of the key points raised include:

• The infrastructure has a monthly cost between $3.1 and $5.8 million/month
• It handles almost 26Tb of uploaded data each day
• It potentially has an exponential growth rate of 1.2 per month to have gone from 3 million users in 2009 to 25 million users today
• Based on these figures, Dropbox could be worth $1 billion

The full article can be found here and here.

Do you think these figures are fair and that the freemium business model can work? What’s your experience with this, or alternative pricing models?

And one last thing – If you don’t currently use Dropbox, I definitely recommend you try it out!