Colin Barry

Dropbox (LTV, Monday, Week 1)


Concerns about Dropbox:
-- Is this a feature or a product? Steve Jobs is dismissive...
-- Not the first movers, and seems like switching costs will be high.
-- Profit formula = questionable.
-- "Feature complication" --- How do you evolve a product whose chief virtue is simplicity?

CVP: Sync that just works (mindlessly) => share + backup + sync
Only 2-3% paid users => 39 free users per paid user.
Annual storage costs (AMZN S3): $0.11 per free user, $3.18 per paid user.

Profit formula: LTV (Lifetime value of an acquired customer) vs. CAC (Cost of an acquired customer)

Paying users = $120/year.
Variable cost = ($3.18 x 12 mo) = $38.16
So, annual gross margin for a single paying customer = $81.84
We don't know attrition rate; let's assume 1 year (worst case).
So, LTV = $81.84

Free users are Dropbox's marketing cost.
So, CAC = ($0.11 x 12 mo x 39) = $54.48

LTV > CAC, but how much greater?
Skok says ratio should be 3:1 for SaaS businesses. But (1) we don't know actual churn and (2) storage costs will continue to fall, so margin will increase and CAC will decrease in the future.

Other interesting element: Dropbox established customer demand for product before they launched/built.
Thousands of sign-ups based on an MVP video: