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This whole post seems like contrived bullshit...clearly he doesn't understand the concept of SaaS and recurring revenue. Investors are betting that box can gen

by win_ini 12y ago

This whole post seems like contrived bullshit...clearly he doesn't understand the concept of SaaS and recurring revenue. Investors are betting that box can generate a large amountof recurring revenue and THEN reap profits based on those recurring revenues in the future (as marketing and sales costs drop). Free customers also basically cost almost nothing - no support, sales or marketing costs. Sure, some "storage" cost, but really - almost nothing. Also - Box does not sell "storage" they sell collaboration, auditing, and security assurances (ie: HIPPAA compliance is NOT something Dropbox ever offers). >>If Box has to spend almost everything it makes from current customers to win new ones, what is the use of giving its product away for free, aside from boosting the size of their user base to impress investors? Uh, so people who are not paying users who are outside the organization can “see” and collaborate on those files? This also indicates his clear misunderstanding of the benefit of creating corporate users who will not churn - thereby recouping their CAC within 12 months. >>And, more importantly, Dropbox and Box still have to support all those non-paying customers. There is simply no palatable way for them to eliminate free users, and the costs associated with them will continue to rise as the need for storage increases. As more free customers are added into the system, those costs continue to grow, creating a death spiral. then three sentences later…. >>Dropbox reduced the price of a gigabyte of storage by 90 percent. That is a clear indicator that, over time, the price of cloud storage will continue to reduce to zero. So how does something dropping to the cost of “zero” equal “..As more free customers are added into the system, those costs continue to grow, creating a death spiral." My favorite part is the ending: "Andres Rodriguez is CEO of Nasuni, a Natick, Massachusetts-based cloud storage-as-a-service company.” Yeah, good luck with that.

alex_h 12y ago
There is a difference between price and cost. The death spiral scenario that he talks about results from dropping the price to zero while still having nonzero cost. You may disagree with that assessment, but it's not a contradiction.
InfiniteRand 12y ago
The whole idea of a free service is to generate good will and potential customers. If you have a crappy free service, it generates bad will and discourages potential customers. So you are forced to maintain a decent free product, at least comparable to those of other people offering free products. An important thing to remember is that if you are offering a free service, your potential evaluation customers are likely to try out the free service before calling you, so if it is bad, you probably will not get the call. And, in general, maintaining decent quality is not free, although admittedly how expensive it is really depends on the details of the situation. I do agree that this analysis is wrong. It is common for companies trying to grow in market-share within a highly competitive end up losing money, if Box's problem was that it could only grow by losing money, it could just pick a "good enough" point and then scale back market share growth and instead concentrate on inside sales. I suspect that Box has other problems, and free business models often do have holes in them (people usually underestimate the costs of a free service that does not scare away customers), but there is far better analysis of free business models on the web than this article.

by win_ini 12y ago

alex_h 12y ago

There is a difference between price and cost. The death spiral scenario that he talks about results from dropping the price to zero while still having nonzero cost. You may disagree with that assessment, but it's not a contradiction.

InfiniteRand 12y ago

The whole idea of a free service is to generate good will and potential customers. If you have a crappy free service, it generates bad will and discourages potential customers. So you are forced to maintain a decent free product, at least comparable to those of other people offering free products. An important thing to remember is that if you are offering a free service, your potential evaluation customers are likely to try out the free service before calling you, so if it is bad, you probably will not get the call. And, in general, maintaining decent quality is not free, although admittedly how expensive it is really depends on the details of the situation. I do agree that this analysis is wrong. It is common for companies trying to grow in market-share within a highly competitive end up losing money, if Box's problem was that it could only grow by losing money, it could just pick a "good enough" point and then scale back market share growth and instead concentrate on inside sales. I suspect that Box has other problems, and free business models often do have holes in them (people usually underestimate the costs of a free service that does not scare away customers), but there is far better analysis of free business models on the web than this article.