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I understand the principle of taking investment to enable growth. It is not just a principle. It has mechanics to it. one option A common way this works is put

by netcan 17y ago

I understand the principle of taking investment to enable growth. It is not just a principle. It has mechanics to it. one option A common way this works is putting that money to work acquiring more customers. This can mean sales staff. It might mean advertising. It might mean outlets. etc. It works if you have some way of converting money in to customers in a reliable way. Since dropbox appears to be growing virally through referrals, I don't see how this can be the case here. You cannot easily turn cash in to referrals. If it is a case of putting money to work acquiring customers, there is something I don't understand going one. The other option I can see is funding the free accounts while you wait for premium accounts to open. If you are in a fast growth period, you might have a higher ratio of free/paid customers then what you expect the long term average to be. If you are growing very fast or your profit margins are relatively narrow, you might need some funding. IE, you might dip under profitable temporarily while you wait for the many new customers to convert. This kind of a need is short term & marginal. $7.25m is not marginal.

patio11 17y ago
I understand what you're saying and think it is plausible given your assumptions. For example, you think that Dropbox's primary acquisition engine is viral referrals, that the number of referrals it gets over a certain interval is the number of new users times some constant conversion rate, and that you can't just increase that number of referrals by dumping money at it like you could increase the number of new users by dumping money on an effective CPC campaign. I think your assumptions are likely to be contrary to material fact. In particular, I think that the embedded assumption of "constant conversion rates" is false. For example, I think that inducing a customer to give a referral is a conversion like any other, and that one could spend a non-trivial amount of engineering resources to instrument one's site and then spend engineering/marketing resources to A/B test the "#$#$& out of it, and this process would predictably result in increased conversion rate. (Test the call to action. Test the design of the form. Test integration directly with Facebook. Test how much free space you offer for a signup.) Do I have to mention that A/B testing in the context of a viral loop is hypereffective because of compounding? You get exponential returns to linear improvements. This is on top of A/B testing tending to give exponential improvements to linear work, because today's improvements compound on yesterday's. The combination of these two factors means... wow. That's like a repeatable recipe to... wow. Crimety. I think I have to spend some more time thinking about this later, but my snap impression is that you could have Zynga-esque growth in an arbitrary niche (i.e. selling to people who pay money for things) without scamming anyone.
- netcan 17y ago
  $7m to optimise for more referrals? BTW, my original comment was not 'what idiots' it was, 'I wonder what they need all that money for?' If they are going to spend it all on split testing their 'refer a friend' system, well that is something of a wonder.
  - ssharp 17y ago
    While I'm sure buying online ads will be a large part of their strategy, they may be using this money to start experimenting with other forms of advertising: magazine, radio, etc. I'd assume they are also ramping up to a more aggressive corporate sales strategy.
    - netcan 17y ago
      Let me see what we have on this post so far as ideas: - adwords - Advertising experiments - a/b teting ($7m in split testing. Wow!) - Engineering. Go past just file syncing (uuilly) - corporate sales Each one of these is interesting in a way. I honestly don't think that the first three are likely. The last 2 are a strategic change of direction.

by netcan 17y ago

patio11 17y ago

I understand what you're saying and think it is plausible given your assumptions. For example, you think that Dropbox's primary acquisition engine is viral referrals, that the number of referrals it gets over a certain interval is the number of new users times some constant conversion rate, and that you can't just increase that number of referrals by dumping money at it like you could increase the number of new users by dumping money on an effective CPC campaign. I think your assumptions are likely to be contrary to material fact. In particular, I think that the embedded assumption of "constant conversion rates" is false. For example, I think that inducing a customer to give a referral is a conversion like any other, and that one could spend a non-trivial amount of engineering resources to instrument one's site and then spend engineering/marketing resources to A/B test the "#$#$& out of it, and this process would predictably result in increased conversion rate. (Test the call to action. Test the design of the form. Test integration directly with Facebook. Test how much free space you offer for a signup.) Do I have to mention that A/B testing in the context of a viral loop is hypereffective because of compounding? You get exponential returns to linear improvements. This is on top of A/B testing tending to give exponential improvements to linear work, because today's improvements compound on yesterday's. The combination of these two factors means... wow. That's like a repeatable recipe to... wow. Crimety. I think I have to spend some more time thinking about this later, but my snap impression is that you could have Zynga-esque growth in an arbitrary niche (i.e. selling to people who pay money for things) without scamming anyone.

netcan 17y ago
$7m to optimise for more referrals? BTW, my original comment was not 'what idiots' it was, 'I wonder what they need all that money for?' If they are going to spend it all on split testing their 'refer a friend' system, well that is something of a wonder.
- ssharp 17y ago
  While I'm sure buying online ads will be a large part of their strategy, they may be using this money to start experimenting with other forms of advertising: magazine, radio, etc. I'd assume they are also ramping up to a more aggressive corporate sales strategy.
  - netcan 17y ago
    Let me see what we have on this post so far as ideas: - adwords - Advertising experiments - a/b teting ($7m in split testing. Wow!) - Engineering. Go past just file syncing (uuilly) - corporate sales Each one of these is interesting in a way. I honestly don't think that the first three are likely. The last 2 are a strategic change of direction.