The future of work is distributed - and that works for Dropbox CEO Drew Houston

By Stuart Lauchlan

August 6, 2021

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The future of work and 'return to the office' debates continue to rage around the world, but for Dropbox CEO Drew Houston, there are big opportunities ahead whatever the outcomes are:

We think the world moving to distributed work will be a big tailwind in the long run. It's pretty clear that a large percentage of the planet, starting as of last year, will spend much more time working out of a screen than out of an office. So we have this new mode of hybrid work and we need a new generation of tools to support it.

I think it's a huge opportunity to re-think the fundamental nature of work. We're all going to be in some kind of hybrid environment and things like the Delta variant will continue to make that complicated. But we think it makes our opportunity bigger…We saw a surge in demand last year during the onset of COVID. At the same time, we had a lot of stability because I think Dropbox is something our customers were using before the pandemic, during the pandemic and will need after the pandemic.

Yesterday the firm turned in some strong Q2 numbers. Revenue was up 13.5% year-on-year to $530.6 million, while GAAP net income was $88.0 million, against $17.5 million for he same period last year. At the end of the quarter, the firm had16.14 million paying users, up from 14.96 million a year ago.

Strategic core

The results were pitched by Houston as vindication of the firm’s strategy to evolve its core business:

This strategy is focused on building on the strength of the simple and intuitive core Dropbox experience to improve functionality, make collaboration more seamless and help organize users' content, tools and workflows.

The first component he highlighted is sharing, the ‘bread and butter’ of what Dropbox does:

Sharing drives retention of our existing customers, spreads Dropbox virally to new customers and generates powerful network effects. We've made improvements to the sharing experience overall, especially on mobile, where our user base continues to grow. Nearly half of our new basic users come from our mobile channel.

We found that users who both send and receive content within a week and those who share content each week upgrade at higher rates. As a result of the sharing user experience improvements we made this quarter, we are starting to see an incremental uptick in weekly sharing activity on both mobile and the web experiences, and we will continue to closely monitor that trend.

Next up is a commitment to “investing in the future”. In practical terms, that means scaling additional capabilities, he said, pointing to the recent acquisition of DocSend to expand Dropbox’s document workflow and analytics capabilities:

With DocSend, we are able to get customers particularly in financial and professional services, more visibility and control over closing transactions and other important business outcomes. Our goal is to essentially close the loop on deal workflows that start with content that originates in Dropbox and end in a transaction getting finalized.

Houston said the Dropbox sales teams are now beginning to cross-sell DocSend into Dropbox users:

We are working to integrate DocSend into our self-serve go-to-market motion. For example, we started to introduce DocSend's control and analytics capabilities to existing Dropbox users, when they share a file on the Dropbox platform. This is a great reflection of the product's natural adjacency to the core Dropbox functionality.

He added:

We see DocSend as particularly strong in segments like financial services, entrepreneurs raising money, and then really any role where you have folks who need rich sharing features and richer controls and things like data rooms. But then also if you're sending out sales decks or marketing collateral, and you want to see what your recipients are engaging with and you really want to customize that experience, DocSend is a great fit for that.

Another example he pointed to was that of HelloSign:

We continue to see strength across the e-signature market, especially with our business customers and user signature requests grew over 75% year-over-year, which is particularly impressive as we anniversaried the COVID lockdown fueled surge in e-signature adoption. We continue to believe that we are in the early innings of this market opportunity.

It’s all about having a complementary set of processes and technologies, he argued:

What our customers really need is a seamless workflow from start to finish where they save a contract in Dropbox or they send it out for revisions or feedback through DocSend, send it out for signature with HelloSign, save the completed contract back in Dropbox. We're very focused on removing all of the friction from that experience, making it as seamless as possible. And we think this is something where the whole will be more than the some of the parts.

Infrastructure 

The third plank of the evolution strategy involves operational excellence by improving the firm’s overall technical infrastructure. Houston explained:

Our team has made significant progress in adopting SMR or Shingled Magnetic Recording, which allows us to increase our storage density and overall storage capacity without impacting our footprint. SMR drives now account for over 80% of our storage server capacity and we are also increasing our efficiency by moving our data centers to lower cost locations.

A notable development this week was the announcement by the firm that all of its data centers storage server power is now coming from 100% renewable electricity. Houston said:

Last year, we announced our commitment to fight global warming and reduce our carbon footprint as part of our sustainability goals for 2030 and we've been making good progress. In the last year and a half, we've reduced our data center carbon footprint by 15%, and we are maintaining the power usage effectiveness that is nearly 20% better than the industry average. Overall, our team is innovating on a highly complex tech stack and their hard work is resulting in lower energy consumption and tangible cost savings

My take

A strong second quarter that bodes well for Houston’s vision of the new world of distributed work.