Can Dropbox Survive in an Amazon World?

Moneybox
A blog about business and economics.
April 3 2013 10:54 AM

Can Dropbox Survive in an Amazon World?  

amazo

If I've said it once, I've said it a thousand times. The one company you absolutey do not want to compete with is Amazon. Jeff Bezos has persuaded Wall Street to give his company a generous valuation that allows him to pursue a low-margin high-growth strategy that gives him the chance of destroying essentially any business in America. Today, Amazon released a desktop app for its Cloud Drive product, which essentially makes it equivalent to the popular Dropbox service.

I like Dropbox. I like it so much that on Monday I upgraded from the 2GB free version to the one in which you get 100GB of storage. It costs $99 a year. Then today I looked at the pricing for Amazon's competing service. They'll sell you 100GB for $50 a year. Plus they'll give you 5GB for free. And unlike Dropbox, Amazon offers intermediate options. You could get a 50GB account for $25 a year. As I say, I like Dropbox. And I'm already paid up for a year, so I won't be switching anytime soon. But it's hard to see how the company can compete with Amazon rushing in, offering a superior free product, and cutting Dropbox's prices in half. Apple tried and failed in an effort to purchase Dropbox several years ago, but I think in the long term the founders will end up wishing they'd sold.

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How can Amazon afford to offer such crazy prices? Well, storage is getting cheaper and cheaper, and Amazon has achieved great scale and efficiency with operating large servers. But even better, Amazon doesn't earn meaningful profit margins on any of its lines of business so there's no need for Cloud Drive to be any different. It's all about growth for them, which makes Amazon every possible competitor's worst nightmare.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.