Freemium Pricing at Dropbox, Inc.: The Freemium Pricing Strategy Essay

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dynamic nature of the current business environment, identifying and implementing an efficient pricing strategy is one of the most critical decisions that an organization has to make when launching a new product. This was the case for Dropbox, Inc. back in 2007, when the founders, Drew Houston and Arash Ferdowsi, introduced their product in the market. According to Dropbox (2015) the idea for their business came about after Houston forgot to carry the USB drive that would transfer files from one device to another. That, together with the fact that he constantly had to email himself files when he needed to work from more than one computer, necessitated the invention of a file hosting service that provided users with remote storage over the internet. However, the pricing strategy posed a problem particularly because consumers were not accustomed to cloud storage services and they could not figure out a way to make them pay (Teixeira and Watkins, 2014).

The best decision the founders made for their business was to adopt the Freemium pricing concept, which would allow consumers to enjoy basic services for free then pay for premium versions. In fact, the business had 4 million users in January 2010, and by November 2010, this had grown to 200 million (Teixeira and Watkins, 2014).

Due to increased competition, it is imperative for Dropbox to re-evaluate its pricing strategy and assess whether it will still give it a competitive advantage in the future.

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This text takes a look at the issues and challenges inherent in freemium pricing and gives recommendations on the way forward for Dropbox.

Key issues and challenges in freemium pricing at Dropbox

Dropbox has gone down as one of the best and most skillful entities in utilizing freemium pricing in cloud storage. The consumers had the opportunity to discover a new service and not pay for it until they could not do without it. Moreover, the company also introduced a referral program, where consumers would get more storage space if they referred more clients -- an undertaking that further increased its popularity and market share. However, while freemium pricing enabled Dropbox to grow its subscriber base tremendously, there is still the risk that the consumers on the free basic services will not transition to the premium services, which has a negative impact on the continuity of the business. The company also incurs large costs when servicing new customers. In 2013 for example, the total cost for direct hosting and storage was $1.32 per user in a year (Teixeira and Watkins, 2014).

Powerful competitors like Google, Microsoft, and Apple have also introduced services similar to those of Dropbox. There is the possibility that may take advantage of their influence and larger market share to subsidize their products and eventually seize some of Dropbox's market share.

Analysis

Since Dropbox has no….....

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