Why Steve Jobs Remains the Biggest Challenge to Dropbox's Future The late Apple founder's vow to take on Dropbox's business could come back to haunt the cloud storage company as it prepares for its IPO.

By Vineet Jain

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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When Dropbox CEO Drew Houston met with Steve Jobs back in 2011, he was met with an acquisition offer, then questioned as to whether Dropbox was a feature rather than a product. Houston, in a 2017 interview with Business Insider, said that the rebuffed Jobs said, "'Alright, well I guess [Apple is] gonna have to go kill you, basically.' Maybe not in those words, but pretty close."

Related: From Cupcakes to a Musical Instrument Room, Step Inside the Dropbox Office

Now, Dropbox is approaching a multibillion-dollar IPO, filled with excitement from the tech community and throughout Wall Street. Though it will start as a downround, this is the first company to go public out of the Y Combinator accelerator, and stands as a major validation for Silicon Valley, for the Valley's incubators and for the cloud itself.

However, I keep coming back to that conversation with Jobs.

It starts with a simple concern I have: While there is a healthy amount of excitement for the Dropbox IPO, there is still quite a bit of confusion among investors about the market they are in. The challenge for investors is they are unable to make financial projections and properly assess the potential risks involved because they do not understand the competitive landscape.

The difficulty could be, according to Shira Ovide of Bloomberg, based on the fact that people think about Dropbox as an enterprise cloud storage company or a "Box 2.0" -- despite it predominantly being a self-service (90 percent of its revenue) business.

Related: How Airbnb and Dropbox Achieved Tremendous Growth With Referral Marketing

This isn't to say this is a bad business -- it just isn't, and should not be priced or approached as, an enterprise business.

Dropbox has built itself into a machine of over $1 billion in revenue by catering to consumers and prosumers, targeting individuals and small organizations with double-digit employee counts. In contrast, Box has experienced its success going after large enterprise -- Fortune 5000 companies with tens of thousands of employees. Dropbox currently earns $111 of revenue per customer, while Box earns $6,100 of revenue per customer. Clearly, Dropbox isn't remotely comparable.

And Dropbox has a huge, lumbering giant that has had it on its radar for a long, long time.

The dark horse that no one is talking about right now is Apple.

Over 64 percent of Americans own at least one Apple device, with the majority having iCloud built-in. Should Apple decide to turn up the heat and further develop the functionality of iCloud, that could put a tremendous amount of pressure on Dropbox.

Related: The 'Father of the iPod' Says Tech Addiction Would Worry Steve Jobs If He Were Alive Today

When the new Mac OS High Sierra launched last year, deep within the features list was a subtle yet powerful echo of Jobs' murderous intent toward Dropbox: "share with anyone right from iCloud Drive." ICloud Drive, as it stands, now echoes the core functionality of the self-serve Dropbox product. Users automatically sync and save to their mobile and desktop devices. Notes, Pages, Keynote and Numbers documents are stored on iCloud automatically, and every single user gets 5 GB for free. That's better than Dropbox's free 2 GB plan. And Apple's self-service product is cheaper than Dropbox too -- 50 GB for $0.99, 200 GB for $2.99 and 2 TB for $9.99 -- versus Dropbox's $9.99 1 TB plan.

This is, of course, purely based on comparing Apple and Dropbox's individual plans. Dropbox itself says that the free version available to individual users "serves as a major funnel for conversions to [its] paid subscription plans." Only 30 percent of its users are using Dropbox as part of a business plan, too.

All the while, Apple's services revenue is growing. That isn't just iCloud Drive, but it's far from a coincidence that Apple's services revenue, which include iCloud Drive, is outpacing Mac revenue.

Though this may not kill Dropbox, Apple controls two dominant operating systems where it doesn't simply provide, but automatically installs a powerful consumer competitor. Dropbox requires an install and a log-in, extra steps for a user to deal with on the way to simply sharing a file. Apple's current workflow to share a link isn't quite as elegant (select a file, share, add people, copy link, versus Dropbox's one-click sharing) -- but it doesn't take much to change that.

Related: Steve Jobs Shares the Secrets to Successful Team Leadership in This Throwback Video

In essence, the entire consumer (and in some cases prosumer) storage and collaboration product suite of Dropbox has been automatically added to almost every Mac and iOS device. As people get used to their operating system providing this automatically, one must ask the serious question as to why they'd choose an external provider.

Dropbox still has a lot of strengths -- its small-to-medium business collaboration and storage plans absolutely dominate on a usability and stability level compared to Apple. Dropbox truly sings when it comes to working in small teams -- and I don't think Apple is close to competing on that level. As a business, Dropbox has over $1 billion in annual revenue and has shown the ability to generate cash while significantly improving its margins, which puts it on a short path to profitability. I can see it having a strong debut and could potentially fulfill its $10-billion private valuation in the first 30 days on the public market.

But, Dropbox is at a crossroads. It either must make up significant ground on the business side, or find a way to truly innovate in its self-service product.

Otherwise, yet again Jobs will be proven right.

Vineet Jain

CEO and Co-Founder of Egnyte

Vineet Jain is the CEO and co-founder of Egnyte, a Mountain View, Calif.-based company that powers adaptive enterprise file services for thousands of customers worldwide. Jain has 20 years of experience building nimble, capital-efficient organizations.

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