Dropbox will start showing ads Real Soon Now

With MSFT dropping the marginal price of storage for consumers to 0, what does this mean for Dropbox?

The old business model that was really awesome was that each user represented a permanent annuity. As each user consumed more storage, over time, the user paid more. And as the user consumed more, the ability to move the users data declined. And with features like photo-sharing and data sharing, the ability to move data became harder and harder and harder.

Although I am sure that DropBox assumed the cost per GB would drop over time, the assumption in the plan has to be that it never got to 0 and it always increased as people stored more.

This was a sound business model until or unless the annuity goes away.

And that is what MSFT just did. They eliminated the annuity business. I am sure that DropBox will resist. But here is what will happen: as people who start pushing into the higher and higher tiers of cost start looking at their bills, the desire to move to cheaper solutions will outweigh the inconvenience. They will either move all of their data or start moving parts of their data to newer cheaper solutions.

The net effect is that with a cost of 0 dollars, it makes a lot of sense to use the free DropBox offering and then when you have to pay go to MSFT for any excess data.

Now Dropbox has to come up with a new plan. Their annuity strategy is crippled.

And the new plan may be advertising. DropBox was a storage company that offered file sharing on the cloud. Now they are a content repository with some nifty content management and content sharing tools for consumers. Companies that provide tools for consumers that can not grow their revenue as an annuity will turn to trying to monetize their customers more efficiently. And with all of that user data, the temptation to use it to advertise will be great.

Gmail made it okay to have your email automatically scanned for advertising, – i wish I could have seen the ads on General Petraeus account, you have to believe DropBox customers will be okay with this as well…