Companies entering the IPO realm without offering tangible products is a sign of the new Digital Age. Is this a trend here to stay, or is it a new dotcom bubble ready to burst?
All signs indicate that this may be becoming a permanent part of the market.
Despite problems in jump-starting its IPO, Facebook (NASDAQ: FB) is one such company that has managed to do relatively well on the market without physical products – mostly scooting by on advertising revenue. Online company Pinterest is raising millions of dollars, valued at $3.8 billion. And Snapchat had enough clout to turn down a $3 billion offer from Facebook.
None of these companies offer goods on the market, but they do offer services. Dropbox is another digital-based company that may prove to be worth your investment.
The start-up company engages in providing online storage space for individuals and businesses, and it has over 400 employees with room for expansion. The market for online storage is growing as well – showing a record growth rate in 2013.
Dropbox will be a valuable service going forward as more individuals are starting small businesses online, and larger companies are using the Internet as a dominant platform.
Dropbox is seeking to raise $250 million in funding in the next few weeks, which would place its value at $8 billion. The company was worth $4 billion in 2011 when made a similar $250 million drive. And this latest round of funding has sparked IPO rumors.
The company is in no rush to go public this year. Dropbox is perfectly content remaining in private status for a few months minimum before making a public entrance – but the assumption is that it will go public or be bought out fairly soon.
Dropbox’s strategy going forward will be to expand its consumer base to enterprise servicing. Currently, the company has 200 million individual customers and provides services to 4 million businesses. And there is room for both camps, according to CEO Drew Houston.
Houston is betting that more companies will begin switching from costly servers to cloud-based storage, which will provide huge growth for Dropbox. After all, the service is already used in 97 percent of Fortune 500 companies, CNN reports.
The company’s value will skyrocket that much more by catering to larger businesses. Initial users receive Dropbox as a free service, but if customers want to expand their storage or add other features, they pay a fee.
Dropbox will also expand its service in early 2014 – allowing users to sort out personal and business documents.
But the start-up company may have a bit of a problem going forward, since more businesses are not using cloud storage over security concerns. If Dropbox can lure more customers to take advantage of paid storage space, then the company will have the necessary footing without ever having to place a physical product on the market.
Dropbox is already talking to investors for funding. Now is the time for companies like this to raise money, since venture capital firms are sitting on a mountain of capital, looking to invest in young startup companies.
Bessemer Venture Partners targets cloud-based companies and projects that cloud-computing will gain a larger share of the IT market in the future. According to the firm, the software services field is a $100 billion industry.
Firms like General Atlantic are lending capital to Dropbox, but it remains to be seen if Dropbox has enough business clout to gain financial support from more investors.
Its chances are good, since the company has displayed consistent growth in such a short time frame and has over $300 million in investment support.
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Is Dropbox Worth Your Time?
Though the company has gained noticeable attention, you should watch the company’s competitors to see how it will fare if it goes public.
Box, a $1 billion company looking to go public next, has 20 million users globally.
But Box is a bit different than Dropbox, since it started out catering to businesses. And its success rate of turning freebie customers into paid users is 6 to 8 percent – more than Dropbox’s rate of 3 to 4 percent.
Because of its larger customer base, Dropbox still retains the advantage. But more will need to be done in bringing customers into the paid section.
And although both companies are each other’s main competition, the bigger fish that will pose the most threat are Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG), whose storage services still dominate the field.
There is also a big risk in another company coming along and upstaging Dropbox by offering more storage space and other business-based services. There’s no telling how the online storage field will evolve in the next few years, and Dropbox may no longer fit into the equation.
What we may see is the rise and fall of various cloud-computing companies, and it is uncertain if Dropbox will come out on top as this market fully matures.
With such strong standing in the market already, the company is certainly in the lead at this juncture. However, when we’re talking about Dropbox, cautious optimism is the best attitude to have at the moment. Keep an eye out for the announcement of an IPO in the next year.
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