The ease with which customers can or will migrate from one service to another is greatly exaggerated by this article, and many many other articles like it.
Look at web search--it's no harder to type www.bing.com instead of www.google.com (it's actually 2 letters easier), and for most common searches, the results will be exactly the same. "What time does the Super Bowl start". "Facebook login".[1]
And yet, Bing has not significantly dented Google's web search market share despite $billions of investment in technology, advertising, incentive plans, etc.
If Dropbox accidentally destroyed just one person’s file, he said, it could erode the trust of all its users.
Ha! Dropbox destroys user files against the will of users all the time--it's inherent in the concept of a syncing service, and why we warn each other, "Dropbox is not a backup service."
And if you're thinking of just straight-up data corruption or loss, look at Evernote, which does that on a regular basis yet continues to grow.
There's nothing more to this story than the fundamental threats that face any business in any industry: if you fail to please your customers, you leave the door open for competitors. But, that doesn't mean there is no margin for error. Or even a small margin for error.
Dropbox at one time destroyed a ton of my partner's files. There was even an HN post about this at the time, which caught the attention of the Dropbox staff and they helpd him correct the issues.
(Note: both of us still use and love Dropbox. But to say it's never destroyed anyone's files is flat out wrong).
You don't explain how they resolved this. If this was a restore from their backup and your partner didn't actually lose his files forever, is this really "destroying"? I don't use dropbox (for no other reason than my ADSL upload speed is terrible) so not asking as a defender or fanboy.
As I recall, even before it got to HN, he had emailed them and they did a "full restore" from a backup. I put it in quotes because it didn't fully restore the files - there were a lot missing.
I think they managed to track down most of the missing files afterwards, but it wasn't fully restored, and definitely not easily.
Again, this shouldn't dissuade you from using Dropbox. But it is most decidedly NOT a backup solution, and people don't just say that sentence for fun - it's true.
I've found myself having less loyalty than expected. Yesterday I took the third Lyft ride of my life when there was a 3.0x UberX multiplier around 6:45AM.
I wonder how perception would change if instead of doing multipliers they did percentage off and discounts of a higher price which covered more bases. Then they could even reverse auction (I think that is what it's called, right?)
This is not uncommon in retailing where exorbitant prices are stated and then discounted. And there are cases where some people pay the high prices and are ok with paying them.
My point is, is it better to say (using an airline flight as an example):
Regular price of $945 to fly to SFO.
Today's price is $345 (normally $945) to fly to SFO.
I'm not sure that upping the base price and then discounting it is a winner for Uber. They advertise on their base price -- they want it as low as possible.
The existence of taxis as a very ready basis for comparison makes it different than airlines. Uber can (and, you know, does), say "We're 30% cheaper than taxis!" Then, sure, surprise, sometimes you see that actually they're 3x more expensive than that. But at that point you've got the app open and are seconds from doing the hailing -- that's gotta have a certain level of stickyness.
If Uber said instead, "We're twice as expensive as taxis!" significantly fewer people would even open the app to find out that actually, right now, they're way less expensive.
They'd fall afoul of some laws in the UK (probably EU too). In the UK, you can't have permanent "discount" prices without a certain period of time in between each so-called sale. This was mainly targeted at furniture sales companies who seemed to always be advertising a 50% off sale of some sort. But I imagine it could catch something like Uber if they never actually offered their real price for a significant amount of time (I think it was 3 months or so?)
It's reasonable in some cases, but not with Uber. I think that they are trying to win the margin game, Amazon-style - if nobody can undercut them on base price, then new players cannot challenge them. So, for frequent customers a "discount" may be appropriate, but it makes acquiring new customers much harder ("UberX: Cheaper than a taxi when there's a discount").
Yes, you are correct, for many airlines the remainder of the itinerary will be canceled if you miss a leg (and don't replace it). However, in some cases, it is possible to cancel a leg in advance (paying any change/cancellation penalty), possibly resulting in a lower fare...
One caveat though. Out of 200m Dropbox users only 1-2% of users will be paid users (2-4m). The remaining 98% of users have not found a compelling reason to pony up yet. These users are fickle and have less inertia than paid users. So the threat is real as the article suggests.
I assume you're being sarcastic. Non-paying customers do server at least one purpose for Dropbox, word of mouth advertising and the fact they tell others "I'll just share the file you need on dropbox. Go sign up, it's free". All these non-payers, and the people they refer, may start paying at anytime in the future for whatever reason.
All users of Google search are non-paying, yet competitors have found them remarkably difficult to dislodge.
And in the other direction, Gmail is a big popular email service now, but it took many years, and a dramatic value proposition (1GB for free!) for them to make inroads against Hotmail and Yahoo.
I see no reason to believe that free users would be any less likely to be loyal than paying users.
I have something like 55GB of free space on Dropbox. I would love to pay for Dropbox but I simply don't use even 50% of that free space so I have no real need to upgrade.
Someone mentioned a comment like this before on HN. Basically saying the only threat to businesses like Google Search, Dropbox, Evernote, etc. are if someone comes in and does it 10x better. That's the only fragility I see.
That was the rule of thumb I heard quoted in Business Studies, too. I think the key point was that a customer base tends to have a lot of inertia. To overcome that, you need at least one element of your competing offer to be dramatically better, and for quantifiable things like a price, an order of magnitude is significant enough to achieve that (and by implication a factor of only say 2x or 3x wouldn't necessarily be enough to dislodge an established brand).
Clearly there's a lot more to market dynamics than that in practice. On the one hand, we have supermarkets competing over prices for commodity household products by the penny/cent. On the other hand, at least here in the UK, we have industries like mobile phones, personal banking and household utilities that are all notorious for having poor customer service yet also all have surprisingly low numbers of customers switching brand.
I'm not sure where on that scale a typical consumer Internet service would fall, but in all cases it seems highly unlikely that a service with an inherent element of lock-in (even if you can move your data, it's going to take time and effort to do it) has anything to fear from an occasional screw-up that affects a few customers. It's obviously undesirable, and hopefully none of us thinks it's OK to dismiss anything that damages any paying customer out of hand, but it's not some sort of doomsday scenario that is going to bring down a whole company overnight.
Good thing "better" is so scientifically quantifiable statements like "10x better" are meaningful, actionable statements, and not just feel-good rationalizations. I mean, what if it was 8.8X better? What if, as in the case of MovableType vs Wordress, it was just .8X better with a free price tag?
"That was the rule of thumb I heard quoted in Business Studies, too."
I've never heard of the 10x better statement from any of my academic business studies. The only golden rule seems to be that you can't compete with an incumbent with "As Good". That is you can't create a soft drink as good as "Coke" and expect to do any serious damage. "As Good" is not compelling enough for most consumers to switch.
However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent. In the case of Dropbox, Google drive and other similar services, they are as "As Good" but they really don't offer anything different from one another. Note, I don't know what the paid plans are for all these services, but from the "FREE" users perspective, there really isn't anything separating them. And this is where Dropbox has the advantage since they were the first movers.
However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent.
I think the point of the story was that in many cases, you don't have a particularly good chance of unseating an incumbent with a similar level of product just because you're cheaper. Often you have to be much cheaper, or people who have already bought into the other brand are unlikely to move. There are a variety of reasons for this, from the practical cost (time and effort to migrate may not be trivial, depending on the nature of the service) to the psychological (brand loyalty 101: having chosen a brand, people want to believe they made the right choice, so they have a tendency to defend their decision to others and rationalize away any competing alternatives as inferior choices until the difference is wide enough that they can no longer bring themselves to believe it; see also: it's easier to retain existing customers than to attract new ones).
The thing with "As Good" and "X times better" is they are subjective terms. In the PC vs Mac debate, "As Good" can vary greatly from individual to individual, which means pricing is really a moot point. However, in the case of Dropbox, I really don't think "As Good" is all that subjective. And the reason for this is, its really a behind the scenes product. In this space, the only driving factors that I can think of are "Trust, Accessibility and Price".
Do I trust company X to safely store my files. Microsoft, Google and Apple can compete on this.
Can I access my files from X. Google is probably the only one right now that can compete with Dropbox.
And what does it cost. Since Dropbox's biggest user base is Free, you can't go lower than free. But if you are a paying customer, I can't see brand loyalty having any affect because I can't see such a bond forming. It's a behind the scenes solution and if done well, should be invisible.
If "As Good" can be commonly defined among a large user base and if you are "As Good", you can unseat an incumbent with price. And the price difference doesn't have to be too significant as academic studies have shown.
Coke is able to fend off cheap generic brands because no matter how low they go, they know they can't match them on taste. And that's due to decades of cleaver advertising to introduce that psychological barrier. So no generic brand can ever say they are "As Good" with people believing them.
For the space that Dropbox is competing in, I really don't see any other defining variables, other than "Trust, Access, and Price". And these are all pretty tangible points with the vaguely subjective one being "Trust". And it's the reason why they are in such a precarious situation that they are in.
I agree. It also ignores the high switching cost with Dropbox. These companies just get more critique because of how prominent they are. Companies f* up all the time. You don't lose all your customers after one f* up.
Exactly--any significant competitor to Dropbox faces the same technological challenges and risks that Dropbox faces now.
So let's say that users are as fickle as the article implies. They have a little problem, so they jump from Dropbox to a new competitor. Then they have a little problem with the competitor...so they jump on to the next startup service? And the next? And the next?
People are not dumb; they know that similar products face similar challenges. If data loss is possible with Dropbox, it will be possible with a Dropbox competitor too. Maybe even more likely, if the competitor is an unproven startup.
Comments
The ease with which customers can or will migrate from one service to another is greatly exaggerated by this article, and many many other articles like it.
Look at web search--it's no harder to type www.bing.com instead of www.google.com (it's actually 2 letters easier), and for most common searches, the results will be exactly the same. "What time does the Super Bowl start". "Facebook login".[1]
And yet, Bing has not significantly dented Google's web search market share despite $billions of investment in technology, advertising, incentive plans, etc.
Ha! Dropbox destroys user files against the will of users all the time--it's inherent in the concept of a syncing service, and why we warn each other, "Dropbox is not a backup service."
And if you're thinking of just straight-up data corruption or loss, look at Evernote, which does that on a regular basis yet continues to grow.
There's nothing more to this story than the fundamental threats that face any business in any industry: if you fail to please your customers, you leave the door open for competitors. But, that doesn't mean there is no margin for error. Or even a small margin for error.
[1] http://searchenginewatch.com/article/2051199/Facebook-Login-...
Spot on.
Dropbox at one time destroyed a ton of my partner's files. There was even an HN post about this at the time, which caught the attention of the Dropbox staff and they helpd him correct the issues.
(Note: both of us still use and love Dropbox. But to say it's never destroyed anyone's files is flat out wrong).
" and they helpd him correct the issues"
You don't explain how they resolved this. If this was a restore from their backup and your partner didn't actually lose his files forever, is this really "destroying"? I don't use dropbox (for no other reason than my ADSL upload speed is terrible) so not asking as a defender or fanboy.
As I recall, even before it got to HN, he had emailed them and they did a "full restore" from a backup. I put it in quotes because it didn't fully restore the files - there were a lot missing.
I think they managed to track down most of the missing files afterwards, but it wasn't fully restored, and definitely not easily.
Again, this shouldn't dissuade you from using Dropbox. But it is most decidedly NOT a backup solution, and people don't just say that sentence for fun - it's true.
I've found myself having less loyalty than expected. Yesterday I took the third Lyft ride of my life when there was a 3.0x UberX multiplier around 6:45AM.
"when there was a 3.0x UberX multiplier"
I wonder how perception would change if instead of doing multipliers they did percentage off and discounts of a higher price which covered more bases. Then they could even reverse auction (I think that is what it's called, right?)
This is not uncommon in retailing where exorbitant prices are stated and then discounted. And there are cases where some people pay the high prices and are ok with paying them.
My point is, is it better to say (using an airline flight as an example):
Regular price of $945 to fly to SFO.
Today's price is $345 (normally $945) to fly to SFO.
..and so on.
I'm not sure that upping the base price and then discounting it is a winner for Uber. They advertise on their base price -- they want it as low as possible.
The existence of taxis as a very ready basis for comparison makes it different than airlines. Uber can (and, you know, does), say "We're 30% cheaper than taxis!" Then, sure, surprise, sometimes you see that actually they're 3x more expensive than that. But at that point you've got the app open and are seconds from doing the hailing -- that's gotta have a certain level of stickyness.
If Uber said instead, "We're twice as expensive as taxis!" significantly fewer people would even open the app to find out that actually, right now, they're way less expensive.
They'd fall afoul of some laws in the UK (probably EU too). In the UK, you can't have permanent "discount" prices without a certain period of time in between each so-called sale. This was mainly targeted at furniture sales companies who seemed to always be advertising a 50% off sale of some sort. But I imagine it could catch something like Uber if they never actually offered their real price for a significant amount of time (I think it was 3 months or so?)
It's reasonable in some cases, but not with Uber. I think that they are trying to win the margin game, Amazon-style - if nobody can undercut them on base price, then new players cannot challenge them. So, for frequent customers a "discount" may be appropriate, but it makes acquiring new customers much harder ("UberX: Cheaper than a taxi when there's a discount").
The other
Man, I wish I could fly to SFO for $345. I'm looking to go there soon, and the schedule I get is:
Round trip, SFO-PVG: $700
One way, PVG-SFO: $1300
I'd really like to get in on that PVG-SFO flight for under $700...
Couldn't you get the "Round trip, SFO-PVG: $700" ticket and then use it only one way PVG-SFO?
If you skip any segment of an itinerary, all remaining segments will be cancelled. In airline parlance, "flight coupons must be used in sequence."
Which is why you look for the flights DEPART->ARIVE->DON'T CARE and you just need make the second leg.
Don't do this often if you care about your frequent flier miles though.
Can you? I was told that airline tickets get canceled if you fail to complete a leg of the itinerary.
Yes, you are correct, for many airlines the remainder of the itinerary will be canceled if you miss a leg (and don't replace it). However, in some cases, it is possible to cancel a leg in advance (paying any change/cancellation penalty), possibly resulting in a lower fare...
One caveat though. Out of 200m Dropbox users only 1-2% of users will be paid users (2-4m). The remaining 98% of users have not found a compelling reason to pony up yet. These users are fickle and have less inertia than paid users. So the threat is real as the article suggests.
Yes, it would be absolutely horrible if Dropbox lost their non-paying users.
I assume you're being sarcastic. Non-paying customers do server at least one purpose for Dropbox, word of mouth advertising and the fact they tell others "I'll just share the file you need on dropbox. Go sign up, it's free". All these non-payers, and the people they refer, may start paying at anytime in the future for whatever reason.
Why would you need the other party to sign up? Isn't that the point of public links?
Also, if you need to start paying for whatever reason, these are the guys most of those users will go with.
All users of Google search are non-paying, yet competitors have found them remarkably difficult to dislodge.
And in the other direction, Gmail is a big popular email service now, but it took many years, and a dramatic value proposition (1GB for free!) for them to make inroads against Hotmail and Yahoo.
I see no reason to believe that free users would be any less likely to be loyal than paying users.
I have something like 55GB of free space on Dropbox. I would love to pay for Dropbox but I simply don't use even 50% of that free space so I have no real need to upgrade.
Someone mentioned a comment like this before on HN. Basically saying the only threat to businesses like Google Search, Dropbox, Evernote, etc. are if someone comes in and does it 10x better. That's the only fragility I see.
someone comes in and does it 10x better
That was the rule of thumb I heard quoted in Business Studies, too. I think the key point was that a customer base tends to have a lot of inertia. To overcome that, you need at least one element of your competing offer to be dramatically better, and for quantifiable things like a price, an order of magnitude is significant enough to achieve that (and by implication a factor of only say 2x or 3x wouldn't necessarily be enough to dislodge an established brand).
Clearly there's a lot more to market dynamics than that in practice. On the one hand, we have supermarkets competing over prices for commodity household products by the penny/cent. On the other hand, at least here in the UK, we have industries like mobile phones, personal banking and household utilities that are all notorious for having poor customer service yet also all have surprisingly low numbers of customers switching brand.
I'm not sure where on that scale a typical consumer Internet service would fall, but in all cases it seems highly unlikely that a service with an inherent element of lock-in (even if you can move your data, it's going to take time and effort to do it) has anything to fear from an occasional screw-up that affects a few customers. It's obviously undesirable, and hopefully none of us thinks it's OK to dismiss anything that damages any paying customer out of hand, but it's not some sort of doomsday scenario that is going to bring down a whole company overnight.
Good thing "better" is so scientifically quantifiable statements like "10x better" are meaningful, actionable statements, and not just feel-good rationalizations. I mean, what if it was 8.8X better? What if, as in the case of MovableType vs Wordress, it was just .8X better with a free price tag?
"someone comes in and does it 10x better"
"That was the rule of thumb I heard quoted in Business Studies, too."
I've never heard of the 10x better statement from any of my academic business studies. The only golden rule seems to be that you can't compete with an incumbent with "As Good". That is you can't create a soft drink as good as "Coke" and expect to do any serious damage. "As Good" is not compelling enough for most consumers to switch.
However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent. In the case of Dropbox, Google drive and other similar services, they are as "As Good" but they really don't offer anything different from one another. Note, I don't know what the paid plans are for all these services, but from the "FREE" users perspective, there really isn't anything separating them. And this is where Dropbox has the advantage since they were the first movers.
However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent.
I think the point of the story was that in many cases, you don't have a particularly good chance of unseating an incumbent with a similar level of product just because you're cheaper. Often you have to be much cheaper, or people who have already bought into the other brand are unlikely to move. There are a variety of reasons for this, from the practical cost (time and effort to migrate may not be trivial, depending on the nature of the service) to the psychological (brand loyalty 101: having chosen a brand, people want to believe they made the right choice, so they have a tendency to defend their decision to others and rationalize away any competing alternatives as inferior choices until the difference is wide enough that they can no longer bring themselves to believe it; see also: it's easier to retain existing customers than to attract new ones).
The thing with "As Good" and "X times better" is they are subjective terms. In the PC vs Mac debate, "As Good" can vary greatly from individual to individual, which means pricing is really a moot point. However, in the case of Dropbox, I really don't think "As Good" is all that subjective. And the reason for this is, its really a behind the scenes product. In this space, the only driving factors that I can think of are "Trust, Accessibility and Price".
Do I trust company X to safely store my files. Microsoft, Google and Apple can compete on this.
Can I access my files from X. Google is probably the only one right now that can compete with Dropbox.
And what does it cost. Since Dropbox's biggest user base is Free, you can't go lower than free. But if you are a paying customer, I can't see brand loyalty having any affect because I can't see such a bond forming. It's a behind the scenes solution and if done well, should be invisible.
If "As Good" can be commonly defined among a large user base and if you are "As Good", you can unseat an incumbent with price. And the price difference doesn't have to be too significant as academic studies have shown.
Coke is able to fend off cheap generic brands because no matter how low they go, they know they can't match them on taste. And that's due to decades of cleaver advertising to introduce that psychological barrier. So no generic brand can ever say they are "As Good" with people believing them.
For the space that Dropbox is competing in, I really don't see any other defining variables, other than "Trust, Access, and Price". And these are all pretty tangible points with the vaguely subjective one being "Trust". And it's the reason why they are in such a precarious situation that they are in.
I agree. It also ignores the high switching cost with Dropbox. These companies just get more critique because of how prominent they are. Companies f* up all the time. You don't lose all your customers after one f* up.
Exactly--any significant competitor to Dropbox faces the same technological challenges and risks that Dropbox faces now.
So let's say that users are as fickle as the article implies. They have a little problem, so they jump from Dropbox to a new competitor. Then they have a little problem with the competitor...so they jump on to the next startup service? And the next? And the next?
People are not dumb; they know that similar products face similar challenges. If data loss is possible with Dropbox, it will be possible with a Dropbox competitor too. Maybe even more likely, if the competitor is an unproven startup.