Wednesday, September 21, 2011

Bought vs. Sold (Why Jive is a dinosaur & Dropbox is the future)


Both Dropbox and Jive are successful companies that are much in the news recently. Jive just filed its S1 for its IPO, while Dropbox raised its first major round of funding at a $4 billion valuation.

What's most interesting to me is that they represent polar opposites in terms of business models. They illustrate the difference between bought versus sold.

Jive is a classical enterprise software company. It has a massive direct sales force that calls on CIOs at major companies, looking to make 6-figure sales. The vast majority of sales come from deals of $50k or more. In fact, the S1 specifically cites this category of customer as the one that matters to the business.

In this model, software is sold to a high-level decision-maker, who evaluates a number of different vendors, then makes a choice for his company. There may even be an RFP and a product bakeoff. For decades, this is how you built a major technology company (Oracle, SAP, etc.).

Dropbox represents a new trend, the consumerization of IT. Dropbox sells its freemium service to a massive number of customers, most of whom pay less than $100 per year, or less than one of the hundred expense account lunches that the average Jive sales rep logs in that same time.

Dropbox doesn't have salespeople. Rather, its product (and its marketing) drive millions to try out the service. Enough of those users choose to buy the product to support a thriving business.

Just yesterday, a friend told me that he was paying for Dropbox, and only in part because he needed more storage. "I get so much out of using Dropbox, I just felt like I should be supporting the company." That's a product that's bought, rather than sold.

The same comparison applies to established companies. Just contrast Microsoft and Apple, for example.

Historically, power flowed from the top down. "Owning the channel" gave you the power to sell your product as the safe solution. Remember the saying, "Nobody ever got fired for buying IBM?"

That world is breaking down. First consumers, then workers realized that they could choose what to use. IT departments worry about adoption when considering purchases--that would have been unthinkable a decade ago.

Ultimately, I see Jive as the last of a dying breed. I've seen the future, and it will be bought, not sold.

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10 comments:

Josh of Cubicle Ninjas said...

I enjoyed this article.

But that said, I've written and erased a response a few times. The summary of each being: large companies require a sure thing and they are willing to pay extra to get it done quickly and within expectations.

Consumers have tons of time to spend, the desire to weigh options (aka the bike-shed problem), and ultimately waste. But a large business needs these people to be productive. So it will do a thorough investigative section and push a mandated solution to remove this indecision.

If your business could make 50k per week or 5k per week which would you choose? Software is gunning for the urgent buyers with larger wallets. I don't seeing the Fortune 500 reliance on large-scale, large-cost SAS relenting any time soon.

Chris said...

Josh,

You're right that large companies prefer vendors that are accountable. I've won business away from 37Signals simple because they can actually reach PBworks customer support. But consumerization of IT is a real trend, and I don't see a lot of new traditional enterprise software companies being born.

acgourley said...

I'm with you, though I wish I had a better understanding of all the factors at play. Here's my two reasons why DropBox wins:

Josh has a good point about bikeshedding. There is probably always going to be a class of software setup from the top down just to enforce standardization keep things moving.

But! I think more and more you're going to see the top of companies pick technologies like DropBox because its generally a better product. It's a better product because by selling licenses one at a time it has the needs of the day-to-day user at heart, not the needs of the purchasing manager. Consumer products have the right incentives to be usable and well designed.

Another thing DropBox has going for it is that it can seep in through the cracks like a weed. A few employees can start using it to solve a quick problem they have. Pretty soon you have a group of people dependent on it and you also have advocates inside the company.

Anonymous said...

But you didn't get quantitative at all regarding how much money could they make now, and could eventually make, even burning hard all their recently raised pile of cash (Groupon anyone?) to acquire users, and what are their margins.

We can grant them the assumption of strong network effect. But will enterprise treat this as a secure and reliable data storage service that the CFO will write a check for?

Chris said...

Jive's numbers are public now that they filed their S-1. Dropbox's numbers are not, but you can boil it down to this:

Both are on a roughly $100 million/year run rate.

Jive has been around since the early 2000s, and has 358 employees.

Dropbox was founded in 2007, and has less than 50.

In other words, Dropbox is growing faster on a much smaller expense base.

Ken DeCesare said...

Yes, however, is that growth rate authentic (derived from attractive gross margins & sustainable sales), or inauthentic (derived from outside cash injections -e.g. Groupon)?

I'm with you that in premise, small &easy to scale fits growing consumerization IT trend much better. I see Dropbox as the future Netflix of cloud, come further acceptance of cloud in general.

I am not with you on your forecasting of 'the end' of companies like Jive. Completely different animals, as pointed out by earlier poster.

Amelia @ IT Management said...

I think Jive will be around for a few more years but Dropbox will be around significantly longer.

Dropbox's business model seems to be based on longevity and keeping the business as a going concern. Jive is just too traditional and it's not good in today's volatile economy.

I use dropbox and I don't mind paying for it.

Logan York said...

Great observation and succinctly explained, Chris.

As you know, of course, this conzumerization of IT was the late, great Steve Jobs' dream for the Apple II and the Macintosh in the workplace...but it never came true for Apple with their personal computers.

But it seems like it sure has with the iPhone and now the iPad.

What made the difference there for a company like Apple? Did the model change underneath them or did they finally change the model themselves?

Or, in other words: What caused consumers to realize they could choose what personal technology to use at home AND at work?

Josh Davis said...

Comparing Jive and Yammer would have been more interesting.

I don't disagree that Jive can't scale like Dropbox, but the product is excellent. The vast majority of the Fortune 5000 has yet to embrace internal social media leaving a large customer base untapped.

Jive is a bit of sleeper and the kind of company that I would actually considering investing in. Those of us without access to the secondary market have to take what we can get. Depending on evaluation, Jive likely will be the best social media play among all publicly traded stocks.

panoramatistis said...

I am sorry, but this article is comparing apples to oranges !!!
Jive's product has nothing to do with that of Dropbox... And so do (or do not) their marketing strategies .... Dropbox is addressing the single user needs (they only recently introduced a service for groups) and they have a great product. Jive on the other hand is addressing Enterprise needs and provides full collaboration tools and technology to their customers. It only makes sense to have different marketing approaches for these two different products. Since Dropbox mainly serves the single user it makes a great deal of sense to offer freemium products. Jive on the other hand, has to supply a much more complex product that a freemium version of it will not even be functional. Look at box.net their product is closer to Jive -if not direct competitor - and their freemium cannot supply an equal value of the benefits Dropbox offers, because it requires multi-user interaction.
I think it is the same as comparing car sales to airplanes or cruise ships sales .... Sure, I can always walk down by my neighborhood car dealer and test drive the new models, but can I go to the neighboring shipyard and test drive the new QEIII (or it IV)...