The first companies that come to mind as one thinks about users as the gateway into an organization are Dropbox and Slack. While their individual mechanics are different, they’re very good at getting users to join orgs that then pay. In addition to building a 10x better product, they have the strong brand & community that it takes to be installed on day one of a new org; something which is incredibly difficult to nail down and continues to be a holy grail of the fabled land & expand distribution strategy.
On the topic of distribution channels for new products, Peter Thiel refers to a "sales deadzone" that sits in between needing sales people for complex transactions & advertising for simple ones (no sales people). Eventually, as companies get big they develop multiple channels but it's critical that there's a product-channel pathway that works in the early-days for it to succeed and this bottoms up distribution approach works very well in this deadzone as it offers distribution that can scale from the early days for products that sit in between the two ends of the spectrum. (as most productivity related tools do)
In light of the S-1 being shared for Dropbox's IPO, here’s a few tidbits related to this approach.
At Dropbox’s Launch:
The bottoms up approach continues to be a core focus for the business even after 10 years.
What Sets Us Apart
Viral, bottom-up adoption
Industry Trends in Our Favor
Individual users are changing the way software is adopted and purchased
Our Growth Strategy
— Early virality with a free user base continues to be a part of the plan to pay dividends --
Increase adoption and paid conversion
Risks Related to Our Business and Our Industry
Our lack of a significant outbound sales force may limit the potential growth of our business.
Growth & Conversion Metrics
User Growth: We can see that the user base continues to grow at a rapid pace; 25% in 2017. The number of paying users has grown at the same rate as well which means that the conversion rates have likely stayed the same for new customers on an annual basis, assuming that customers who haven't paid in their first year drop to a near zero chance of conversion. However, the S-1 filing gives little insight into what the consumer conversion curves look like so I'll look to track these in future filings.
Conversion Channels: 90% of DBX's current conversion comes from self-serve. This is remarkable and flies the other way of BOX.
Conversion: Currently about 2% of DBX's users are paying customers. The parallel to this is BOX where 17th of their 57mm customers are paying customers. It's hard to parse out the cost of supporting the free users because DBX doesn't include this in their CAC (26% of Rev) while BOX does (63% of Rev) but given that their gross margins have nearly 2x'd one can assume that the cost of free users in ratio to their conversion rate works out well for the company.
Overall, this looks incredibly impressive for a company very rooted in the idea of bottoms up and is doing relatively well compared to BOX. In the long run, their bottoms up approach will be compared to Atlassian/Slack as opposed to their storage competitor.
What got you here won't get you there.
As has been pointed out in multiple discussions in-person and twitter: DBX’s S&M costs will trend towards BOX’s as they dive deeper into getting bigger corporate contracts via outbound sales.
However, there’s a dark horse with creative tools like Paper & Showcase which have strong network effects that could continue to drive low CAC biz user growth (vs. personal user growth that was the first wave). Also, there’s still a big pool of free users (personal) who don’t have a paid sub via a company converting but these customers will be harder as time goes on & DBX will sell like how Box sells.
This will be fun to see and whether it’ll be able to average out the increasing costs alluded to above. Personally, I continue to be incredibly excited about bottoms up adoption and how it plays out in the long-run and how it stacks up against two other wonderful bottoms up SaaS businesses TEAM & Spotify.
P.S This is a good read on SaaS