The decision of whether or not the utilize a public cloud service such as AWS, Google Cloud, or Microsoft Azure is an important one for any business that handles significant amounts of data. This is no different for Dropbox, which outlined its reasons for moving away from using third-party cloud services such as AWS to host its customer’s data in its recent public offering document.
The document, which was part of Dropbox’s IPO filing, spoke to what it felt are limitations of cloud computing for its particular business.
Dropbox’s Move Away from the Public Cloud
When Dropbox started, it relied heavily on AWS to host and serve its customer’s data. This allowed it to delay having to purchase its own infrastructure and pay the high costs involved with managing a high-demand cloud service on its own. Instead, this infrastructure and the management thereof was handled by Amazon.
According to the filing, this wasn’t without its limitations. The filing states:
While we typically control and have access to the servers we operate in co-location facilities and the components of our custom-built infrastructure that are located in those co-location facilities, we control neither the operation of these facilities nor our third-party service providers. Furthermore, we have no physical access or control over the services provided by Amazon Web Services.
The document went on to explain that leases and agreements expire without the guarantee of renewal. These companies could close down, experience technical problems, or otherwise negatively impact Dropbox’s customers without Dropbox having the ability to directly work to resolve the issue.
As a result of these concerns, Dropbox made the conscious effort to build out its own infrastructure. This includes data centers and IT personnel, all planned and executed in a way that is optimized to meet Dropbox’s individual needs.
Initial Costs and Long-term Gains
For Dropbox, the investment in building out its own network has had a positive long-term effect on its bottom line. Dropbox’s gross margin increased from 33% in 2015 to 67% in 2017 once these new facilities were established. Dropbox credited its infrastructure optimization efforts for the improvement, along with yearly increases in revenue.
Dropbox estimates a $74.6 million reduction in operating costs over the next two years resulting from this change.
Dropbox spent a lot of money on its upgrade. A $53 million increase in depreciation, facilities, and support expenses between 2015 and 2016 were attributed to Dropbox’s work to build out and establish its own infrastructure.
Not Done with AWS Yet
Dropbox isn’t totally done with AWS, or any other third-party provider it’s doing business with. It still utilizes AWS for compute, and while the vast majority of its customer data is stored on its own servers, it still relies on AWS for other business needs.
Dropbox’s solution may not be a great blueprint for other companies. In fact, Dropbox’s unique business model is built on the efficiency of storing the 1s and 0s its customers send them. This makes it a very different type of company than, say, an e-commerce site or even a web hosting company.
In a Twitter exchange with TechRepublic’s Matt Asay, RetailMeNot software engineer Kyle Smith said, “Dropbox runs their own infrastructure using proprietary, vertically aligned tech engineered to guarantee data consistency upwards of ten 9s. They do this in a fierce commodity market where tenths of a penny matter and they still excel.”
By moving its storage to its own servers, Dropbox is able to increase profits through an economy of scale. It stores an immense amount of data from 11 million users, and it’s because of this that Dropbox can develop a process by which that data can be stored more efficiently and cheaply than by paying rent on someone else’s server.
Whether or not Dropbox’s decision to move away from the cloud and apparent success draw more companies to do the same remains to be seen. For now, Dropbox is hoping its initiative pays off when its IPO goes public this March.
