Moving Upmarket

Sep 17, 2023

Product-led growth and bottoms-up distribution can be a very powerful business model. Dropbox was a poster child of both. Besides being a product that “just worked” (table stakes), it grew from word-of-mouth and viral marketing campaigns. Its referral program with two-sided incentives was inspired by PayPal’s $5 signup bonus. It ran campaigns like “The Great Space Race,” where college students got more storage if more people from their school signed up. They sustained 15-20% month-over-month growth for years after launch.

But the consumers weren’t enough for a file storage company. Consumers have multiple free options, they are hard to market to, they don’t believe their data is that valuable (how many backups do you keep?), and it’s hard to build a platform on storage alone. The actual customers had to be businesses and other enterprise users.

While bottoms-up can be a great way to find potential leads or customers, enterprise sales require different skills and functions. Dropbox eventually built out these organizations, but enterprise-focused competitors had already caught up. From the start, Box was focused on enterprises. They concentrated on paid accounts rather than freemium and didn’t have a legacy freemium base. They built a sales team over many years.

Consumer and enterprise converge in many ways — “the consumerization of the enterprise,” but the business models will always be different.

After intense growth in the last few years, more products in this consumer/enterprise space will move upmarket. They’ll focus less (or much less) on the consumer freemium products and more on the enterprise features that keep their biggest customers sticky. Of course, this starts the new cycle for the new generation of low-end disruptors — those who serve the consumers at the bottom of the value chain. Until those companies move upmarket one day.