Dropbox Working With Partners for Global Growth

May 30, 2011, 8:40 PM EDT By Ari Levy

May 31 (Bloomberg) -- Dropbox Inc., the Web storage provider with 25 million users, signed deals with mobile carrier Softbank Corp. and handset maker Sony Ericsson Mobile Communications AB to attract more customers in Asia and Europe.

The agreement means Dropbox’s file-sharing application will be preloaded on two phones running on Softbank’s network in Japan in early June, said Lars Fjeldsoe-Nielsen, head of mobile business development at Dropbox, in an interview. Sony Ericsson is building the app into devices that will be sold in 10 countries in Europe and Asia.

The partnerships are the first for San Francisco-based Dropbox, a startup whose app has surged in popularity as consumers turn to smartphones to take pictures, create videos and listen to music. The app lets users store and access their content from any computer, phone or tablet with a Web connection.

“Whenever you do anything that can be stored, consumed or shared, we want to become part of that,” said Fjeldsoe-Nielsen, who joined the company in January. “We’re working with the guys who are moving the fastest.”

Terms of the partnerships aren’t being disclosed. Softbank and Sony Ericsson will be promoting the app in stores and commercials, while also training sales staff so they can demonstrate it to customers.

Dropbox’s app is currently available as a free download on Apple Inc.’s iPhone and iPad, devices running Google Inc.’s Android operating system and on Research In Motion Ltd.’s BlackBerry smartphones. The company expects to sign marketing and distribution deals later this year with U.S. carriers and manufacturers.

Freemium Pricing

Founded in 2007 by Drew Houston and Arash Ferdowsi, Dropbox uses a tiered-pricing model, called freemium, giving away the basic app and charging users who want more space. The free version comes with 2 gigabytes of storage, enough for thousands of documents or hundreds of photos. Beyond that, Dropbox sells as much as 50 gigabytes and 100 gigabytes for $9.99 a month and $19.99 a month, respectively.

Dropbox said last month that more than 25 million people are using the service, a sixfold increase from January 2010. It competes with Box.net, an Internet-storage company that raised $48 million in February from investors including Andreessen Horowitz. Box.net, based in Palo Alto, California, has almost 6 million users.

With the Softbank partnership, Dropbox will come automatically loaded on two Android phones in Japan, one with a 3-D screen manufactured by Sharp Corp. Tokyo-based Softbank, Japan’s third-largest wireless carrier, will be promoting the devices in about 7,000 stores in Japan.

Softbank Price Break

In addition to the two free gigabytes that come with the app, Softbank is adding 50 percent more at no charge, the Tokyo- based company said in an e-mail.

Sony Ericsson, the London-based mobile-phone venture of Sony Corp. and Ericsson AB, is selling Android phones with the Dropbox app pre-installed in countries including the U.K., Denmark, Australia and Indonesia, starting today.

Chief Executive Officer Bert Nordberg said in March that the company is aiming to expand its global share of Android handsets to at least 25 percent from 14 percent at the beginning of this year.

Sony Ericsson has similar partnerships, where it promotes apps from Facebook Inc., Twitter Inc. and Foursquare Labs Inc., said Calum MacDougall, Sony Ericsson’s London-based head of Web service partnership.

‘Entertaining Smartphones’

“Dropbox is something that is an exciting and rapidly growing service,” MacDougall said in an interview. “To have the most entertaining smartphones, we need to find partner brands that consumers are using.”

Dropbox was initially funded by Y Combinator, the Mountain View, California-based startup incubator, and then raised $7.2 million from Sequoia Capital and Accel Partners. It now has about 55 employees.

Bryan Schreier, a partner at Sequoia and Dropbox board member, said he’s an avid user of the product in addition to being an investor. For his kids’ birthday parties, he sets up folders that enable everyone involved to take photos and shoot video from their phones and upload the files immediately.

“In real time we’re building a shared photo album that people can access on the Web anywhere,” Schreier said in an interview from his office in Menlo Park, California. “It’s an awesome experience.”

--Editors: Donna Alvarado, Stephen West

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net;

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Silver Lake Partners' $2.9 Billion Skype Payday

By Ashlee Vance

Don't be surprised to hear the sound of clinking cocktail glasses at the Silicon Valley offices of Silver Lake Partners. The private equity firm has emerged as the clear victor following Microsoft's (MSFT) $8.5 billion purchase of Skype on May 9.

About 18 months ago, Silver Lake led a group of investors who acquired a 70 percent stake in Skype for $1.9 billion from EBay (EBAY). At the time, it looked like the investors might be stuck with an underachieving Internet brand. Skype rose to prominence in the mid-2000s as one of the first VOIP providers, which route phone calls over the Internet, and was bought by EBay in 2005 for $2.6 billion. Its name had become synonymous with Web-calling, but the company was slow to push out new products, failed to make much money off its immense popularity, and got bogged down in an intellectual property fight between EBay and its founders. Despite these flaws, Egon Durban, a Silver Lake managing director, saw enough promise in Skype to plunk down $940 million, the firm's largest equity investment in its 12-year history.

Durban and a team of about 20 Silver Lake executives set to work performing reconstructive surgery on Skype. At one point, the firm had five people on Skype's board, including Durban, Co-Chief Executive Officer Jim Davidson, and Managing Director Charles Giancarlo. Silver Lake overhauled Skype's management, settled the intellectual property issues, and sped up product development, with updates appearing in weeks rather than months. In August 2010 the company filed papers to raise $100 million in a public offering. "Skype may have the same name today, but Microsoft is not buying the same company that we bought," Durban says.

Slim, tall, and just 37, Durban gives off a master-of-the-universe vibe when he talks about the Skype deal or, in fact, any business matter. He arrived at Silver Lake after working in Morgan Stanley's (MS) investment banking division. He is a rare hybrid in the Valley, part Wall Street whiz and part geek. "He's a brilliant buyout investor and a brilliant technology investor in the same body," says Marc Andreessen, co-founder of venture capital firm Andreessen Horowitz, which also invested in Skype. "You almost never see that." Such accolades probably flow a lot easier for Andreessen now that Silver Lake has turned its $940 million gamble on Skype into a $2.9 billion windfall for the firm.

Despite Skype's heady usage stats—170 million subscribers, 600,000 new registrations a day, and 207 billion minutes of chat time last year—challenges still loom. Last year, Skype lost $7 million on revenue of $860 million and pushed back its planned public offering. Many skeptics still question whether Skype can turn its users, most of whom don't pay for the service, into customers. Sounding like a luxury car salesman complimenting a buyer about his taste, Durban insists that Microsoft picked a winner. Plans have been put in place to flank Skype video chats with advertisements and to sell the service to businesses. "Microsoft probably got it at an inflection point before we showed the next big wave of growth," he says.

The bottom line: Microsoft's $8.5 billion purchase of Skype is a windfall for private equity firm Silver Lake. The Internet calling company is still unprofitable.

Vance is a technology writer for Bloomberg Businessweek.

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