Dropbox is pivoting into an IPO. Will that work?

A few recent events for Dropbox that suggest the company is headed for a difficult transition.
In today’s Wall Street Journal, a team of reporters (Rolfe Winkler, Douglas MacMillan, Telis Demos, and Monica Langley) explore the difficult financial terrain that confronts Dropbox. One of the 124 private companies that have been valued at over $1 billion, Dropbox find itself in increasingly hostile territory, as investors are now starting to believe that many of these unicorns are overvalued. One indication is that many companies are said to be lowering their valuations to raise new money: so-called ‘down rounds’. The general situation might be simply a downdraft that Dropbox finds itself in, a cooling climate for clay-footed investors.
But the more specific issue for Dropbox is the viability of a pure-play file sink-and-share company in a world where the Internet giants are competing for the same customers, and making their largest profits elsewhere. How can Dropbox — and Box, it’s closest competitor — contend with offerings from Apple, Microsoft, Google, and Amazon?
Just over a year ago, I reviewed this sector in a Gigaom Research report (see Sector Roadmap: file sync-and-share platforms), and forecast that the giants were likely to drive the price of file sync-and-share toward zero, and the price compression has continued. I conjectured that a market consolidation was likely to occur in the near term of 18-24 months from the time of publishing. Regarding Dropbox and Box, I wrote

The other vendors that have large customer bases — like Box and Dropbox — will be put into a difficult position, since the majors are treating file sync-and-share as one element of larger strategies. The majors can afford to treat file sync-and-share as a loss leader, and make their money from other parts of their stack.

Despite their huge funding history — which is a proxy for the impact of file sync-and-share on computing, not necessarily a proof of future profits — Dropbox and Box remain best-positioned after consolidation, but in the long may become niche players, or attractive acquisition targets.

The fall in Box’s stock price and the difficulties Dropbox may be having in its push toward a $10 billion IPO are strong indicators of that consolidation.

Note that the nature of file sync-and-share makes it relatively trivial to transition from one vendors offerings to another: you simply drag your folders from one to the other, and a few hours later, you’ve transitioned. So even relatively small reasons to switch can lead to defection.

Dropbox has been aggressively trying to reposition itself as more than file sync-and-share, and to rebrand as a more general productivity solution vendor, specifically with the beta release of Paper, a new coediting application. I haven’t used the app yet, but there is a test document accessible here, for Product Hunt users. Here’s a screen shot, showing the identities of coeditors who have added items in a list and an image to the document canvas:

Screen Shot 2015-10-20 at 7.03.04 AM

(More than anything else, it reminds me of Mammoth, but a fuller review will have to wait until I get access or a full demo.)

It’s clear from recent statements that the company is trying a significant pivot to productivity and away from the financial cul-de-sac that file sync-and-share is becoming. Dropbox might just be suffering bad timing — pivoting at exactly the time that the investment market is getting the jitters — but that one-two punch could lead to a dangerous set of cross tides for the firm.

This is the year we find out whether new media can scale or not

Investment funds and traditional media entities have poured hundreds of millions of dollars into new-media entities like Vice, BuzzFeed, Vox and Business Insider over the past six months, but will these risky bets on the future of media pay off?

Cloud texter ZipWhip raises $5M Series B

ZipWhip, a startup that is extending SMS beyond the mobile phone, has raised a $5 million Series B round led by Chicago private equity firm Ronin Capital. ZipWhip has a cloud-based messaging platform that’s able to route text and multimedia messages to and from any landline number, whether it’s linked to a home phone or business. Consumers or businesses can then access those messages from a browser or app.

Report: Uber raised a $1.6 billion convertible debt round

Uber clearly does not subscribe to the ‘mo money ‘mo problems theory. The company has raised another $1.6 billion dollars, this time in a convertible debt round from Goldman Sachs according to Bloomberg sources. It’s a loan that will turn into a stake in the company when Uber goes public, at a 20 to 30 percent discount on Uber’s IPO valuation. It adds to the company’s warchest, bringing its total funding up to more than $4 billion, with the company still working to raise another $600 million in the near future from hedge funds.

Is Facebook considering venture investing?

Facebook considered investing in Chinese mobile conglomerate Xiaomi, according to sources that dished to Reuters. The deal didn’t pan out for a range of reasons, from political concerns to investment conflicts, but could point toward a new focus for Facebook on strategic investments.

Smartphone maker Xiaomi is one of China’s most promising tech companies, and China is a market that Facebook has been eyeing for some time now. An investment in Xiaomi would potentially give Facebook more power in its ongoing campaign to enter China, where the social media site is currently banned. But such an investment could also anger the Chinese government, causing problems for Xiaomi. Ultimately that concern, plus the fact that Facebook competitor Google is a key Xiaomi partner with its Android platform, kept the deal from going through.

Strategic corporate investing isn’t a new tactic for major corporations. Companies from Google to Intel to Samsung have venture investing arms that do this full time. Even the likes of Walgreens and 7-Eleven have them. It’s actually kind of surprising it’s taken Facebook this long to get in the game. It has served as a partner in venture funds administered by other firms before, like Kleiner Perkins’ sFund and the seed fbFund run by Accel and Founders Fund, but hasn’t built its own branch.

The purpose of corporate investing is two-fold. It’s an investment that can return dividends for a company down the line — see: Yahoo and Alibaba, or even Microsoft and Facebook — but it’s also an opportunity to open doors to partnerships, new talent, and technology; see: Google Maps and Uber. It helps corporations stay on the cutting edge of new developments and keep themselves relevant. But in the past Facebook hasn’t developed this tactic, choosing instead to acquire companies for its fresh talent, technology, and vision needs.

Now might be the time to change that strategy. Facebook is bigger than its ever been before and it’s experimenting with an unprecedented level of new ideas, whether virtual reality (see Oculus Rift) or mobile app development (see Parse). By adding a investment arm, the company can more quickly and easily explore new markets, geographies, and industries, while potentially bringing in returns for itself in the future.

And as others have pointed out, a venture investment arm would also help Facebook retain long-time talent, product managers, designers, and executives who are looking to take the next step in their career and wind up leaving Facebook to do so.

Uber gets investment from Baidu to aid China push, report claims

The Chinese web giant Baidu will buy a stake in Uber worth up to $600 million, according to sources quoted by Bloomberg. The ride-booking company, which raised $1.2 billion earlier this month to give it a valuation of $40 billion, is currently pushing into China, where it faces stiff competition from local rivals such as the Tencent-backed Didi Dache. Analyst Li Yujie told Bloomberg that cooperation between the companies could see Uber use Baidu’s mobile payment system in China. Integration seems to be the name of the game there – Didi Dache is conveniently tied in with Tencent’s WeChat messaging service, for example.

Uber raises $1.2 billion and promises to change corporate culture

Uber has raised another $1.2 billion, bringing its total finance up to $2.7 billion. In a blog post announcing the news, CEO Travis Kalanick said the company acknowledges its recent mistakes — most notably its threats against journalists — and seeks to learn from them. “The events of the recent weeks have shown us that we also need to invest in internal growth and change,” Kalanick said. “We are collaborating across the company and seeking counsel from those who have gone through similar challenges to allow us to refine and change where needed.”

With the additional dough, the company is now valued at $40 billion according to an Uber spokesperson, who spoke to Re/Code. That’s almost twice the market cap of Twitter and nearly four times the reported valuation of Airbnb. There’s no companies quite like Uber, with its mix of transportation and logistics. Hertz and FedEx are near cousins, however. Uber’s current valuation is nearly four times Hertz’s market cap and it’s only $10 billion less than FedEx‘s. Bear in mind, Uber has only been around for half a decade.

In the blog, Kalanick explained that the money will be used largely for international expansion, especially in Asia. A slew of taxi services in countries like China, India and Thailand can be hailed via apps, so Uber doesn’t have its incumbent power there. Some of its international nemeses are raising big cash reserves of their own, albeit at not nearly Uber’s drop-dropping amount.

At a time when private companies are raising greater and greater funds in lieu of going public, Uber has become the poster child for doing so. With the new funding, it’s far and away the most highly-valued private tech company in the U.S. In addition to this huge round, the company is reportedly in talks with Goldman Sachs for even more money via a convertible debt round. Kalanick suggested that may still be in the works, saying in the blog post that Uber has “additional capacity remaining for strategic investments.”

With great funding comes great responsibility. Kalanick’s apology shows the fingerprints of former White House staffer David Plouffe. Recognizing problems with internal company culture and promising to change should have been Uber’s response to its latest missteps from the get-go. Instead, Kalanick’s initial tweet storm apologizing for SVP Emil Michael looked more like an internal company memo to rally the troops. Plouffe took the reigns on the company’s communication strategy in late September, and I suspect Uber’s media savvy blog post bears his touch.

Deutsche Telekom launches new venture arm with $620M available to fund startups

Germany’s Deutsche Telekom has launched an enormous venture capital fund, totalling €500 million ($621 million) over five years, that’s aimed at newer startups and more mature companies. The fund will be run by a new company called Deutsche Telekom Capital Partners (DTCP) rather than the telco’s existing T-Venture arm, which will still retain responsibility for follow-up investments in its hundred-or-so existing portfolio startups, but will be otherwise closed to new investments. DTCP will have a “special focus” on German startups, and will launch in early 2015. People love to whine about the lack of startup funding in Europe, but in truth the last couple years have seen billions of euros put on the table to support local scenes.