@jayjayjayjay I think @Valueinvestor0909 was referring to the extra three zeroes on the number of 25c hurdle options i.e. it's written as 2.85B but presumably should be 2.85M

Good post on the quarterly results @Chagsy. Not many surprises here, the company keeps chugging away.

The biggest positive was gross margins expanding from 66% to 70% in the quarter. It was only at 62% at this time last year.

I wanted to add a bit of colour on how the company is achieving this through "various cloud cost initiatives". A big portion of the company's cost of goods sold (COGS) is cloud storage. In Dropsuite's case, it's the AWS S3 service. When I spoke with management over a year ago, I came away with the feeling that they were not doing a whole lot of cost optimisation. And to be fair, when you're growing rapidly and have achieved traction only a couple of years prior - it's something you throw on the backlog and come back to when there's some spare engineering capacity.

Here's the current public price list for AWS S3 storage in the Sydney availability zone (prices are in $AUD).

The standard storage tier is 2.3c/GB/month. Dropsuite's use case (where only 1.0-1.2% of companies access backups in any given months), it's a no brainer to flick on the Infrequent Access tier at 1.38c/GB/month and save 40% right off the bat. The company could potentially also move email/file backups over 12 months old to the Glacier Deep Archive tier, where customers won't mind the slightly longer "up to 12 hours" restore time, at 0.2c/GB/month and save an additional 85%.

Just putting some examples out there of the types of cost optimisation that can be done - I'm not privvy to what they have or are planning to implement. Also the cost savings could be offset by new feature additions to improve the customer value proposition, like better search and analytics features.

So here’s a public example on why a company may want to use Dropsuite’s products. https://techcrunch.com/2022/12/06/rackspace-blames-ransomware-attack-for-ongoing-exchange-outage

The context is a bit different - Rackspace is managing a hosted Microsoft Exchange email service for its clients, and Dropsuite is predominantly Microsoft Office365 email backup - but it highlights what could go wrong. Rackspace customers are likely to be without email for a few days as the service is migrated and access to old emails for I assume week or two (assuming backups didn’t get ransomed as well).

No doubt the DSE marketing department will highlight this story to current and future customers.

@Strawman, Claude and Matt spoke about Dropsuite in the latest episode of Baby Giants. Link with timestamp: https://overcast.fm/+1A6jH4v8g/44:24

Great discussion and some very good points raised. One point was the balance of power MSPs (managed service providers) hold in the relationship and the risk that they’ll switch to a cheaper service in order to make a higher margin.

MSPs generally sell services in the form of an a la carte menu. The analogy would be when you sell a house, the agent charges 1.8% but the marketing budget is a menu of items. Some items are highly recommended if not compulsory (REA ad, billboard, professional photos) while others are optional (professional copywriting, coffee cart at the auction, local paper ad). Lets say an MSP charges US$3.00/month/user for email backup and pays DSE US$2.10 for the service. By far the easiest way to take a bigger cut is to jack up the price - to say US$3.30/month/user. Dropsuite places no restrictions on MSPs on how they charge for the backup services.

The switching risk would only apply if customers are very sensitive to the $3 price point and the MSP wanted to keep the price while earning a larger margin by switching to something cheaper.

Migrating backups or straddling two backup services (putting new users onto a cheaper service) are huge pains especially in a tight labour market where an IT engineer’s time is highly valued. And while price increases is a very easy and pain-free alternative.