Cloud storage specialist Dropbox made headlines a few weeks ago with its S-1 filing. In this segment from Industry Focus: Tech, host Dylan Lewis and Motley Fool contributor Evan Niu explain exactly what Dropbox does, how it makes money from quarter to quarter, what segments of the market the company focuses on, how its freemium model works for and against its business, and more.

A full transcript follows the video.

This video was recorded on March 2, 2018.

Dylan Lewis: For those that might be unfamiliar with the business, Evan, do you want to do a little rundown on what Dropbox does?

Evan Niu: Sure. Dropbox was one of the first companies that really specialized in cloud storage. I was actually a very early user of Dropbox a long time ago. Back when they first started, I was one of their early users, and they used to have all these referral programs where if you refer people to sign up they would increase your storage quota. I think that helped them grow, that referral, word of mouth-type marketing, which they still use to this day.

It's basically just cloud storage. They have a lot of free plans for small storage, and then you can also pay for higher storage. It allows you to sync files across devices, have mobile access, you can also collaborate in enterprise, all sorts of stuff.

Lewis: The way they make their money is through the subscription business. You mentioned those free tiers. If you were to sign up right now, you'd get a free Dropbox account and 2 gigs of storage, and also maybe some email support or something like that. You go one tier up, you get 1 terabyte of storage for about $10 a month or $100 a year. They have another tier of individual accounts beyond that. For a long time, they've been a company that's been kind of focused on the individual side of the business. They've been shifting that over the last couple of years to having more of a business focus and looking at the enterprise market a little bit more.

Niu: Right. They've historically been very focused on the consumer market, which is kind of a weird thing for a company like this, because there's always more money in the enterprise. In contrast, we'll talk about this more in depth later, Box is another pure play cloud storage company that's always focused heavily on enterprise. There's some interesting distinctions. We'll cover that a little bit later.

Lewis: And then, over on that enterprise side, the plans, just to give people an idea of what they're pulling in, they range from $15-$25 per month per user, or businesses can pay $150-$240 per year per user. So, it's one of those very scalable, pay-per-head-type businesses that we've seen be very successful in the business world. I think something that's kind of interesting with Dropbox is, this is a freemium model, and they are a company that had pioneered the idea of freemium and really popularized it in a lot of ways, where you get people in the door with a very basic version of your product and hope that you can slowly upsell them to premium content tiers.

Niu: Right. I remember back in the early days, with these referral upgrades, I had gotten my account up to 10 or 15 gigs for free based on referrals. They had run these promotions. So, definitely, they're able to grow a lot of users, but also at that free tier. They're pretty generous to their users, even on the free side.

Dylan Lewis has no position in any of the stocks mentioned. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.