A demo video filled the waitlist overnight. Search ads cost up to $388 a customer for a $99 product. The lesson was to stop buying and start building the loop.
Dropbox's early growth is usually told as a referral story. Drew Houston's own slides tell it in a better order: first a product people wanted badly enough to wait for, then a paid channel that failed, and only then the loop. The order matters, because most brands try to build the loop before anyone wants the product.
Houston gave the talk, "Dropbox: Startup Lessons Learned," at the Startup Lessons Learned conference in April 2010. The slides are public, and they're still the best primary source on how Dropbox grew.
In March 2008, before launch, Dropbox posted a short demo video of the product working. It was voted up on Digg about 12,000 times, and the beta waitlist went from 5,000 people to 75,000 overnight.
A demo shows the product doing its job instead of describing it, and for a product like Dropbox that moment sells itself. Sean Ellis and Morgan Brown's Hacking Growth calls that the aha moment, and argues you should find it before you spend a dollar on growth. Dropbox found it, filmed it and let the audience share it.
A waitlist is also Robert Cialdini's commitment principle at work. Seventy-five thousand people had asked for something, in public, and were waiting for it.
Dropbox launched publicly in September 2008 with 100,000 registered users and reached a million about seven months later. In early 2009 it tried search ads. By Houston's slides, it paid $233 to $388 to acquire a customer for a $99 product.
Two to four times the price of a year's subscription, before a single renewal.
The problem wasn't the ads. Nobody was searching for a product category that didn't exist yet. People didn't know to look for file syncing; they had to see it, usually on a friend's computer.
You can't buy search demand for a thing nobody knows to search for.
If your product solves a problem people already search for, paid search works and the loop is a discount on it. If your product is new, different or easier to show than to describe, the loop isn't a nice-to-have. It's the channel. Most interesting consumer products are in the second group for longer than their founders expect.
Compare what a customer from paid search costs with their first-year contribution. If search pays back inside a year, your product has demand to capture, and the loop can be built as a discount on it rather than a replacement.
This is one chapter of Close the Loop, which is free and readable in full on a single page with no form in front of it.