Industry Case Study: This analysis showcases Dropbox's strategic shift from AWS to custom infrastructure. It demonstrates the scale-out economics of bare metal.
The Challenge
By 2015, Dropbox was spending over $200 million annually on AWS S3 storage alone. With over 500 million users and exabytes of data, the economics of cloud storage were becoming unsustainable.
Every new user added to their AWS bill, creating a unit economics problem that threatened long-term profitability. Gross margins were stuck at 33%, significantly lower than typical SaaS companies.
Project Magic Pocket
Dropbox embarked on one of the most ambitious infrastructure projects in tech history: building their own storage system from scratch. They called it Magic Pocket.
The Technical Strategy
- Custom Hardware: Designed storage servers with SMR drives for maximum density.
- Software Stack: Rust-based storage engine optimized for their specific append-only workload.
- Network: Built a dedicated backbone to bypass public internet congestion and costs.
"When you're operating at our scale, the markup on cloud services becomes a real drag on the business. Building our own infrastructure was scary, but it transformed our economics."
— Aditya Agarwal, Former CTO
The Results
The impact was immediate and massive. They achieved $75M in annual savings. More importantly, their gross margins jumped from 33% to 67%, fundamentally changing the valuation of the company.
They also saw performance gains, with faster upload speeds and 4x improvement in data durability thanks to their custom erasure coding.
Migration Timeline
New uploads written to both S3 and Magic Pocket to validate reliability at scale.
Transferring 500PB of historical data using a custom-built data mover.
Gradual traffic shifting and retirement of AWS S3 buckets.
Sources
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