Why Dropbox and Box are expanding beyond straight-up Cloud storage

For companies in the cloud storage business, standing out from the pack isn't getting any easier, as many competing services are racing to the bottom with both free and paid offerings.

That explains why some providers, such as Dropbox and Box, are diversifying. On Wednesday, for instance, Dropbox announced new apps and services such as Carousel (pictured above) and Mailbox for Android. The hope is that users will consider more than just the price tag when picking a cloud storage service.

If freebies and low prices are all that matter, users have plenty of better options than Dropbox. Google Drive, Box, Barracuda Copy and MediaFire all offer at least 10 GB of free storage. And for users who upgrade to paid storage, the costs are shrinking. Google recently slashed its prices to undercut nearly every other competitor, prompting similar price cuts from MediaFire and iDrive.

The price cuts and expanded free storage leave companies like Dropbox with two options: further reduce prices, or find another way to generate paying customers. Dropbox has chosen the latter. With Mailbox and Carousel, the idea is to create apps that become part of users' day-to-day lives--and apps that are so valuable that customers will gladly pay for extra storage if they need it.

This isn't an entirely new strategy for Dropbox. Last year, Dropbox added new developer tools that made it easier for apps to store files in the cloud. At the time, Dropbox proclaimed that it was trying to kill the hard drive, expecting that users would just store everything online instead.

Dropbox's own apps are a slight pivot on that strategy. Beyond just adding cloud storage as an option to existing apps, Dropbox is creating its own apps where cloud storage is the defining element. Carousel is the perfect example. The app is designed for sharing photos and videos privately with friends and family, away from the prying eyes of social networks. Where are those files stored? On Dropbox, of course.

Box's strategy is different, as the end goal is no longer about just selling more storage. A new tool called Box View converts documents and PDFs into HTML5 versions that can be embedded on the Web. Instead of charging for data, Box is basing its prices on the number of Box View uploads per month. Another pricing model for enterprises allows them to hook into Box's developer tools and pay for the privilege. Box CEO Aaron Levie knew years ago that the race to the bottom was coming, and decided to play a different game entirely.

For Dropbox, creating killer cloud-based applications will be challenge. The company is going up against the likes of Microsoft and Google, who can tightly integrate cloud storage through their own operating systems and productivity suites. But with e-mail, photo sharing, and the Office collaboration features baked into the intriguing "Project Harmony," Dropbox has at least identified a couple areas where it can compete, and start to fight its way out of the pricing spiral.