Box: Before and after Moore’s Chasm
Crossing Moore’s chasm is no easy feat for any technology, particularly those disrupting giants like Microsoft SharePoint and IBM Lotus while racing against countless nemeses including Dropbox and Hightail. Box.com had started crossing that chasm seven years ago when it began targeting not only consumers and small middle-market businesses (SMB), but enterprise clients with bigger wallets. Today, it has a foothold in critical divisions of 92% of the Fortune 500 and several of the Global 100 league, including Proctor & Gamble. The vision, according to Box founder and CEO, Aaron Levie, is to make the firm the “Oracle of the next generation of enterprise applications.”
How did it cross the chasm while its rivals have struggled? How will it build the “Oracle empire”? At BoxWorks 2013, Box’s third annual user and partner conference last month, I sat down with Dan Levin (Box COO) and visited with Chris Yeh (SVP of Product and Platform), Sam Schillace (SVP of Engineering), and select Box customers and partners. It boils down to finding increasingly expensive problems to solve and the right mavens and evangelists. Let’s first put some numbers around these problems.
Box first solves the corporate file share and sync problem with its low latency and simplified upload procedures. Box can save an average customer of 500 users $292k per year versus traditional file sharing via private cloud (on-premise file servers) or email, according to the Enterprise Strategy Group’s (ESG) 2012 economic value audit.
The “share-drive.” Approximately $125k of the savings are from on-premise storage reduction, plus change from reduced storage IT support hours (see Endnote 1 for calculations). Even if we compare Box with synchronous platforms like SharePoint and Lotus, it can create more cost savings because of high user engagement. It is as intuitive as iPods. Users love it so much that they effectively become part of Box’s sales force (consumerization effect). Box has perfected this process such that it practically “automated every deployment action – from testing to launch – to get users up and running quickly,” Schillace said. “We have the agility of a scalable consumer-facing platform with the testing environments of an enterprise software giant.”
User productivity: “Box eliminates VPN login security and cumbersome IT access approval,” VMWare partner explained, “which saves tremendous time compared to SharePoint.” According to ESG, an average Box user saves 12 hours per year by expediting collaboration tasks and work across devices. This translates into $168k of savings, or 2.4 FTEs, for a customer of 500 users based on our calculations (See Endnote 2). The recent integration of the Folders and Crocodoc acquisitions will heighten those savings further with improved latency and enhanced file previewing, making Box more seamless than those YouTube videos embedded in your apps.
After Box became the go-to file share and sync tool of the new generation, it redefined enterprise content management across devices by solving intercompany collaboration and even regulatory issues that amount to millions of dollars.
Extranet collaboration: External constituents, such as vendors, resellers, ad agents, legal, audit, and customer teams can all access Box — securely and safely. “We’ve saved over a week in our sales cycle from using Box with our sponsorship partners,” Six Flags executive, Sean Andersen, remarked. This can translate into $1.3M in incremental revenue, 3% increase in gross profit, plus change from financing cost savings for the Sponsorship business segment alone--assuming reinvestment of freed up cash flow (see Endnotes 3, 4, & 5). We have yet to touch on inventory turnover among other SLA improvements to quicken overall cash cycle for verticals like healthcare and manufacturing.
Security and compliance: Box is ahead of its nemeses at building designs, controls, and triggers that have passed difficult compliance tests, bringing it to par with the content management giants. “Compliance is the only [industry vertical] investment Box will do outside of developing core horizontal capabilities in content collaboration,” Yeh explained. According to a study by Ponemon Institute, the average organizational cost per data breach was $8.5M in 2011, $5.5M of which was in cost of data breach and another $3M was from lost businesses. More recently, HIPAA privacy violations that cost Affinity Health Plan $1.2M is making healthcare providers and payers think again before using photocopiers, or even Gmail and Google calendars.
Compliance among other security measures required by enterprise IT is the “secret sauce,” as Levin called it, to elevate a collaboration platform from SMB- to enterprise-grade. Box’s compliance and security certifications are solving not just security issues from the Bring Your Own Device trend, but also the NSA privacy scare and business IT risks. These compliance controls are here to protect consumer privacy and, as Levin said, “are in part how we addressed the NSA concerns with multinational organizations as we expanded into Europe and Japan.”
“Holy grail” of problems
With the advent of BoxNotes and metadata at BoxWorks this year, Box is making inroads into content creation, editing, classification, and querying of unstructured data. Aaron Levie, CEO and founder of Box, called these capabilities the “holy grail” of content collaboration.
The BoxNotes SaaS will disrupt Google Drive given Box’s freemium pricing and securer interface, but it is not meant to replace Microsoft Office software. According to Yeh, BoxNotes will remain feature light. “In fact, a key challenge has been to gracefully avoid feature requests.” The idea is to eventually have files subsumed by apps such that there is no distinction between apps and the actual files or file choices. Yeh made a simple analogy: “People don’t know what JPEG [picture file] is when they use Instagram.”
Box metadata, a back-end enhancement to provide context around content, has already been used by Chicago Bulls’ photographers to automate photo sorting. The organization used to manually sort over 100k photos per game. Another use-case is in patient record systems. Levie showcased an x-ray photo file where diagnosis and follow-up schedules are provided as context for classification and querying. Metadata can potentially evolve into a valuable business intelligence asset given Box’s growing big database of 3Bn documents.
Box’s keen focus on being the best-of-breed content collaboration tool is only one part of the equation to building an “Oracle empire.”
Billowing beyond the sales force
Because Box has a singular focus on content collaboration capabilities, it is not competing heads on with giants like Microsoft and Google with reach into many tangential areas. “Google Apps, except the Google Drive, complement Box as a part of the cloud ecosystem we use,” Andersen from Six Flags remarked.
To fuel its steroid growth, Box has created a powerful partner ecosystem with over 200 companies in the cloud collaboration space, turning supposed foes like Netsuite and Cisco into evangelists. In fact, some of them became part of the Box family as investors and in-house experts. Salesforce and Intel plowed money into Box. Several other industry mavens have been pried away by Box from Google, LinkedIn, and Microsoft, including Schilllace (Google Docs), Missy Krasner (Google Health), Stefan Apitz (LinkedIn infrastructure ops), and Steven Sinofsky (Microsoft Windows). These experts, along with Levin and Yeh, know how to sell through to enterprise CIOs and CSOs.
The flip-side of the sell is consumerization, where users are championing the product. “A large part of the 20M personal users of our platform is to provide that bottoms-up pressure,” Levin said, “so they can argue more effectively with IT leaders that they should be provided [Box] tools in their professional life.”
Total cost of ownership and system integration will continue to present challenges for large enterprises to adopt Box. Switching costs can be astronomical for verticals like financial services with highly customized content creation and data-collection apps. Box integration can also be bumpy. Content collaboration systems are often bundled with other licenses, such as SharePoint with Office Suite. We have not even touched on initial capital expenses (setup costs) and ongoing operating costs (Box’s fee per user).
Box is overstepping these hurdles by targeting customers living in complex ecosystems that require large file transfers and a low latency, simplified solution to do so. These segments can be specific business divisions or verticals like education and real-estate developers. Strategic resellers, like 3D design software Autodesk, has helped Box access such prospective clients with demanding file sharing needs.
Box is also keenly focused on expanding its already-compounding customer base of 180k SMB, segments that the giants are less suited to serve. “Box has become one of our three core infrastructures,” Doug Harr, CIO of the emerging enterprise Splunk, said. “We’re just looking for the ‘final stage’ [metadata] features to sort the folders.”
According to Levin, Box aims to acquire about a quarter of its product innovations, leaving the majority to be built in-house (at least before its IPO). If Box can keep pace with the growth of its target customers, which may play in the Fortune Global league of the next generation, it is certainly looking like an “Oracle empire” in the making.
Endnote: Key assumptions