Innovator & Disruptor Series: Box

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1 Innovator & Disruptor Series: Box Evolving content and collaboration beyond Authors: Matthew Healey, Principal Analyst, and Jillian Mirandi, Senior Analyst Publication Date: July 10, 2014 TBR Assessment As mobility and cloud expand, as a tool for file sharing and collaboration increasingly comes up short compared to enterprise file sync and share tools. works for communication, but creates wasted time around version control, file storage, and retrieval. One IT vendor positioning itself to take advantage of trends around cloud and mobility, from an enterprise content collaboration perspective, is Box. TBR believes Box s success will hinge on their mobile capabilities and simple, highly functional user interface (UI). Box is a more mature disruptor that has successfully shaken up the market and won notable customers including GE, Netflix, P&G and Toyota. Based on its success, large IT vendors have begun investing in competing solutions. Box is well poised to win in the stand-alone file sync and share market and the emerging and more strategic enterprise content collaboration market. Box faces challenges from larger IT vendors as they add competing capabilities into their portfolios, potentially eliminating the need for a thirdparty solution. Disruption From a technology perspective, Box has developed a simple-to-use, cloud-based platform that enables content collaboration across mobile and desktop devices. Box continually invests in enhancing its UI, mobile collaboration, platform functionality and security. We expect Box to partner more closely with industry-specific SIs in coming months to add expertise and best practices, thus expanding Box s channel and addressable market. Box is not highly disruptive from a business model perspective.

2 Market Under Disruption: File Sync, Share and Collaboration Sharing and managing content is central to the post-pc era and requires a different set of standards driven by cloud and mobility. Historically, Microsoft SharePoint and EMC Documentum have dominated the market, but these tools are expensive, bulky and difficult to use and have been slow to add mobile and platform capabilities. In today s world of increasingly low barriers to entry, these weaknesses have made the market ripe for disruption. Vendors including Box ($124 M in 2013 revenue), Dropbox (est. $200 M in 2013 revenue), Google Drive and ShareFile (acquired by Citrix for $54 million in 2011, after Box allegedly declined a $600 million Citrix offer) are trying to exploit this gap and are rapidly gaining momentum in the enterprise space thanks to widespread success at the consumer and SMB levels. Extensive proliferation of mobile devices in the workplace means file sharing and content management have taken on new meaning. Enterprise file sync and share solutions such as those from Box enable work documents to live across different ecosystems and allow multiple contributors, editors and viewers to make changes to documents in real time making access, admin control and security critical. Box makes it easier to get things done I can create content and make sure the right people can make edits and give approval. With 80% travel, Box has improved our overall quality of doing business Consultant, Enterprise Pharmaceuticals Company The file sync and share market is highly competitive, and vendors must constantly invest in the platform evolution to deliver value and win renewed business. However, in technology, popular tools are often reproduced by large vendors with ample budgets. For example, Citrix, EMC, Google and Microsoft have vast volumes of resources and are investing in building out tools competitive to Box. Given the highly competitive nature of the market, most vendors tend to view basic file sharing and storage as an entry point into the growing content and collaboration market. Box is currently well positioned but TBR believes that to continue its success in monetizing the market, Box must accelerate the pace of market evolution beyond basic file sync requirements, demonstrating the company's value in helping clients work with content in a mobile-first, cloud-native world. Vision and Strategy Box has raised over $550 million to date to build out its portfolio and team and to drive its brand to a top-of-mind position in the file sharing and content management space, as well as the overall cloud space. CEO and co-founder Aaron Levie has promoted the Box brand through Page 2

3 advertising, free usage, ongoing speaking engagements and the company s annual event, BoxWorks. The company has also gained support from high-profile integration partners such as Salesforce.com, NetSuite and coopetitor Microsoft and many noteworthy customers. The typical evolution of a Box deployment starts with access, followed by collaboration, productivity and process. This strategy highlights Box s vision of fully embedding its technology into customers business processes and acting as the central point for all content-related interactions. Once Box is beyond the access (or file sync) stage and is entrenched in the business process through content, rules, metadata and process, Box increases its stickiness, making it difficult for customers to migrate to a competitor. SOURCE: BOX Access: Enabling end users to access files from anywhere, on any device Collaboration: Sharing content and leveraging Box as collaboration hub Productivity: Leveraging Box to better understand who is involved in projects, the stage of the product, assigned tasks and identify potential bottlenecks Process: Once a team is using Box, it can be leveraged as a process tool with a rules engine and automate content driven processes. Box charges a flat fee per seat for a license with unlimited storage at the business and enterprise levels ($15/seat/month and $35/seat/month respectively). We anticipate the per-seat model will work for companies with around 10,000 employees, and that larger customers will demand enterprise agreements. TBR does not anticipate Box to begin charging for storage, as the price of cloud storage continues dropping (most recently Google announced unlimited storage in Google Drive for Work at $10/seat/month). TBR believes that looking at Box through simply an enterprise file-sync-and-share lens is shortsighted. Box s longer-term revenue growth will be driven by their ability to develop a business platform that can address the mobility needs of their customers, lightweight project management tool (as process is built in), and security, Mobile and Platform: Box is a cloud and mobile platform looking to morph into an enterprise business platform in coming years. If a business content lives on Box and an increasing number of processes and workflows involve Box, the vendor has the potential Page 3

4 to become extremely sticky and morph into the underlying tool on which a customers business runs. The competition in the platform space is fierce, as vendors including Salesforce.com, Amazon Web Services, SAP, Microsoft, Google, IBM and ServiceNow are vying for a seat at the table. TBR believes platform expansion and integration will be Box s biggest challenge due to competition with large vendors broader portfolios of enterprise solutions. However, Box s advantage in this area is that it runs natively on Microsoft, Salesforce.com, Oracle and a number of other enterprise application vendors platforms and differentiates with the embedded Box button. This button proves essential to working on Box, as it automatically saves and maintains version control of documents in Box. Box will open documents in their native form, then save them back to Box, skipping the messy uploading or downloading. Lightweight Content Management: Box as a lightweight content management tool works well with smaller to midsize businesses that do not have the need or budget to invest in larger, more expensive tools but benefit from the built-in processes, comments, tasks and elimination of confusion, as well as mobile capabilities, that Box offers. TBR believes Box will highlight project management and process to smaller businesses as an additional value. Security: Box is investing in security and control, adding content governance, a rules engine (as to not store any sensitive data it should not store) automated approval processes and metadata. This strategy spawned from a growing number of securityrelated use cases across Box s many enterprise accounts. The company hired security heavyweights such as ex-symantec CEO Enrique Salem as a special adviser, ex-white House Chief Technology Officer Aneesh Chopra as an adviser and ex-yahoo Chief Information Security Officer Justin Somaini during the past 18 months to improve the security of its offerings for customers. Differentiators Box is simple and focused on user experience. From ease of use at initial download to out-ofthe-box integrations and built-in mobile access, its simplicity is critical to driving a successful land-and-expand strategy. Relative to other file sharing systems, Box s content collaboration, content management, project management capabilities and security and control are well accepted by their customers. Box s ISV and integration ecosystem is comprehensive, making it easy for customers to gain added value. Lastly, Box s continued evolution and product enhancements around security, metadata, viewing, platform and integration bring innovation to the table. Box s executive team constantly invests to improve the user experience and expand the product and ecosystem. In July, the company raised $150 M, its 12 th round of funding, and pushed back its IPO date. Box has leveraged funding across R&D, sales and marketing, acquisitions, FTE growth and geographic expansion, showing its commitment to rapid Page 4

5 improvement and expansion (which is not an uncommon strategy among SaaS vendors). However, Box is operating at a loss as it builds its portfolio and customer base, and will rely on low-cost renewals and upsells to eventually outweigh the high up-front customer acquisition costs. Box knows it does not have all the answers and that the company is today unable to solve all of its customers problems; however, customers are willing to place bets on Box based on its preparation and focus on success in cloud and mobile content consumption, creation and collaboration, the technologies that mark the way of the future for its customers. Challenges The most serious challenges for Box come from vendors with broader portfolios and ecosystems. These competitors can add capabilities such as mobile file sharing and content management, cloud storage, and integration on top of existing enterprise applications. EMC: EMC offers enterprise file sync and sharing tool Syncplicity. For EMC customers, it may sound more appealing to add an EMC-backed technology to their EMC environments from a trust, relationship and integration into other EMC products. Microsoft: For Microsoft, OneDrive for Business works natively with Microsoft products and on Microsoft Surface, enabling customers to quickly create, edit and share Microsoft files on their tablets. Google: Google is the next-biggest threat, especially in the government and education verticals, where it offers a low-cost package of Chromebooks and Google Apps, including less sophisticated but competing file sync and share solution Google Drive, at attractive price points. These three options demonstrate the challenges facing an innovative vendor like Box. In many cases, it is easier for enterprise customers to wait for their established vendor to provide the file sync and share capabilities they need, rather than adding another tool to the stack. In many cases, the costs of time and money associated with deployment and administration from adding the new tool outweigh the benefits. Integration for vendors like Box becomes even more difficult if established vendors are able to demonstrate a file sharing and collaboration road map and have a history of delivering on that road map to their client s satisfaction. Page 5

6 Business Model Box is executing the classic land-and-expand strategy, with enterprises as the lynchpin to the company s long-term growth strategy. Along with enterprise expansion, Box is investing in vertical-specific requirements and customizations, namely in healthcare, media and entertainment and financial services. Given the vertical expansion, Box is reliant on partners to develop applications on their platforms to drive customization. Box supports HIPAA/HITECH compliance, and announced in October its first 13 healthcare partners and a developer challenge, in conjunction with Dignity Health, to catalyze healthcare-related application development. Sales Model: Customers purchase Box online or through an account executive, or through a channel partner, and then are funneled to the appropriate team. For smaller accounts, customer experience is largely automated. For larger accounts, although simple to implement and use, the account representative takes a consultative approach to uncover the pain points the customer wants Box to solve and to understand the customer s longer-term need. A customer will then work with Box s customer success team to improve user engagement and work through any issues that may hinder the renewal. Industries: Box s security and mobile focus support the company s industry strategies in two ways. Security and compliance make Box attractive to healthcare and financial firms, while the ability to quickly consume content from mobile devices attracts mobile workers Page 6

7 from industries such as manufacturing and construction. We anticipate industry-related announcements at BoxWorks14 in September. Ecosystem: Box has four types of partners; Technology Alliance Partners, Channel Partners, Box OneCloud Partners and System Integrators. Box has an impressive ecosystem from a technological point of view that includes partners from large ISVs such as Salesforce.com and Microsoft, and smaller applications that natively integrate with Box such as iannotate, PDF Expert and GoFromz. Box is currently working with a number of global SIs, and we believe this is an area for Box to improve. TBR believes Box will expand its work with industry-specific SIs in coming quarters to extend its presence within key verticals by building out expertise, and help customize use cases. Adding SIs to Box s ecosystem will add yet another route to market for the vendor. Customer Results Box s customers include major commercial corporations such as P&G, GE, Schneider Electric, Toyota, McAfee, Pearson, Anglo American, financial firms such as Nationwide Insurance, media and entertainment vendors such as Netflix and Sony Music, and government agencies such as the U.S. General Services Administration. Major consumer packaged goods vendor P&G has rolled out Box to 31,000 global users. P&G initially deployed Box for file sharing and mobile accessibility and now leverages the tool for content management and project collaboration. Most clients secured Box accounts to solve the file sharing and content management pain point, and then expanded use cases to include mobile, project management, collaboration, sales portals and secure deal rooms. The following represent the key customer statistics for Box as of May: Registered users: 27 million Businesses: 240,000 Paying organizations: 39,000 App downloads: 15 million Mobile usage: 40% of users access Box through mobile devices on a regular basis Developers: 35,000 Third-party applications: 800 Box OneCloud partners: 1,000 Learn More Software Business Quarterly, Microsoft, First Calendar Quarter 2014, Third Fiscal Quarter 2014 Ended March 31, 2014, by Elizabeth Hedstrom Henlin and Kelsey Mason, published May 15, 2014 Public Cloud Benchmark, Fourth Calendar Quarter, published April 8, 2014 Page 7

8 Cloud Business Quarterly, Google Cloud, Fourth Calendar Quarter 2013, Fourth Fiscal Quarter 2013, Ended Dec. 31, 2013, by Jillian Mirandi and Michael Barba, published Feb. 28, 2014 ITO versus cloud services: Battle of the business models, by Geoff Woollacott and Jillian Mirandi, published Jan. 6, 2014 Appendix Explanation of Disruptor chart There are two main ways that a market can be disrupted; disruption based on new technology or disruption based on a new business model. The chart on the cover page captures these two types of disruption. The vertical axis shows the degree to which the vendor is disrupting the market based on technology while the horizontal axis shows the degree to which the target vendor is using a disruptive business model. Tech lead play The upper left quadrant represents the technology led disruptors. These are the vendors or products that have developed a new technology or dramatically improved an existing technology. However, they have not developed or changed the underlying business model. An example of this type of disruption is SAP HANA platform. The in-memory capabilities of HANA represent a significant advancement in the database and data management capabilities so SAP is disrupting the traditional high performance database market. However, SAP is not dramatically changing the business model on how the technology is sold. As a result, SAP HANA is in the upper left quadrant. Game Changes The upper right quadrant represents the game changes. These are vendors or products that have both disruptive technologies and business models. These vendors are very rare. The reason for this is it is considerably easier to disrupt on a single axis than on both axis. In general it is difficult for customers to adapt to a new technological approach and a new business model. An example of this type of disruption was Apple s ipod around From a technology perspective, Apple was able to dramatically improve the functionality and capabilities of MP3 player. Additionally, the development of the itunes music store changed the way that consumer purchased music, moving from buying entire CD s to buying individual songs for a dramatically reduced cost. Business Model Led Plays The Lower right quadrant represents the business model led plays. These are vendors or products that are taking an existing technology and changing the way that customer purchase or consumer that technology. In many cases these vendors are responding to a market need for greater flexibility in their commercial relationships. An example of this type of disruption is Salesforce.com around At that time there were a lot of CRM solutions available, however, most of them were delivered as traditional on-premises software. Salesforce.com recognized that customers wanted a more flexible way to buy and consume CRM software. The major innovation that Salesforce.com brought was the pay per user model. Page 8

9 Fast Follower The lower right quadrant represents the fast followers companies or products. These are vendors or products that are innovative from neither a technology or business model perspective. They are companies that are currently just behind the wave of innovation in both business model and technology. This does not mean that these vendors are going to fail. They may be able to bring a level of execution, cost reduction, or scale to the table that can enable them to not only survive, but dominate a market. An example of this group was Dell in the PC business in the mid 1990 s. Dell did not create the consumer PC business or innovate dramatically in the product technology or the business model; however, they were able to optimize the supply and distribution channels to a degree that no one else was able to. This provided them with a cost advantage that enabled them to thrive for several decades. Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since For more information please visit Technology Business Research Inc. This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce. Page 9