EIS Mini-project: Box.net & Enterprise Cloud. Storage. Garrett DeNinno, Daniel Kane, Dave Rader

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1 EIS Mini-prject: Bx.net & Enterprise Clud Strage Garrett DeNinn, Daniel Kane, Dave Rader Octber 6, 2012

2 As Jhn Clarke walked ut f Bx.net s ffice n the final day f his internship, he thught back n hw far the cmpany had grwn in the six years since its funding. When Aarn Levie and Dylan Smith had drpped ut f cllege t fund the cmpany in 2006, the term clud cmputing was unfamiliar t all but a few IT specialists in Silicn Valley. Nw it was ne f the httest industries in the technlgy universe large enugh t warrant Bx s recent $1.2B valuatin, driven by ver 200% yearver-year grwth fr three cnsecutive years, and billin dllar valuatins fr several ther similar cmpanies. Jhn had been ffered the pprtunity t drp ut f The Tuck Schl at Dartmuth t cntinue wrking n Bx s lng-term grwth strategy and had t decide whether it was wrthwhile. When Aarn and Dylan had made their wn decisin t drp ut f schl the ptential f the business seemed limitless. Wuld it be the same if Jhn jined the cmpany full-time tday? There was much t cnsider The early days Bx was funded t slve a simple prblem: there had t be a better way t stre infrmatin than the USB drives that were ppular at the time. Aarn Levie, a cllege student at the University f Suthern Califrnia, fund that they were incnvenient t carry arund and their size limited the amunt he culd stre. As a result, he went t wrk trying t find a mre cnvenient way fr himself t stre his schl wrk nline. He wrte a crude versin f the web service that wuld eventually becme Bx.net and shwed it t his high schl friend Dylan Smith, a student at Duke. They decided that there was likely t be enugh demand fr them t build this int a real business, s they bth drpped ut f schl t wrk n it full-time. In spite f a limited marketing budget, slwly but surely custmers fund Bx as a useful way t stre and share their persnal cntent. In 2008 there was enugh interest in the cmpany fr them t raise venture funding frm Draper Fisher Jurvetsn and US Venture Partners. With this first prfessinal investment mney came advice and a strategic shift that wuld change Bx s future frever. 1

3 While Bx was grwing at a mderate pace in the early years, industry experts realized that there were many ther startups that were entering the same space with the same s-called freemium business mdel. Cmpanies such as Drpbx, Sugar Sync and several thers had been brn in the tw years since Bx s funding and all were riding the wave f clud strage int the mainstream. Rumrs persisted that Ggle was abut t release a similar ffering (it wuld take anther fur years befre they finally launched their prduct, Drive) and that Apple wuld sn be linking all f their ppular electrnics devices via a clud service that was eventually called iclud. In cnversatins with the investrs, Aarn and Dylan came t believe that the space was getting t crwded and they needed t find a new way t differentiate Bx s prduct r risk becming cmmditized. They decided t turn their attentin t the business-user market, where relatively few startups were fcused. Success with pr-sumers Business cnsumers, frequently called pr-sumers, were in many ways similar t persnal users; they wanted an easy t use prduct that culd be utilized anywhere, was always available and culd be easily edited by multiple cllabratrs. Fr these purpses, Bx was already successful and required little change. Hwever, business users had ne very imprtant difference: IT departments decided which services wuld be apprved fr cmpany-wide use, and that required much higher degrees f security than what Bx r any f their cmpetitrs were ffering. Aarn, Dylan, and Bx s rapidly grwing engineering team set t wrk t vercme this hurdle. When Bx made their pivt, the dminant clud service in the business file-sharing wrld was Micrsft s SharePint. Bx quickly realized that Micrsft had grwn cmfrtable with their marketleading psitin and had allwed SharePint t becme cnvluted and difficult t use. Micrsft, hwever, wned all their wn clud servers where users data was stred, s fr security purpses CTOs and IT departments insisted that it be the service their emplyees used. Knwing that their service was already mre user-friendly than SharePint, Bx decided they needed t purchase their wn servers t 2

4 level the playing field with Micrsft n security. Up until then, they had leased strage space frm Amazn Web Services, a similar apprach t Drpbx and multiple ther cmpetitrs. They als went even further, purchasing the highest quality security services in rder t help their burgening sales frce cnvince businesses that they culd trust Bx and make the switch. This tk place arund the start f 2009 when many businesses were lsing massive amunts f mney and were trying t cut csts. Bx psitined itself as a lw-cst alternative and ffered many large cmpanies very attractive deals in rder t demnstrate value. Prctr & Gamble was ne f Bx s first majr clients and their apprval f the prduct helped Bx cnvince ther cmpanies that it was a trustwrthy investment. The apprach wrked and sales began t truly take ff. Over the next three years, starting in mid-2009, Bx wuld grw revenues at an unprecedented rate fr a business sftware as a service (SAAS) cmpany and grw frm less than ne hundred emplyees t ver 600. The next generatin Bx s grwth benefited frm an expanded ecsystem. That year Salesfrce.cm became a strategic investr in the cmpany and Salesfrce s CEO, Marc Beniff, became an advisr. Beniff helped Aarn and Dan t see the value that culd be created by integrating Bx within existing businessfcused sftware. Salesfrce quickly rlled ut a deep integratin, allwing their millins f users t easily stre sales presentatins within their Salesfrce accunts using Bx. These users were already recrding all the cnversatins they had had with clients and writing dwn which presentatins they had presented. With the Bx integratin it became much easier t d this, realizing benefits fr all three parties (users, Salesfrce and Bx), especially when Bx agreed t pay a bunty t Salesfrce fr all new sign-ups that came as a result f the integratin. Bx s business develpment team sn rlled ut several ther partnerships with majr business sftware prviders. The users wh signed up as a result f these partnerships generated a disprprtinately large amunt f usage n Bx and were drivers f even mre new custmers. Fr instance, it was cmmn fr a salespersn wh frequently used 3

5 Salesfrce.cm t take a free trial f Bx and then cnvince his IT department t pay fr Bx n a wider scale. Cnversely, Bx ften shwed user data t CTOs t cnvince them that many emplyees within an rganizatin were already using Bx n a free basis, s paying fr the premium versin f the prduct wuld be a simple and useful upgrade within the cmpany. By 2012, thugh, the brad pprtunities had largely run ut and the cmpany had turned t prmtins with device manufacturers t generate awareness. Fr instance, marketing prmtins with Andrid, Blackberry and HP had seen mderate success in generating new free users. Unfrtunately fr the cmpany, these users were less likely t cnvert t paid subscribers and Bx s accelerating revenue grwth had started t slw. Jhn Clarke s task fr the summer was t find new partnership ideas that wuld restart that revenue engine. He nticed that the financial industry, where he had wrked prir t Tuck, was underindexing in subscribers. Jhn knew that virtually all knwledge wrkers in finance used Blmberg s sftware t dwnlad massive amunts f data n a daily basis culd Bx partner with Blmberg t help financial cmpanies see the value f the clud? Similarly, Jhn knew that hspitals were cnverting all medical recrds t be stred electrnically culd Bx partner with the majr Electrnic Medical Recrds cmpanies t imprve usage in that industry? In recent mnths Bx had pened its APIs t encurage prgrammers t build applicatins tailred t very specific niches (ne such applicatin, which allwed architects t share blueprints with develpers, had received funding frm Bx, and a few thers had subsequently asked Bx t help them raise capital). Jhn knew that these pprtunities, and thers within ther specific industries, culd be the key t helping Bx reach mass penetratin. The questin was whether they represented enugh ptential users and if he was seeing the ecsystem bradly enugh t reach all f them. 4

6 Analysis There is a paradigm shift underway in enterprise IT architectures twards an internet-centric, clud-cmputing mdel built arund large data centers. As a result, tw large trends exist within enterprise IT management: first, an increased demand fr scalable and flexible clud-cmputing IT resurces, and secnd, a general and persistent trend twards IT utsurcing whereby enterprises cntinue t seek ways t increase efficiency, and reduce expenses t create flexibility in IT budgets. Clud strage prviders such as Bx allw enterprises t utsurce r cmplement their existing data center infrastructure with minimal r n capital expenditures. In the recent past, the primary mechanisms by which business users transprted and shared files with each ther were either thrugh , USB drives, r the use f internal crprate IT infrastructure (e.g. netwrk-attached shared strage). These slutins have numerus issues. , fr instance, is difficult and inefficient fr users t manage. USB drives are unreliable and insecure. Internal IT is expensive t maintain, especially when data must be accessible frm multiple lcatins (netwrk bandwidth and security becme majr cnstraints). As wrkfrces becme mre fragmented, and the need fr cllabratin acrss gegraphies and enterprises increases, these traditinal sharing mechanisms becme increasingly cumbersme and inefficient. In additin, enterprises are increasingly searching fr ways t reduce ne-time IT investments and crrespnding maintenance/management expenses. Enterprise clud strage cmpanies such as Bx are seeking t address these prblems by creating secure, effective, and easy-t-use alternatives that allw users t quickly save, access, and share their data, while als eliminating the need fr large IT investments. These slutins als allw users t seamlessly access data n multiple devices (including mbile), creating a mre rbust and cmpelling slutin than previusly ffered by r netwrked strage. 5

7 The enterprise clud strage ecsystem cnsists f fur primary cnstituents: (i) Service Prviders (e.g. Bx); (ii) End-users; (iii) Crprate IT departments; and (iv) Ecsystem Partners (Sales Channel Partners / 3 rd Party Develpers). Figure 1: Ecsystem Map Ecsystem Partners (Ex. Salesfrce.cm) External Servers (Pre-2009) Internal Servers (2009 t present) Bx.net CTO / Crprate IT Departments Crprate End Users Service prviders such as Bx must prvide sufficient value t all f these ecsystem participants: - End-users: Prvides easy-t-use tls t stre files nline, and share/cllabrate with ther users Hides cmplex enterprise IT back-end frm users - Crprate IT: Faster prvisining f resurces, n an n-demand, self-service basis Reduced investment (upfrnt and nging) in enterprise IT hardware Sufficient security - Ecsystem Partners: Stickier / higher value prduct t ffer their clients Crss-selling pprtunities t increase wn user bases Bx s success has been driven by its ability t prperly align all f these cnstituents. By fcusing n security and reliability, Bx was able t develp a reputatin that allwed it t successfully 6

8 sell t large crprate IT departments. Hwever, this effrt wuld have been wasted if the cmpany had nt develped a cmpelling end-user experience. Finally, by cultivating a brader partner ecsystem, Bx has been able t accelerate adptin and user retentin. The cmpany has cultivated this partner ecsystem by launching develper initiatives, investing in strategic partnerships, and selling equity t majr partners t align incentives. T cntinue t be successful, Bx must nt lse sight f the need t manage its entire ecsystem. As cmputing becmes mre and mre mbile, Bx s users will increasingly demand highquality mbile user experiences. The cmpany faces ptential c-innvatin risk in this sectr, as it will be relying n the third-party sftware (e.g. ios, Andrid) and hardware (e.g. Samsung, Apple) t deliver its services t its users. Users will ptentially gravitate t ther slutins if Bx cannt deliver a cmpelling mbile experience. While this fact is als true in the desktp cmputing wrld, the mbile sectr is much less mature and is underging its wn rapid innvatin, creating additinal uncertainty and risks. Figure 2 belw details the cmpany s expanded ecsystem, taking int cnsideratin mbile cmputing: Figure 2: Ecsystem Map incrprating challenges fr the next stage f grwth: Ecsystem Partners (Ex. Salesfrce.cm) External Servers (Pre-2009) Bx.net CTO / Crprate IT Departments Crprate End Users Internal Servers (2009 t present) 3 rd Party Mbile Sftware/Hardware Prviders 7

9 The biggest issue fr Bx in a mbile envirnment is the general inability t edit dcuments in a user-friendly manner frm a handheld device. As a result, Bx will need t manage its ecsystem t encurage third-party develpers t invest in tls t mitigate this issue by directly and indirectly supprting 3rd party applicatin develpers that create user-friendly mbile dcument editing tls. In additin t dcument editing, security and remte device management are an increasing cncern in the mbile cmputing wrld. Bx s value prpsitin t crprate IT (e.g. security and reliability) breaks dwn if crprate data can be extracted frm lst r misplaced mbile devices. As such, Bx will need t manage this c-innvatin risk by ensuring that this level f security is available in its mbile apps, and will likely need t partner with third-party prviders t achieve this gal. While Bx is just ne f many players within the enterprise clud strage market, its innvatin challenges are indicative f the brader market. While the end-user utility f the service may make its success appear t be a fregne cnclusin, Bx s ability t address the needs f each cnstituent within the ecsystem has been a large driver f the cmpany s success. Had Bx nt fcused n prviding value t crprate IT departments, it likely wuld nt have gained tractin. Likewise, had the cmpany nt cultivated a mutually beneficial netwrk f integratin partners, sales and adptin wuld nt have been as rapid. Ging frward, the key t success will be t maintain a wide lens and t intrduce new actrs int the ecsystem, such as mbile hardware r sftware develpers, as technlgy cnstraints and end-user demands evlve. 8

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