When Aaron Levie co-founded Box in 2004, he envisioned how businesses would benefit from cloud storage and file sharing—improved data access and collaboration—and, since few vendors grasped this, Box cashed in when this technology got popular years later.
However, this market is now wholly commoditized. There’s a merciless price war and many vendors, including Google and Microsoft, now compete with Box, so pitching a plain vanilla offering no longer cuts it.
Levie and his lieutenants have been preparing for this moment for years, and last week their strategy to extend Box into document, content and business process management became clearer and more concrete. What’s not clear is whether the scrappy vendor will be able to survive this transformation and carry on being a thorn in the side of its bigger rivals.
“It’s been a great rising tide that has lifted them for sure [in enterprise cloud storage and file sharing], and given them tons of visibility, but it’s time to recognize that if you’re going to remain in a market where low margins are going down to zero, then you don’t have any future opportunity,” said Rob Koplowitz, a Forrester Research analyst.
In other words, Box can’t just be a secure repository of data that is easy and convenient to access via a Web browser and mobile apps. If its customers are using Box to store data from their ERP or CRM systems, designs for a new product, animation footage for a film, or patient information from a hospital, Box wants to offer features that help those employees better use, analyze, visualize, share and collaborate with that information.
“Box has to move well beyond file sync and share and collaboration to differentiate itself at this point,” said Paul Hughes, an IDC analyst.
At BoxWorks, the company announced improvements to its service in areas including security, governance, regulatory compliance, content creation, mobility and third-party software integration. Two announcements in particular stood out as emblematic of this goal to differentiate itself.
One is a new workflow engine that will automate the routing of documents and files, as well as the actions that people need to take on them.
Box Workflow, due next year, will let IT administrators set up rules that will trigger actions for specific types of files, documents, folders and data stored in Box. For example, they’ll be able to configure rules for contract approvals that will steer the documents involved through a set of predetermined steps and actions, like requesting sign-off reviews from some managers and signatures from other employees.
By tapping machine-learning algorithms, Box Workflow will also generate recommendations for other content that may be relevant for a user to check out, as well as auto-classify new documents that the system finds similar in format to others, like invoices. Box Workflow will also have open APIs so that it can be integrated with third-party software and systems, thus following a long tradition at Box to make its software extensible and easy to integrate.
Then there was the launch of Box for Industries, a program to tailor and tune the company’s products for specific vertical industries. Box will target a dozen verticals, but will start with retail, health care, and media and entertainment. Box for Industries will combine Box technologies, third-party, industry-specific applications and implementation services from Box and partners, including Accenture.
“Box is one of only a few companies in this space with a dedicated vertical strategy, and that’s a very good thing,” Hughes said. However, the vertical industries undertaking is daunting. Each vertical sector has a long list of particular business needs, IT challenges, security concerns and regulatory requirements, so Box will probably need to seek out partnerships to complement offer comprehensive expertise, he said.
As Box broadens its horizons and builds out its capabilities to manage business processes, content and documents, it will have to balance that push with one of the keys to its success so far: its software’s ease of use.
“That won’t really be clear until [its] customers and Box understand how far they can push the next set of capabilities before needing to add more to them,” said Maureen Fleming, an IDC analyst, via email. “They’ve done a pretty good job of layering in sophistication while maintaining ease of use. Box is unlikely to pursue a path that would change this dynamic.”
While Box embarks on this evolution, it is also dealing with questions about its finances, which CIOs pay attention to when deciding whether to do business with a vendor, especially a small one, that will handle critical processes and data.
In March, the company announced its intention to launch an IPO, but it hasn’t pulled the trigger yet. The perceived delay has led financial analysts and tech industry observers to question whether the company isn’t as confident as it once was about its prospects as a public company. Levie has said in response that Box never had a specific date in mind, and that it will go public when the time is right.
The IPO registration papers Box submitted to the U.S. Securities and Exchange Commission also raised red flags in the eyes of some, especially the company’s blunt acknowledgement that profitability isn’t on the horizon, that its sales and marketing costs have been very high so far with respect to its revenue and that only 7 percent of its about 25 million end users pay for the service.
Still, the Los Altos, California company, which has about 1,000 employees, enjoys strong support from its backers. It raised $150 million this summer, on top of the more than $300 million investors had previously pumped into its coffers. And it has big name customers, like GE, which is rolling out Box to its 300,000 employees globally, and DreamWorks Animation, whose globetrotting CEO Jeffrey Katzenberg made a stop at BoxWorks, where he bantered on stage with Levie, and, in between jokes, unequivocally endorsed the product.
Koplowitz believes that strategy the company has outlined and is acting upon “is absolutely the right one, and they have the right team to execute on it.”
“If they do it well, they’re in a great position for a long time,” he said.
But a key question is whether enough customers will take the plunge along with Box, as it puts in place what it considers a next-generation content management platform in the cloud for enterprise collaboration.
“Will this market open up enough and let Box lock in long-term relationships with customers willing to pay the right price for what Box is building, so it can cover the investment it has made in sales and marketing to acquire these customers?” Koplowitz said. “The clock is ticking.”