Box looks to Platform and Governance to fuel growth
- Summary:
- Box's third quarter numbers didn't scare the horses on Wall Street, but CEO Aaron Levie is looking to new offerings to drive growth to profitability
Q3 numbers that took no-one by surprise and didn’t scare the Wall Street horses. That’s as good a summation of Box’s third quarter numbers as any.
Third quarter losses grew to $55.1 million, compared with a year-earlier loss of $51.2 million, while revenues were up 38% to $78.7 million from $57 million.
Spending on sales and marketing rose 16% to $64 million, while R&D spending more than doubled to $26.3 million.
An ongoing issue remains how few of the firm’s 41 million users actually pay for the service - around 54,000, up from more than 50,000 in the second quarter.
CEO Aaron Levie is looking to two new offerings to gain traction and become a tipping point for growth - Box Governance and Box Platform:
Our first strategic objective is to new invest in new products and innovation and not -- that not only solve basic file sharing and sync and collaboration, but that also extend into advanced enterprise content management or ECM use cases. By adding ECM capabilities, we make it easier for enterprises in every industry to move more content, more use cases, and more spend to Box while allowing them to retire costly legacy technology.
Governance is already delivering returns, he adds:
Governance is a major differentiator against competitors and drove several key wins over one drive per business over the quarter. Overall, we sold Box Governance to nearly 100 customers since its June launch.
In Q3 a large global pharmaceutical company adopted Box Governance as part of its renewal with Box expanding their total account value by $700,000 in part to help them retire legacy storage infrastructure. And a global consumer products company also invested in Box Governance adding $200,000 to their total account value as a part of expanding its Box deployment enterprise-wide.
Box Governance was instrumental in meeting the legal requirements that enabled these customers to move more users, more content, and more use cases to Box. As we continue to deliver innovations like Box Governance, we are increasingly able to go after the nearly $6 billion spent annually on traditional ECM software as tracked by industry analysts IDC.
More recently, Box put Box Platform - formerly known as Box Developer Edition - into general release in October. Again Levie pitches this as a growth opportunity for the firm:
As enterprises in every industry create applications to interact with their own employees, partners, and customers, Box Platform will power the core content management and collaboration within these experiences.
Instead of enterprises spending countless hours or millions of dollars on creating their own storage, encryption, compliance, collaboration, and previewing technology, they can instead quickly and easily leverage the technology stack we've been building for the past decade.
The licensing model for Box Platform is seat-based and derived from the number of people that use the apps our customers and partners develop. We have the potential now to power applications that will in aggregate reach hundreds of millions of people greatly expanding our total addressable market.
At this early stage, the firm has already chalked up a couple of significant wins, says Levie:
Our first deal valued in the high six figures annually was with a large global financial services leader that will leverage Box Platform to securely share investment information with hundreds of thousands of clients.
The second deal was with a major investment bank that will use Box Platform to securely exchange trading data and document at scale with their community of hedge funds. We are just scratching the surface of the Box Platform opportunity that these deals represent a strong start.
Most importantly, Platform offers an up-sell opportunity within existing accounts. Levie says:
The financial services firm, this is with an existing customer, but they ultimately paid for the Platform at a level that was multiples higher than what their previous total account value was.
Partners and customers
Box is also pursuing an aggressive partner strategy, teaming up with the likes of IBM, Apple and Microsoft to create an ecosystem. For example, Levie explains:
We're collaborating with Apple to drive new innovation on iOS devices. For example, we released Box Capture, an iOS exclusive app focused on helping companies more easily integrate fields and mobile workers in the key business processes. Capture will help accelerate innovation in a variety of industries and it's a great step in our collaboration with Apple to transform how people work.
Box’s flagship relationship with IBM is delivering joint customers, he adds, citing Sally Beauty Holdings as a case in point:
As a result of this partnership, Sally Beauty will roll out Box in combination with IBM Solutions to more than 6,000 employees worldwide. While it's still early in our partnership with IBM, we already have well over 100 joint deal prospects in the pipeline with more being added every week.
There are other benefits coming out of this relationship:
Those 100 deals were all sourced by IBM's field organization and then placed in our deal registration process and accepted by us, meaning we did not already have a significant level of engagement with that account.
From a competitive landscape perspective, Levie identifies some key trends:
Any content management platform that is primarily used as really a document management system in an enterprise, we now more and more have the capabilities to fully replace. So, many of the ways that SharePoint is used in an enterprises is just as a document management site, and so we are often replacing those environments.
But he adds:
For situations where SharePoint is powering complex workflows or complex business applications, we're not quite there yet from a functionality standpoint.
Consolidation is a major driver, Levie states:
Over the past two decades or so large enterprises have just developed more and more of these content management systems in their enterprise.
When we go into the average large 10,000, 20,000, 50,000 person company, they might be dealing with five, 10, 20 different systems where content is being sprawled and where they have a lot of redundancy in terms of their spend where they don't really have a single source of truth with their information.
So as we're seeing enterprise IT move toward new modern platforms, whether it's Workday for human capital management, or NetSuite for accounting and finance, or Salesforce for CRM, we're seeing more enterprises recognize that they want to take a similar approach to content management. Instead of having 10 or 20 different systems -- how do they begin to centralize on one common platform across their business.
My take
No surprises, which in today’s markets is clearly a good thing. The performance of Governance and Platform will be tracked closely across 2016 as Box pursues profitabilty.