Here's the problem: Box sells cloud storage, a market that has long been overpriced in the enterprise space and ripe for disruption. But it is only relatively recently the company has truly woken up to the rigor of enterprise requirements. These go an order of magnitude beyond those for the consumer and SMB markets where it has enjoyed considerable success but where it was becoming increasingly difficult to sustain high growth.
Despite the obvious allure of selling a large number of seats to a single customer, you simply cannot rock up at a large enterprise and shop an easy on ramp that is limited to 'enter a username and password' product and expect IT to sit silently by. That is especially true in storage which is often seen as the equivalent of the bank vault for company secrets and proprietary information.
At the same time, Box is faced with incredibly stiff competition. In the consumer and SMB markets, Google can always outgun Box for several reasons:
- Google offers a suite of business applications where storage is one of the components.
- Google can apply predatory pricing any time it likes.
- Storage is one of those markets which appears to be a race to the bottom as hardware prices continue to fall and where functional value is limited. Vendors like Google have become masters at managing those parameters.
But even the mighty Google fights shy of going all in on large scale enterprise where its list of customers grows at glacial speed. It knows only too well how tough that market is when faced with the likes of IBM, EMC and now Microsoft.
Box has not been standing still. It has tried to position itself in the collaboration space. At its most raw, this means your cloud storage is shareable. Whoopy-do. That ain't collaboration. That's a feature.For its part, Box touts Gartner leadership in a Magic Quadrant and GE as a marquee customer in the enterprise space as validation for its enterprise chops. Sorry - but those don't count. Being a leader in a Gartner MQ is only one data point in an often complex buying process that can fail at any point along the buying continuum. And while I have a huge amount of respect for GE's market savvy, note what Box says in the PR blurbs:
We’ve been working with GE leadership for nearly two years to bring Box to their organization
Two years? What's that about? Here's your answer:
...the scale of GE’s environment and the scope of their IT ambitions will inevitably help shape and evolve Box’s own development.
In short - we ain't enterprise class but GE will help us get there. Ergo GE inked the deal for cents on the dollar.
The Box value proposition should be so self evident that enterprise almost fall over themselves to be part of the Box family but the PR can only muster some of the 'usual (early adopter) suspects' in its supporting PR like eBay and P&G. Even then it is far from clear whether Box is an enterprise wide solution or something that's gotten in under the radar in non core groups.
Finally, if Box is serious about the enterprise then why do we not see headline customers as part of the line up in the forthcoming Boxworks customer gig? It is relatively easy to tout Silicon Valley newbies and the odd outlier but I see no tangible evidence that Box is able to showcase the companies it really needs, that will convince skeptical but valuable enterprise buyers.
- Box opens the box on its inner numbers as an IPO is finally confirmed (diginomica.com)
- Solving eBay's elastic storage problem (diginomica.com)
- Box buys more time on IPO, raises $150M in new funding (bizjournals.com)
- The good news & the bad news about IPO-bound Box (venturebeat.com)
Where does this leave Box?
Its most recent results imply the company has finally seen the writing on the wall and curtailed a good chunk of expenses along with throttling back hires. That helped it narrow losses in the latest quarter leaving Box with a cash burn rate of approximately $10 million per month. Combine its reported cash balance of $79 million with the $150 million it has just raised and all is far from lost.
But with a paid for to free customer ratio of around 1:12.5, Box has hard decisions to take about the extent to which it can continue to support a model where it currently costs $1.05 for every $1 it takes in revenue. That's in marketing spend alone.
Right now, that $150 million looks more a leap of faith than a solid endorsement but then we don't know the terms under which the deal was agreed. Some pundits believe those terms will have been onerous. If so then that's hardly a ringing endorsement.
Most pundits are now flagging a Box IPO ahead of Labor Day. I have no clue whether that is a reality or simply the collective wisdom of otherwise idle gossip.
What I do know is that while Box may be a pioneer in disrupting otherwise moribund markets, its current business model is unsustainable. And for all the talk about growth, it may yet be the poster child for Silicon Valley vendors with aspirations to enterprise greatness that found out features don't trump solutions. At least not in the enterprise.
Disclosure: Box is a partner at time of writing