Below is an edited transcript for an interview with a former executive at Box, Inc. The interview touched upon Box's product evolution, customer value proposition, competitors, growth prospects, and more. Headings are added to improve readability.
ARPU: Can you describe the company’s product, and also the key problems their customers are paying them to solve?
The evolution of Box’s offering
Former Executive: Box is a cloud content management platform. Historically, it started with enterprise file sync and share offering, which is the ability to just share files with someone else, send the link, someone else downloads it, share it, and so on. Box then moved into the enterprise content management space, although it was not meant to be the heavy hitters like the FileNet, or OpenText of the world for documents. It started profiling itself as a cloud content management system, which is a much lighter and user-friendly system that people can use to manage their content. We then see functions being added to support new use cases, such as eDiscovery, proper content management with metadata, integrations with other solutions through open APIs, etc.
Box has been offering a core product, which basically allows enterprise file sync and share, plus some capability on top of that. Then there are add-ons, which include features like the Governance module that gives you much more control over your data, reporting and analytics. On top of that, you can have a Box Platform, on which you can build your own apps. And now it's starting to add other add-ons, things like what you have seen recently. They have released a signature solution on top of that, which you can also either roll into some of the plans or you can buy that separately.
What would you say is the most commonly shared characteristic of your client base?
Box is a security company
Box has entered a rather commoditized market with basic content sharing. You will have solutions like Accellion and Dropbox playing in space, which I would say are very light-touch content sharing and storage. People often get confused with Box being a content storage solution, which it's not. It's a content management solution. The typical customers were customers that wanted to move into cloud, wanted to be on a cloud platform, for a number of reasons, which we can discuss. It's the usual type of cloud play, but Box is really concerned about security. Box is, first and foremost, a security company. It cares about the content, the way it's kind of managed, structured, the security profile around every piece of document, and so on. A typical customer would be a regulated industry customer.
The more regulated the industry is, the better opportunity for Box to sell
If you look at where Box is really strong, you're going to start seeing industries like life sciences, financial services, and government. These are regulated industries that need that extra security layer. You will see Box also through media, entertainment, and others. Those use cases are a little bit different. They very often do correlate with some protection of content. For instance, when Sony had a leak of content, Sony actually then went on to look at Box because they didn't want some of their content to be leaked from their cloud content provider. So, Sony was a customer of Box as well, but ultimately, the more regulated the industry is, the better opportunity for Box to sell to them.
Information in a heavily regulated industry tends to be hypersensitive. Do you see any reluctance from the company's perspective to even put its information on cloud?
Concerns about content residency
Yes, it is. Not just for Box, but for any solution like this. For instance, if you look at countries in Europe, you are going to see a lot of pushback on content needing to be stored in the country or in the EU because of data residency and GDPR rules. Now, GDPR actually doesn't tell you where the data has to be stored. It only tells you how it needs to be processed, and that's the ever-ongoing conversation with a lot of companies which are concerned about the content going into the United States. We don't see as many American companies being worried about Europe, but it did happen as well.
Box has a solution called Box Zone, and it determines where the content gets stored. Some of the content needs to be processed in order to become part of Box, because Box is a multi-tenant platform where all of the companies get a Box tenant. From there, they can search through all the content they have available globally. If you get Box Zone, you want to be able to search from one place all the content globally. The content does sit in your country physically, but some of the search metadata does need to be extracted and to be put into the global search index. Now at that point, this can become a point of tension, because some companies say, "Hang on, I actually don't want any content to be known to the American side of your business, in case you were audited by US agencies." They would have to switch up search and make a lot of different tweaks, where it becomes that the platform is usable, but it's just not as usable as it could be, and it has an impact on the end user and then on the admin. Long story short, there is a solution for GDPR.
You're right to say there is a concern with respect to having content in the cloud. It has less to do with Box, but more with the company's willingness to go into the cloud. We literally lost deals in some of the European countries after we were selected, because the companies ultimately decided to deploy their system on premise. It does happen. But it's not about Box, it's about any cloud solution. They literally have to go and deploy on premise.
Talk to me about the enterprise focus of Box versus the SMB/consumer focus of Dropbox. Do you think the sensitivity about moving content to cloud would impact Box’s growth because enterprises tend to care a lot more about this?
Historical Context: Box went enterprise; Dropbox stayed B2C
Dropbox is important when you look at Box. However, if you are analyzing Box, you need to look at the nearest competitor in our space, which is Microsoft. We can talk about Dropbox first, and I can get to Microsoft in a bit.
First, some historical context. Box started in 2004 in the consumer space, and then they made the decision to go enterprise. Dropbox started a couple years after Box, and they decided to stay in the B2C space, but eventually they also decided to also do enterprise. So Dropbox came into the enterprise space later, and Box is much more advanced towards the enterprise offering.
Revenue from SMB segment is highly predictable and consistent
You mentioned SMB. Box classifies that as basically up to 500 employees, they will start from 50 to 500. Below 50, they push those transactions online. Between 50 to 500, you will have a salesperson who's selling to these small companies. They have a mid-market, which goes from 500, to I believe about 2,000. Enterprise will be anything beyond 2,000. You'll be quite surprised that the SMB business is going really well. It is one of the most predictable businesses that Box has. When I was there, enterprise business tended to be a little bit on and off – you could have a big deal, which basically blows you through the quarterly number, and then you got a quarter where you don't have a big deal. On the other hand, when you have SMBs, they will execute a lot of these smaller transactions, you know, 20–30 thousand dollars, but they will go one after another. It's very predictable and consistent, and it grows at a regular pace.
Enterprise users love Box
I would say Box is an enterprise-focused business because enterprises care about exactly what Box has to offer. End user satisfaction with the product was very, very high compared to any other product on the market. It is easy to use, deploy and manage. It gives you full visibility of the control, integrates with other solutions, and so on. At the enterprise level, it's a no brainer. Once people get warmed up to Box, they love it.
Box seldom loses to Dropbox on enterprise deals
Dropbox is fantastic, because they are strong around the media sort of library, and have very basic and user friendly mobile app and web interfaces. However, for large enterprises, we have hardly, hardly seen Dropbox. I have seen Box losing to Dropbox once on one of the enterprise deals, but that was for a company that works in FMCG. And they just didn't care about the level of control over content; they cared more about end user experience. And this is where Dropbox has an advantage, because a lot of the users know them from their personal life, so they like to have it in the company. There was only one deal I saw we lost, but on the enterprise level it would probably be 90% we won against Dropbox, at least for the European side when I was there.
Compliance concerns drive demand from mid-market
To go down to mid-market and corporate, what you are going to see are companies that have some compliance concern about the content. They could go into Dropbox, but you will usually see Dropbox deployment with companies that are maybe up to 10 people. It's a very consumer-driven approach. Once you have 20, 30 employees, up to 50, you are starting to see the advantage of having the control over the way you can manage the content throughout the console. Box is extremely strong on the reporting and visibility – what is happening with the users, what's happening with the content. In addition, a lot of these smaller corporates are regulated. They could be small financial institutions; they could be suppliers of a large corporate that is regulated like life sciences or financial services, which they still care about that. So, we had a very good motion going on with the smaller businesses, and it grew very, very strong.
You mentioned Microsoft is the biggest competitor. What is Microsoft's competitive advantage over Box?
Box’s fight against OneDrive, SharePoint, and Teams altogether
That is actually a big topic. It might be a bigger topic than you think. Box always profiled itself as competing with Microsoft. If you go back to what Aaron Levie, the CEO of Box, would have been saying during around 2010 to 2015, the language was very much geared towards Microsoft. Box will go in and eat Microsoft's lunch around content management.