Cloud Storage Wars Amazon, Google, Microsoft, and Apple are effectively driving the cost of online storage to zero. Where does that leave the collective $15 billion of startups that cropped up charging for it? BuzzFeed/Matthew Lynley Box chief executive Aaron Levie doesnt want his cloud storage company, estimated to be worth $2.4 billion when it debuts on the public markets, to be called a cloud storage company. As the 29-year-old Levie explains to BuzzFeed via a hand-drawn diagram, Boxs value in fact lies on top of the online storage layer Apple founder Steve Jobs famously called a feature, not a product. The companys value, he says, is locked up in services like annotation, collaboration, and the ability to search through those files and share them in a secure fashion that complies with any number of regulations. Levies argument is rooted in sound business logic — he needs to convince both customers and, shortly, investors that Box can win when it comes to online file sharing. Unlimited free storage is now becoming table stakes thanks to Amazon, Apple, Google, Microsoft, and others driving the cost down to near zero. These companies can afford to offer free storage because their businesses have other, often vastly more lucrative, revenue streams. Large incumbents like Flickr now offer 1 terabyte of storage for free, and Amazons first phone will come with unlimited free photo storage, for instance. Theyre not doing it because theres any economics of the storage of information, the economics are that information is now currency, Levie told BuzzFeed. If you can have more of a customers photos, then theyre going to want more of those apps and devices to get those photos. Thats the reason why you see these players getting into the space. Levie is referring to the fact that files on mobile devices for consumers increasingly exist within applications and as the pieces of content those applications produce — like photos or notes through apps like Instagram and Evernote. On the consumer side, because its just your own relationship with your files and your data, its not a very complicated problem that leads itself to massive differentiation between services, Levie said. Conversely on the enterprise, while you have the exact same economics in play, our theory was [businesses] would choose their vendor based on who could add the most value on top of the storage, and the delta in value between your software and the pure storage would be infinitely large. Stephen Lam / Reuters Levie is now ready to leverage the drop in storage costs to his advantage, as Boxs business services now come with unlimited online storage, the company said. Previously, Box limited businesses to a terabyte of storage as part of its mid-tier pricing plan. The aim in offering unlimited storage is to reduce friction in how people use Box to help keep it ahead of enterprise collaboration services provided from major software companies like Microsoft and, most recently, Amazon. Box started in 2004, but it wasnt unitl 2006, when it seemed like Google might launch its own online storage service, that Levie decided to focus exclusively on storage for businesses. That shift in focus was more than philosophical, as the important parts of a file-sharing product for businesses are different from those for consumers — with security and regulatory compliance being among the most important. With a smaller and more nimble company, and a focus on services that work across many devices, Box has been able to attract 27 million users and 39,000 paying organizations — as well as users from 99% of the highly valuable companies on the Fortune 500 list. Theres some set of people that we havent been able to communicate with, that think were a storage company, he said. The way to think about it is, we buy storage, and sell the service on top of that. It hasnt always been easy. Box has had to raise a lot of money, which it is rapidly spending in order to continue growing. But there are signs of life, with the company showing its losses narrowing in its most recent filing for its initial public offering. For its most-recent operating quarter, its revenue nearly doubled year-over-year while its losses rose by about 13%. Some in the tech community also often point to the strict regulation around GAAP financial accounting that may be hiding positive signs in Boxs subscription-driven business model. The rapid shift in online pricing also makes it less of a surprise that Dropbox CEO Drew Houston said his company spends much of its time working on new things beyond simple file storage and synchronization across devices. During an on-stage interview at Re/Codes first Code conference in early June, Houston said he would not be cutting prices of his subscription service, which lets users store their files online and access them from any device. While startup founders are often preaching focus on specific products in order to outmaneuver larger and slower competitors, Dropbox is trying to figure out what comes after file sharing in its current form. I think that most internet services are built on commodity layers, said Josh Stein, a partner at Draper Fisher Jurveston who invested in Box, as well as ChartBeat, Yammer — which was acquired by Microsoft for $1.2 billion — and Twilio. Over time those services need to continue moving higher up the stack to deliver higher-level value to their customers and users. In the case of enterprise tech, that means building software that interfaces with and enhances the customers business processes and/or creates differentiated value add that cant be commoditized as easily. Failure to do so leads inevitably to commoditization of the vendors business itself (and failure). With a rapidly changing business model also comes new competitors for Box — including Dropbox, which has found itself pushing hard into the enterprise space. Like Box, Dropbox is one of the most hotly anticipated initial public offerings, with its last round of financing valuing the company at $10 billion. Earlier this year, Dropbox held an event where it unveiled a revamped version of its file-sharing software for businesses. As part of one feature, for example, Dropbox users modifying a file can now see in real time when co-workers are modifying a file or updating it. Dropbox is being used by 4 million businesses, and has users coming from 97% of the companies on the Fortune 500 list. But enterprise is a market with demands beyond secure file sharing and fast and simple synchronization — arguably Dropboxs greatest strength. The innovation that Dropbox had [when it first launched] that was so amazing was sync technology, but that is sort of table stakes right now, Levie said. Its not easy in a trivial sense, but thats neutralized. So the value is going to be, what can you do with that data once its in the cloud. View Entire List › ift.tt/1zFCHx7
Posted on: Tue, 15 Jul 2014 17:29:34 +0000