Tuesday, October 11th, 2011

Building a New Kind of Enterprise Software Company and Ecosystem

By

Today we announced the closing of an $81M round of funding from NEA, Bessemer Venture Partners, salesforce.com, SAP Ventures and existing investors. With this news, you might wonder: why raise that much capital? Well, it’s simple. The cloud has tipped for large organizations, and even the slowest-moving enterprise technology giants are waking up to this fact. Now is the time to scale.

The pace of cloud adoption in the enterprise is much faster than anyone – with the possible exception of Marc Benioff – could have imagined. When the recession hit in ’08, IT spending plummeted, and organizations focused on getting the most out of existing systems. But even with IT budgets at a standstill, business still had to move forward. Marketing departments needed to share files, sales teams needed to collaborate with customers, and HR professionals needed to disseminate information to large groups. IT departments weren’t investing in new technology, so teams adopted their own solutions to get work done.

So when technology spending finally picked up in 2010, the world had changed dramatically. When IT departments looked around their organizations, they saw that users had gone around legacy systems with tools that made them more productive, like Box, Yousendit and PBWorks. They noticed social apps from Yammer and Jive, and new support systems from Zendesk and then Assistly. iPads were everywhere from the board room to the construction site. CIOs faced a critical decision about the future of their technology strategy: to go cloud, or not to go cloud. Heading into 2011, the number of CIOs deciding to go the no-more-infrastructure route accelerated dramatically, and we realized it was do or die, now or never.

In his post on building the fat startup, Ben Horowitz outlines the business theory around investing in growth, and making sure you can take on a market effectively. In Box’s case, the math has been extremely simple: enterprises across the world are experiencing a formidable and fundamental transition by moving their applications and data to the cloud. Box is uniquely positioned to help with this shift, but we need get a number of things right, all at once: build the best technology possible, provide unmatched support, and repeatedly out-innovate the competition. We need to provide an amazing experience for the 100,000 businesses already using Box, including 77% of the Fortune 500, while growing our global user base at an unprecedented pace. And we need to invest aggressively in scaling our team and infrastructure – two things that will always require significant capital, when done correctly.

And in the process, we’ll be playing in a relatively new market, while also competing with a large set of established players.

Taking on Microsoft and the old enterprise guard

When raising earlier rounds of funding, we were always asked how we were going to compete with the big players. Couldn’t Microsoft just give this away for free? Well, they already do, eight different ways. What if people suddenly enjoy using Lotus Notes? Riiight. You get the point. And the most formidable names in enterprise technology aren’t about to ditch their immensely lucrative business model (selling expensive licenses and support) for a far cheaper, low maintenance, end-user driven model.

The curse (and a curse it is) of the Innovator’s Dilemma is that it’s very difficult for a company to nearly cannibalize its most profitable business in favor of a new “just good enough” emerging model. Sure, most technology giants understand the inherent paradox: you lose in the long run if you don’t compete with yourself today, and deal with a tremendous amount of pain if you do. But that pain – in the form of reduced margins, new competitive environments, and massive change management across an organization – is often too hard to stomach. This is why we continually see new disruptive products in large and emerging markets, rather than traditional players maintaining their leadership. You have to get the timing just right, educate a confused market, and accept that payback may not come for some time. Renowned success: Amazon is embracing digital media through a comprehensive strategy that will keep them relevant. Confused sputtering: Microsoft still has yet to make good on going “all in” with the cloud.

But for what the big players may lack in innovation or focus, they make up for in muscle. Microsoft notoriously crushes competition on the third try. Oracle refused to give up on the applications market, and is now moving to the cloud with a strong position. IBM has customer reach and brand credibility that enable it to serve the Fortune 500 better than anyone else. It’s no lean feat to go after an industry that is so intrinsically important to a large number of market players. The need to store, manage, and share our content is universal, and these behemoths won’t give up the market without a fight. And their bigger pockets mean that we have to execute on a different set vectors.

For a startup, this means building a product that is unequivocally superior in the ways that are now important to customers today. Many of the current leaders in the enterprise software market emerged at a time when the mainframe was just waning in importance, and they innovated heavily through the client/server paradigm and explosion of PCs in the workplace. Well, this transition can now be considered complete, and a new one is in progress that brings with it a new set of market forces. In the post-PC world, we’re more mobile than ever before, we collaborate across networks and borders, and we use applications from dozens of different service providers – applications that need to work together. Inspired by the likes of Apple and Facebook, software is also becoming much simpler and more social, breeding a new type of organizational DNA in emerging enterprise software vendors.

Building the next generation enterprise ecosystem

Emerging enterprise software vendors also need to be way more open than their predecessors. Today’s enterprises are relying on a diverse set of applications to solve both basic and advanced business challenges, and they need these solutions to work together. At our recent customer conference, BoxWorks, we heard from CIOs that have implemented dozens of cloud solutions, while also building custom applications on top of platforms like Box for further competitiveness. An airline was creating a powerful way to go paperless by distributing content to iPads. An investment bank was looking go to paperless for its clients, and mobile for its executives. And universally, all of these customers were integrating their cloud technologies by way of solutions like SnapLogic, or centralizing management and provisioning with services like Okta and VMware Horizon.

But this is only the beginning. Even with all the change we’re seeing today, it’s startling to remember that the environment making this possible has only existed for a handful of years. Now with mobility, cloud development and hosting platforms, and an explosion of data and content, we have more capabilities and demands than ever before. At Box, we want to drive as much innovation in the enterprise as possible; and we can’t do this alone. Bill Joy was famous for saying that there are always more smart people outside your company than within it. This is why we’re excited to build out the Box Innovation Network, a program we’ll be formally launching in November, with like-minded platform partners that are as excited as we are about building the next generation enterprise ecosystem.

It may sound like an oxymoron, but our ultimate goal is to build enterprise software that matters to people. There are too many technologies that we have to use in our work lives that just slow us down. At Box, we want to create a company and ecosystem that redefines what you can expect from your software. While we’ve certainly come a long way from our seed funding of $8,000 in online poker winnings and working out of a garage (literally), we still have a long road ahead. As an industry, our work is just beginning, but already, a better direction is emerging. Employees are happier and more connected. New products and features are coming to market faster than ever before. Better decisions are being made, leveraging more data and expertise. The future of work will be unlike anything we’ve ever known, and we want to help bring this future to you as soon as humanly possible.

  • Keith W.

    Great article A.L. Very proud of you

  • http://www.facebook.com/JasonKincaid Jason Kincaid

    Congrats Aaron. I remember ~3 years ago you were telling me about Box.net and I said something like, ‘Oh, I know you guys… it lets you share between your computers automatically, right?”

    You: “No.. that’s Dropbox… they’re cool.”

    You’ve come a long way :)

  • Jade

    Great article, so much great info!!

  • http://twitter.com/Enlyton Enlyton Team

    Very nice Aaron, congrats. Would love to chat about integrating Enlyton related search into Box. Quick sample of tech articles related to this post auto curated here – http://enlyton.me/dpg – we actually already have this integrated with Box and Sharepoint. Will try to connect soon – Chris

  • Anonymous

    Proud to have cloudPWR onboard as a reseller and systems integrator. We are very excited to be promoting and integrating box in the enterprise. Users want ease of use and the ability to share business content in a secure and reliable fashion. Box is giving users what they want and cloudPWR.com has the ability to integrate legacy enterprise applications at the desktop by leveraging box.net as a revolutionary technology.