Tuesday, April 24th, 2012

When Elephants Attack


Ever wondered what it’s like to be chased by a wild pack of elephants? Do a startup and you’ll find out. 

Companies are often founded to exploit some meaningful gap in existing offerings. Skype made calling free. Salesforce delivered instant CRM capabilities, without the need for software or servers. Square brought credit payments to iPad and iPhone. In the process, these companies have taken what was once a small void and created entirely new markets. But eventually, the incumbents (elephants) wake up to what’s happening, and aim their efforts directly at the new product and market. Salesforce became the target of Microsoft and Oracle. Skype and Square have been chased by Google and PayPal, respectively.

The cloud storage and collaboration market is no exception. When we started Box in 2005, the landscape was all but devoid of elephants. No one was putting data in the cloud – heck, the word ‘cloud’ wasn’t even relevant. As a way to survey the market before building the technology, I called a dozen companies and individuals and asked them how they stored or shared information: everyone came back with horror stories about mailing hard-drives, setting up FTPs, passing USB keys, etc. We knew cloud had to be the future. And while it seemed a little far out at the time, a few things had changed about the world to make the vision practical: the rapidly dropping cost of storage, better browsers and internet connections, and a growing need to share data between people, teams and organizations.

To capitalize on these changing macro factors, we launched Box in the spring of ‘05 as an all-purpose sharing and storage tool, targeting both consumers and businesses indiscriminately. And it took off. But then in late 2006 and early 2007 the market began to change. Bigger players began to recognize the importance of the space, and the first rumors of Google Drive began to circulate.

Ultimately, we concluded that there would be a dramatic race to the bottom for the price of consumer online storage, and it would be impossible to maintain a competitive offering when elephants like Google, Microsoft and Apple could effectively subsidize their offerings. Because of the potential for user lock-in, each of these players had deep incentive to provide consumers with a drive in the sky, and with storage costs dropping precipitously, we saw a future where storage would be infinite and free.  That just doesn’t make for a great startup business.

We needed to find a market where customers valued more than just the storage of the bits, but also elements like platform, collaboration, openness and security – areas that could be continually and sustainably innovated around.  And that’s why we decided to focus on the enterprise market. Fast forward 6 years, and this differentiation is the reason that we have 10 million people on Box, thousands of developers building apps on our platform, and 120,000 businesses actively using the service, including 82% of the Fortune 500. It’s also why we give our enterprise customers unlimited storage.

Now, several years after the Drive rumors first started, Google is finally charging into this space. As a $200B enterprise, Google has a responsibility to its shareholders to enter nearly any and all massive technology markets. This is why they’ve gone after spaces like payments, social, music, books, and much more. Like it or not, this is what technology elephants fundamentally must do to survive.

Of course, the downside of too much breadth can be poor execution. Google Wallet was launched with fanfare, but hasn’t quite lived up to the vision described.  With Health, Google set out to “solve an urgent need that dovetails with our overall mission of organizing patient information and making it accessible and useful.” Apparently just not forever.  Google Wave, a product that was set to revolutionize communication, well…

At Box, our focus is extremely clear.  We’re building the absolute best, simplest, and most secure way businesses can share and manage their information from anywhere. And our customers agree. Procter and Gamble uses Box to securely manage content collaboration across 18,000 globally distributed employees. McAfee uses Box to store and share all its marketing assets, while tailoring permissions to each user’s role in the organization. Clear Channel uses Box to replace clunky on-premise solutions and empower its global workforce to collaborate in real-time on any device. At AAA, sharing files with internal and external partners was critical, and Box has become the company’s main sharing and collaboration service.‬ Every story is unique, but the themes are consistent. Box helps enterprises get work done more easily, securely, and scalably.

Our belief is that the enterprise space, ultimately, is going to be a much larger market than the consumer category.  Box and others are the beneficiaries of extremely favorable macro factors: the vast majority of businesses are dealing with a changing technology paradigm (shift from on-premise to cloud), we’re experiencing an influx of new web-connected devices (mobility), we’re collaborating across nearly every business process within and beyond our organizations (death of the firewall), we want technologies to work together and cater better to end users (openness, simplicity), and we’re dealing with more data creation within organizations than ever before (data explosion).

Throughout all this, Google will continue to be a great partner for Box. Our fundamental value proposition is that we work across any device and environment you work in. iPads, iPhones, Android phones and tablets, you name it. We appreciate Google’s innovation across devices, search, Docs, email, and many other product areas, and we’re excited to find new and interesting ways to work together.

In the article Elephants, Charging, How To Avoid, it’s recommended that the best way to avoid being chased by an elephant is “of course to avoid elephant inhabited areas at all costs.” Well, that’s simply not possible when you’re trying to change how every business in the world shares, manages, and accesses their information. If we avoided all markets with competitors that are larger or better funded, the world would be all but devoid of innovation. So we’re taking a different, yet highly recommended approach:  “Climb a large tree. Preferably one without thorns, stinging ants, or lions.” Our tree just happens to be filled with CIOs.

  • http://twitter.com/Justine_Hay Justine Hay

    The bird in this picture amuses me

  • http://twitter.com/omigod Rik

    Just looked and tested Googles offering and they are not there yet. One thing they do much better then Box though is transferring speeds. Especially in Europe big files are a hassle to download from Box.

  • Hernan Mar

    Box currently has the luxury of having an “extremely clear” focus while they are young, relatively small, and funded by VCs. In the long run however, Box will begin to loose that luxury as they will also need to answer to shareholders (When and if they go public) or simply become one area of a large elephant themselves (When and if they are acquired). Google focused entirely on search when they were young, but they, like Microsoft, Oracle, Apple, etc, etc, need to branch out into additional areas in order to grow and stay alive. Bottom line: its the law of the corporate jungle.

  • Anonymous

    Elephants that have free desktop sync as standard and remove the clunky web based only facilities….
    Just saying…

  • Hashim Warren

    Excellent lesson in defensible positioning. Thanks for this.

  • Theo

    Notwithstanding Google’s differentiation, I suspect all would agree that what they are best at is Search. I want Google to differentiate and compete with Box, just as they compete with Facebook (Google+), Apple (Android) etc. They have competed and failed in many cases (especially around their non-core business), suggesting that your view is indeed “defensible”. As a consumer I am delighted with options and can say from my own personal perspective that what has driven my choices have been 1) execution and 2) innovation. Being well funded helps with execution, but innovation has never been monopolized. Right now: Box are the ones to beat. As a stockholder in Google and Apple I would not load up on more stock on the back of the Drive launch yet. Google glasses excite me about Google; not Drive. iPhones and iPads excite me about Apple, not iCloud. I would hate to return to a pre-cloud storage and collaboration world, and having physically visited both Google and Box; and seen the cultures and approaches: I’m excited about the future of the cloud

  • Anonymous

    All I heard was “Dear Google Apps for Business users, blah blah blah please don’t leave!! blah blah blah Google sucks!! blah blah blah we promise we’ll always love you (creepy)”.

    Truth is, Google Health and Google Wave were failures because nobody knew what to do with them. Well guess what? Google has a clear mission with GDrive, and is rightfully giving it top billing in the black Google bar, right next to Gmail. You better be scared, old boy.

    And Google Wallet? The product itself is great, Google just isn’t very great at negotiating with the carriers. Once that is overcome, GWallet will be everywhere.

  • Sai

    Excellent article on how new innovations can continue to flow to find sweet spots.

  • http://twitter.com/ipoBound John McMahon

    Aaron, welcome to my world!

    At least you had the luxury of 7 years of relatively elephant-free savannah, so congratulations on that.

    At Extentech, we launched our web spreadsheet Sheetster in 2005 only to have Google launch Google Docs within a matter of months. That really sucked.

    Since we never had a chance to monetize we had to completely re-position the product as a developer tool and embeddable spreadsheet vs. a consumer SaaS model. Luckily we had another viable product in the market which gave us the ability to fund R&D and make it through the pivot.

    Now we offer an embeddable Excel compatible online spreadsheet editor to companies like Box that want to move away from the somewhat limited Google Docs editors.

    Now that your “partner” Google is starting to eat your lunch, why not take a look at Sheetster as a way to give your customers the ability to edit a Spreadsheet without being sucked into the G-Drive ecosystem.

    We built it just for companies like yours that need to retain the “stickiness” of their platform and not have folks lost to Excel or GDocs while editing their XLS/XLSX files.