The Commoditization of Cloud Storage. An Interview with Box CEO @levie

Posted in: DataFox, Startups, Video Notes, Amazon, Cloud, box, dropbox, ipo, fortune, SaaS, @levie, aaron levie, BoxHQ, cloud storage, Dan Primack, Microsoft, Moore's Law

Levie Video Notes

Aaron Levie is the 'lead magician' at Box and is the number one person you should be following on Twitter. Levie was interviewed by Dan Primack at the Fortune Tech Conference about the future of the enterprise, including...

  • Box competing with Microsoft (and big announcement #1)
  • Storage Wars (and big big announcement #2)
  • Storage and the enterprise - is it winner take all?
  • Gartner’s Magic Quadrant
  • Bonus: Gartner's Magic Quadrant though the DataFox Sector Explorer

Box competing with Microsoft (and big announcement #1)

Primack: “Historically you haven’t said the most positive things about Microsoft as a company... So why team with a company that you seem to at least think is on the decline?”

Levie: Is Satya still here?

Primack is referring to Box’s integration with Office 365 - one of the two big announcements the day of the interview, and a big deal in particular, since it was only two months ago that Levie wrote “An Open (letter to) Microsoft urging the incumbent from Redmond to open up! Not to get too far off topic (unlike most CEOs, Levie did actually respond), but it helps to provide some context. On March 27th of this year a version of Microsoft Office for the iPad was launched, and it only took 4 years (the first iPad was released on April 3, 2010). Businesses around the world cheered...tears of joy were spotted on the faces of Enterprise CIOs. Fair play to Microsoft, the company has mastered the art of building suspense. But there was only one problem... Users could only upload and save files from a little known cloud service called OneDrive - which is about as natural as doing a Bing search on your iPad for "what happened to the Zune?" This was a problem, although not a technical one.

Over a month passed, and on April 28th Microsoft had a OneCloud announcement. In a post, (ironically) titled “Thinking outside the box” the company's VP of Office closed off by saying:

The cloud is about breaking down walls between people and information. Not building a new set of islands in the sky.

That same day - in a post of his own -  Levie responded by quoting the above, and saying that:

By keeping Office 365 users on the closed OneDrive “island,” Microsoft is stranding hundreds of millions of users and customers that have chosen Box, Dropbox, Google Drive, and others. And by releasing Office on the iPad without the ability to view or edit documents from any cloud service other than their own, they’re making it harder — not easier – for users to get the most out of their software.

And closing off with:

I’m personally excited by the revitalized and innovative Microsoft we’ve seen under Satya Nadella’s leadership. At Box, we believe in the power of the cloud to break down walls, and welcome the opportunity to work with Microsoft to make it a reality.

Now, Office 365 is integrated with Box. This is important, given that most businesses rely on Microsoft Office, and over 240,000 businesses rely on Box (like Toyota, Procter & Gamble, and most recently General Electric).

Businesses Using Box

Back to the interview.... Primack asked Levie about Microsoft, Levie joked, and now for his response:

Why team up with a company that you seem to think is on the decline? Box’s strategy has been very consistent and commensurate with where the market has been. Microsoft in the 2000’s was very much a closed ecosystem. They did not have an open platform approach. The strategy of the 90’s, which kept going through the 2000’s, was “own everything, control everything, and make sure to shut off the competition” - Levie remarked.

We (Box) built our product for a very different kind of world. A mobile, cloud, heterogeneous, best of breed kind of world, and that meant by definition that you are going to go up against Microsoft and try and tell a very different kind of story.

With Satya Nadella taking over from Steve Ballmer the story changes. We are seeing a different Microsoft and customers are seeing a different Microsoft. The company is much more open and is fast becoming platform-agnostic, which means that going forward, it requires a different approach from Box.

Storage Wars (and big announcement #2)

Storage WarsImage from A&E's 'Storage Wars'

Gone are the days of Outlook users being prompted to empty out their inboxes since they’ve reached their 100MB limit. Box is now offering Unlimited Storage to business customers. Large enterprise customers have long been uncapped, but now, every Box business customer (paying $15 per user per month) can experience the joy - or lack of pain - of not having to think about running out of space ever again. The announcement was made in a blog post called The End of the Storage Wars - suggesting that unlimited storage is the way the industry is heading. Is it just a matter of time until the rest of the industry follows?

In the interview with Dan Primack at Fortune’s Brainstorm Tech Conference, Levie said that yes, unlimited storage is inevitable from some of the other players: Google, Microsoft, Amazon, Apple (notable exclusion of Dropbox), but for the enterprise-focused Box; unlimited storage was always the plan. While this may seem like the escalation of a storage war... We’re actually approaching the end of one. When it comes to the enterprise, storage pricing is just one battle. Collaboration, security, device management, compliance, and usability are required to win the war. Can those additional services become commoditized?

I’d actually argue that storage has always been a commodity. When we got into this business people asked how are you going to differentiate when storage is a commodity? We said, we are not really building a storage company. We are building a company that lets you do new and different things with your information (mobile access, collaboration tools). It’s not particularly news to us; it’s just that the amount of storage today that we can give customers is far larger and much more significant than we could previously.

Innovators innovate. It’s the law.

We talk quite a bit about Moore’s Law in the technology industry, the observation that over the history of computing hardware, the number of transistors in a dense integrated circuit doubles approximately every two years. The technology we use in our everyday lives - the supercomputer in our pocket - are possible because of Moore’s Law. Without it there would be no smartphone, only a privileged few will have car phones, and the mainstream will experience the hardships of finding a bitcoin that fits in the pay-phone slot. What we don’t talk about as much, is that the same efficiency trend is happening in storage technology. This is the reason why YouTube can store all of the world’s videos. Why Wikipedia has no limits to amount of encyclopedia content contributors create. It is why Gmail effectively gives you unlimited email storage. The same trend has led to a 22,000x improvement in the cost of storage over the past two decades.

This 22,000x improvement in storage costs is the reason Box can offer uncapped storage. The Storage Wars were short lived and are now over.

If Moore’s Law is commoditizing storage, what are the industry prospects for a cloud-based blue Box? Levie is bullish.

I think we’re at a point of transformation and transition where hundreds of billions of dollars of spend in software, hardware, infrastructure, technology - from the enterprise side - is migrating to the cloud. It’s migrating to companies like WorkDay, SalesForce, Google Apps, to Office 365, and we’re at this transition period where the IT model of large enterprises is changing pretty radically. Our job is to go build the platform for how businesses are going to use their content in those enterprise environments.

In healthcare that’s going to mean how do you collaborate around medical images, in media & entertainment it will be how do you collaborate around video, and in law firms it’s going to be how to do contract management in the cloud. Larger enterprises are making this change and it’s beginning to re-work entire business models and entire business processes in these enterprises. We want to be the platform for how businesses work with their content.

Enterprise Storage: is it winner take all?

When it comes to paying enterprise customers the market dynamics are winner take most. Levie describes some of the core horizontal use cases that are universal across all large enterprises (accessing files from anywhere, sharing with anyone, etc.) and how there will be a range of solutions that go deeper into problems that a specific department or even an entire industry may have. For example, the software needs of a financial services firm differ from that of a healthcare provider. Employers in charge of Social Media use different tools than HR, which is different than Sales. By predicting that software providers in the enterprise are winner take most, Levie is saying that the majority of IT spend will go towards the main software providers - the data backbone of the organization. This is not entirely different than the current distribution of IT spend, except that today’s platforms are inherently open and are hosted off-premise.

We are very much moving into a heterogeneous world even when it comes to cloud, file sharing, and content management platforms, but CIOs and enterprises are probably only going to sanction one solution as the corporate standard for that broad set of horizontal capabilities, but you’re still going to see enterprises use different solutions in that mix as well.

Gartner Magic Quadrant

Primack: Gartner recently came out with their first Magic Quadrant that dealt with your space. They were very complimentary towards you, except, the only real caution they had was… [Levie cuts him off] Levie: Is that the first time this has ever happened at a Fortune event?

Primack: It is. It’s the first time I’ve ever said the word Magic Quadrant in my life. [context: Dan works for Fortune].

Primack: They talk about the fact that you guys are only public cloud, that Box doesn’t have a hybrid-private model. Do you agree with that? Do you need to move towards that to get into a better quadrant?

Levie: Oh we’re in the best quadrant. There are only four quadrants and we’re in the best one.

Magic Quadrant

On July 7th, 2014 Box was recognized as a leader in Gartner’s first ever Enterprise File Synchronization and Sharing Magic Quadrant. We are the only cloud provider in the leader quadrant - Levie proudly remarked; referring to Citrix, EMC, and Accellion that together with Box accompany the (sought-after) top-right quadrant. The report lists some notable absentees, and  it’s a testament to the quality of these enterprise companies that have made the inaugural cut. Although a company like Dropbox (that was included)  is a consumer company that just happens to be good at enterprise, Google happens to be good at everything, and BitTorrent “provides synchronization mostly for consumers” (the reason given in the section Noticeable Absences).

The transformation of the enterprise is only beginning. Bring your own device signifies that consumers have a clear preference for consumer quality enterprise software. Enterprise file synchronization and sharing is the name of Gartner’s list (although that’s only a subset of what they do). The iPad is the tablet of choice for sharing files in the enterprise - yet Apple is nowhere to be found. Companies are overstepping previously drawn boundaries, and it’s harder than ever find the distinction between "just a feature"and an enterprise focused product offering such as Box.

Speaking of Features…

Sector Explorer is a free tool from DataFox that lets anyone quickly analyze the interconnectedness of a sector. You can visually explore the 19 companies on Gartner’s List and for those of you with a DataFox login, the full watch list is here.

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