Box, the cloud storage and file-sharing service that filed papers for an initial public offering in late March, has delayed its trading debut to ride out some turbulence in the tech market. Shares of cloud companies Veeva Systems, Workday, and Service Now tumbled throughout March and April, though they’ve since recouped some of those losses. A broader sell-off in the tech sector has also eased up. Box, for its part, got a break in early May when it sealed a deal with General Electric to deploy Box’s cloud services to some 300,000 employees across the company. The planned IPO that Box hopes will raise $250 million is now “weeks, not months” away, Quartz reported earlier this week.
While a few months’ delay may have soothed the market jitters, the bigger question is whether that time has helped resolve Box’s existential crisis: how it differs from any other cloud storage company. Box faces stiff competition in the cloud from both other startups, such as Dropbox, and powerful incumbents, such as Google (Drive) and Microsoft (OneDrive). On Monday, Apple also upped its cloud ante, unveiling a major update to its iCloud system at the Worldwide Developers Conference that makes storage cheaper and promises to sync files between not just Mac devices but also Windows computers.
The increasing commoditization of cloud storage, if not of the services that pile on top of it, has caused some concern among investors that a company like Box will not be able to differentiate itself from key competitors. “Companies are giving away more and more storage, and the price of storage is just going down,” says Peter Wahlstrom, senior tech analyst for Morningstar. That’s good news for consumers—cheaper space!—but bad for the businesses that sell it, and the trend shows no sign of reversing course. “We think pricing is going to continue to compress,” Wahlstrom adds.
On the other hand, Box would have you believe that this weakness in the business of cloud storage ultimately plays to its advantage. “That’s just the architecture of our service—what we ultimately offer in terms of value is all the services that go on top of the storage,” explains Aaron Levie, Box’s 29-year-old CEO. “We benefit from the commoditization of storage because it lowers the cost of delivering our solution.” Stripping out the jargon, the idea is that when all storage is created equal, Box’s customers benefit—the customer gets more bang for her buck, and the devaluing of storage also forces Box to focus first and foremost on the cloud services and customer experience that layer on top of it.
In terms of services, Box believes that it has carved out a unique place in the cloud through its focus on enterprise: In addition to the deal with GE, it has contracts with companies that include Ameriprise Financial, Gap, and eBay. Levie thinks one of Box’s main selling points is that it offers the kind of streamlined experience that usually goes with an app or service geared toward individual users, but for the scale of a business. While Dropbox has focused less on the enterprise side, well-entrenched giants like Microsoft and Google, and maybe Apple, can’t be discounted in that domain.
Speaking of Apple, the company’s most recent update to iCloud isn’t something that cloud services should shrug off. Steve Jobs, after all, did vow to destroy Dropbox after the startup rebuffed his acquisition attempt in 2009. But the shadow iCloud might cast on smaller cloud storage competitors also comes with a silver lining. As part of its Monday WWDC presentation, Apple introduced an “extensions” feature that will allow users to move data between applications more easily and save it wherever they like. That means a document stored in Box could be opened in an editing or note-taking tool, worked on, and then saved back to Box. Levie calls this an “incredibly powerful use case for Box” and its 25 million customers. The question in coming weeks will be whether Levie can sell investors on the power of that use case, too.
