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Thought Leaders in Cloud Computing: Egnyte CEO Vineet Jain (Part 3)

Posted on Wednesday, Jul 9th 2014

Sramana Mitra: What happens to Box and Dropbox? Do they get washed-up by Google and Microsoft providing this for free?

Vineet Jain: I will not pontificate to say what happens to them but I can share the general trend. Two years back with the cloud-only play, whether you were pitching to the SMB or enterprise, you could get away with an average pricing per seat of $25 to $35 per seat. Those days are long gone. Now, when you pitch to the same customer with the same solution, you are dealing with a price point which is going down to $6 to $8 per seat per month. In some large volume cases when you’re dealing with 10,000 seat deployment, it gets down to $3 to $4.

The problem with the cloud-only play for the companies you just mentioned is that the margin compression is very high. I can say this with complete conviction because we’ve been dealing with it for the last five years. Unless and until you address the customer acquisition cost, which you cannot balance out with hundreds of people on the field sales – which is what Box has as an example –it’s going to be hard. When your median deal size is around $25,000 a year,that math doesn’t work.

The problem of the economics can be addressed by two things. Either you can go for a higher unit pricing if the market is willing to bear it because you provide so much of differentiated value or you find a cheaper go-to market strategy where the economics makes sense to you. That’s where a cloud-only play with a direct sales force is a very hard value proposition.

Sramana Mitra: This is happening in a lot of different areas where, if you have a large competitor giving everything for free, it is very difficult to compete.

Vineet Jain: Microsoft can give one drive away for free until the cows come home and so can Google because those are not the revenue generators for these companies. Companies like Egnyte or Box, that’s all we live and die by.

Sramana Mitra: Google is a highly profitable company. They can do a lot of things to completely ruin the market for anybody who has to actually make money out of that market. When everybody is out of business, they can come back and monetize that.

Vineet Jain: That’s what is actually happening.

Sramana Mitra: Amazon is using this brutally against their competitors.

Vineet Jain: You saw what Amazon did? In fact, it’s a great example. When they announced Fire, they said, “Unlimited storage for saving your photo.” Sure, it’s for consumers but as I’d always said, storage in the cloud is eventually going to be free. You can’t make money off that. That is not futuristic. It’s already happening.

In order to not just survive but grow, you need to have a viable business model. Ultimately, you have to go to the enterprise mid-market and have two things. This is where I go again with,“cloud-only approach will only go so far”. The reality is, today in enterprise cloud, only 10% of their data has moved to the cloud. Yes, there is a migration of data to the cloud at an increasing pace but even by 2020, depending on who you believe in, 40% of the enterprise data is going to the cloud, but 60% still remains on-premise. So having a platform approach where you treat the cloud and on-premise as interchangeable and fungible entities and not street-jacket people into an either-or approach is going to give you a big leg up than a cloud-only play, and thereby preserve your pricing power.

This segment is part 3 in the series : Thought Leaders in Cloud Computing: Egnyte CEO Vineet Jain
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