Cloud computing, Big Data, mobility management, and collaboration are key priorities in enterprise IT trends these days. An IDC report estimates that by the year 2017, the number of mobile internet users will increase from 1.4 billion in 2013 to 2.3 billion. Within the cloud, Gartner estimates that enterprise spending will increase from $132 billion in 2013 to $244 billion by 2017. Another report from IDC estimates that the volume of data generated will increase 200 times over the period 2005 to 2020.
Cloud-based, mobility-focused, content collaboration services provider Box estimates that all the above trends add up to a $29 billion market opportunity for them. Los Altos-based Box operates on a subscription-based business model, providing free 1,000 uploads per month with a maximum file size of 100 MB. Paid subscriptions begin at $250 per month for 2,500 uploads per month with additional uploads at $0.05 per upload. Similarly, individual developers can access Box for free while organizations need to pay $500 per +25K API Actions per month.
Their products have helped them log over 25 million registered users as of January this year. Their clients include 225,000 organizations that interact with their content over 2.5 billion times every three months. They have more than 34,000 paying organizations globally with names like Ameriprise Financial, Bechtel, Eli Lilly, and Gap. Their largest customer includes a deployment of more than 60,000 users. Their solutions are available in 15 languages worldwide.
Since being founded in 2005, their revenues have grown rapidly. More recently, revenues increased from $21.1 million for the year ended January 2011 to $124.2 million in 2013. As with many new age companies, Box is yet to turn in a profit and recorded a net loss of $50.3 million in 2011 that grew to $168.6 million in 2013. The increased losses are attributed to continuing investments in sales and R&D efforts. Sales and marketing expenses have grown from $36 million in 2011 to $171 million in 2013 while R&D expenses increased from $14 million to $46 million over the same period. For the first quarter of the year, losses grew to $38.5 million from $34 million a year ago and revenues grew 94% to $45.3 million.
Till date, Box remains venture funded with investments of $564 million from investors including Coatue Management, TPG, Telstra Ventures (AVG), DFJ Growth, Itochu Technology Ventures, Mitsui & Co, Telefónica Digital, Telstra, Draper Fisher Jurvetson, Scale Venture Partners, General Atlantic, US Venture Partners, New Enterprise Associates, Bessemer Venture Partners, The Social+Capital Partnership, SAP Ventures, Andreessen Horowitz, Salesforce, Meritech Capital Partners, and Mark Cuban. In March this year, they had filed their S1 in preparation of an IPO where they planned to raise $250 million. However, they seem to have delayed those plans for now and recently raised an additional $150 million from private funding instead. The round led by TPG and Coatue Management valued Box at $2.4 billion.
Box is waiting for a more upbeat tech stock market before they list themselves. They are still looking to go public before the end of this year.
California-based cloud storage services provider Dropbox is also making a mark within the cloud storage business. Like Box, they also operate on a freemium model, providing the basic model with 2GB space free and charging $9.99 a month for the professional version of 100 GB storage space.
Dropbox has been expanding their offerings and recently announced the launch of a photo application Carousel. Carousel is a simple feature lets users browse and share images that they have stored within their cloud space. They have also expanded their mobile e-mail tool Mailbox to help reduce spam on a person’s mail box and save attachments in the cloud. As part of their photo features, they announced the acquisition of Loom in April this year. Loom is a cloud photo storage and sync service provider for iOS devices. They also acquired Hackpad, a document collaboration application, to enhance their document sharing services.
Dropbox has seen revenues grow from an estimated $46 million in 2012 to more than $200 million in 2013. Till date, they have been venture funded with investments of $1.1 billion from T. Rowe Price, BlackRock, Y Combinator, Sequoia Capital, Pejman Nozad, Hadi Partovi, Ali Partovi, Accel Partners, Index Ventures, RIT Capital Partners, Valiant Capital Partners, Benchmark, Goldman Sachs, Greylock Partners, Institutional Venture Partners, Glynn Capital Management, and SV Angel. Their last round of funding was held earlier this year when they raised $350 million from T. Rowe Price and BlackRock at an estimated mighty $10 billion. It is a surprisingly lofty valuation, more so when compared with Box’s valuation. They have not yet disclosed any plans of going public soon.
While both Box and Dropbox may be growing, they are facing tough competition from technology giants. Amazon, Microsoft, and Google have entered into their domain and are making the landscape more difficult by engaging in price wars. Microsoft, for instance, offers 1 terabyte of free storage to subscribers of Office 365 and lets non-Office 365 subscribers pay $2 per month for 100 GB of storage. Similarly, Google offers their business cloud apps at $10 per month with unlimited storage and prices 100 GB data at $1.99 per month. The ensuing price war has resulted in Box also cutting their prices. They recently announced plans to grant all business customers access to unlimited cloud storage for free. But that is surely going to hurt their already red financials.
What concerns me about this corner of the industry is the lack of profitability. While cloud businesses with good fundamentals tend to do very well in the public market (predictability of the recurring revenue streams are very popular among investors), price wars with large competitors that result in gigantic customer acquisition costs and commensurate losses are not.
For more on the subject, you can read my Thought Leaders in Cloud Computing discussion with Vineet Jain, CEO of Egnyte.