Will Box Replace Documentum and Microsoft SharePoint?
In recent years, Box has repositioned itself as a cloud content management provider from its B2B storage roots. This transformation started a decade ago, and it started paying off over the last year as the company has enjoyed record revenue growth, achieving positive free cash flow for the second time and edged ahead of Wall Street analyst's expectations in its latest financial results. The results from the first quarter of fiscal 2018, which ended in April, illustrated that revenue for the period was a record $117.2 million, an increase of 30% over the first quarter of fiscal 2016. However, Box CEO Aaron Levie made sure that the vendor has no plans to rest on its laurels, saying "we're starting over right now" after Box's Q1 report. In this article, we will shed light on the transformation the company has gone through so far and what the future direction is they are heading from here.
The Evolution of Box
Founded in 2005 by Aaron Levie, Box filed an S-1 indicating it was ready to IPO in March, 2014 because for a long time, the vendor was a rising Silicon Valley startup star, as the company disrupted the traditional enterprise content management space dominated by companies like EMC, IBM, Oracle, and OpenText, putting the end user first and offering a more intuitive user interface and cloud service. However, things didn’t go as planned at that moment. Initially, investors were dazzled by the company’s impressive growth by retaining high-profile enterprise customers like Toyota, Southwest Airlines, Procter & Gamble and GE and tended to ignore the fact that the vendor was losing money at the same time. However, the numbers on that S-1 were alarming considering the market was getting more conservative. That situation left the company in darkness for 9 long months, and then finally the company went public in January 2015. Even the CEO commented on the long wait on Twitter:
Fast forward to the last five quarters where the company has grown from $90.2 million in Q1 2016 to $117.2 million in the most recent quarter, Q1 2017, generating positive free cash flow for the last two quarters from its cloud-software. Today, the company operates around the world with 1,600 employees while the company claims 74,000 paying customers, which is also up 3,000 from the previous quarter, including Komatsu, McDonald's, Morningstar, Saipem and a number of US state services.
From the industry standpoint, though, Levie believes that their growth proves the need for cloud content management. “We delivered year-over-year revenue growth of 30%, grew billings 31% and generated positive free cash flow. These results demonstrate the significant need for cloud content management in all industries and the inherent leverage in our business model,” Levie explained in his most recent quarterly report earnings call.
Even though generating a cash flow has always been one of the main objectives for the Redwood City, California-based company, a key part of the company’s overall strategy has been replacing legacy enterprise content management systems from Microsoft, IBM, Documentum, and OpenText. On that note, here’s what Levie claims:
“We are seeing increasing momentum from customers looking to move to Box and retire the legacy content management solutions over time. For example, in North America, a large financial services institution selected Box as their cloud content management platform for all of their unstructured data. We will be replacing Documentum, migrating more than 10,000 SharePoint sites to Box and we will integrate with a variety of existing on-premises and cloud applications.”
How will Box Hang onto its Market Share?
Even though Box seems to be en route to becoming a profitable and well-established enterprise collaboration and content management service provider, it still begs the question; how will Box hang onto its market share? There are two main objectives on the company’s agenda for the 2018 fiscal year that may address this question; product innovation and global expansion.
In terms of product innovation, the vendor’s strong commitment to cloud and mobile was what helped Box thrive quickly in the first place. Box took a different approach than the legacy ECM providers like EMC, IBM, Oracle and OpenText by focusing more on end users while the large software vendors were making software for IT. With this approach in the core of the product strategy, Box has added new capabilities to its platform and gone beyond being a storage product to enterprise collaboration and content management platform so much so that today, high-profile enterprise customers have started switching to Box for their content management needs - Cisco, GE, Airbnb, and Uber to name a handful. Additionally, Facebook made Box available as a content management platform within its Workplace offering.
“We have incredible examples, companies like General Electric and Coca-Cola and many others, where Box is really seen more as enterprisewide content management and collaboration platform within both the employee base as well as powering some of the more critical business processes. At the same time, we benefit from the fact that Box can be deployed, unlike some enterprisewide SaaS companies where we can be deployed for specific departments or groups within organizations,” said CEO Aaron Levie.
Now that the company has successfully capitalized on the transition to cloud and mobile, once and still the major transformative change, for moving forward, the company is currently working on new features powered by artificial intelligence. "The first core principle is that we have to grow fast enough to capture this opportunity," says Levie.
In terms of global expansion, Box is planning to take advantage of a strong partner channel. To do so, it has been expanding its strategic partnership deals with the big players like IBM and Microsoft. The vendor claims that they see a lot of interest for Box across the world so to capture that excitement they will closely work with regionally specific partners. In Japan, for instance, the company has already been leveraging its strong partner channel as the market is mostly channel oriented in that region. Even accelerating their current success, Box teamed up with Fujitsu with the hope of expanding its footprints in the Japanese market.
While Box's revenue for the full year is expected to be between $502 million and $506 million, Dylan Smith, Co-founder and CFO at Box, said: "With our leadership position in cloud content management, loyalty of our install base, and roadmap for continued innovation, we are well positioned to achieve our $1 billion revenue target."
First off, reporting a positive cash flow alone is great news for the company because it means that they have established a successful foundation that sails without outside capital. Secondly, all these favorable financial figures prove that Levie was right when he said that becoming a public company was the best move he could have made, pointing out it would be more difficult to raise cash in the tightening private market. Given that the company saw year-to-year growth of 70 percent when it came from one of its new products, called Box Governance that simplifies the use of Box for enterprises that deal with complicated regulations, Box seems to stand a high chance to accomplish the goal of reaching to $1 billion revenue by 2021 through product innovation.