Three Secrets Behind the Box IPO

By Greg Battle

“If at first you don’t succeed, IPO again.”

Aaron Levie, the sartorial-minded wunderkind amid the hoodied Silicon Valley masses, is rumored to be taking his company, Box, public today. Along with the hype and excitement have been lots of discussions around valuation, revenue growth and the hyper-competitive landscape Box is in along with Google, Amazon, Microsoft and Dropbox.

However, there are three truths related to platform innovation that are being ignored in many of these discussions:

1: Box is betting its future on becoming a platform powerhouse for developers, not simply an enterprise cloud storage solution.

The linear business of commoditized cloud-based storage is in a race to the bottom in terms of pricing. This decline is due to several factors, including low barriers to entry, multiple incumbents, plummeting drive prices per GB and low switching costs. Some have gone so far as to proclaim that storage itself will eventually become free.

In this environment, developer platforms like iOS and Android will retain their value since they compete on differentiation, not price. By investing in tools, evangelism and community building for enterprise developers, Box wants to power a wave of descriptive business solutions rather than the preponderance of prescriptive ones today. Specifically, Box knows that the age of prescriptive monolithic enterprise software solution is dying in the face of descriptive solutions that are unbundled, focused, nimble, and connected like apps.

Box can be the connective tissue among smart solution providers.

2: Box’s platform strategy allows for monetization based upon usage rather than access for enterprise developers, but it’s not the usage you might think.

Typical enterprise software charged on per-seat access, and in the age of the monolithic solution, this was a good strategy. In the Connected Revolution, where innovation thrives and solutions are replaceable and even disposable, being the connective tissue among them all matters even more. Ubiquitous data access reigns supreme.

This insight might lead one to believe that usage charges on data storage would be the right strategy, but that’s not the case. Box has converted to an API action-based pricing model, which not only differentiates the company from its competitors but also acknowledges that storage, by itself, is a commodity. Customers will pay for infrastructure on a per-action basis.

Freeing everyone from the per-seat pricing model allows Box and its developer network to discover the most active users within an organization. Finding and satisfying your most addicted users is essential for long-term platform viability and extracting the highest possible customer value.

3: Achieving a critical mass of faithful developers will ensure the long-term viability of Box.

There’s an arms race for talent when it comes to recruiting developers as advocates for your platform. API usage turns siloed ideas into global phenomenons. Box’s investment in wooing developers is clear, but it is an investment with a long time horizon for returns.

A strong development community for Box allows for externalized innovation on top of its product that will be funded by its customers. Over the long haul, an active external developer base reduces R&D and marketing costs and expands the platform’s ability to discover new revenue models via iteration. The most viable revenue models can eventually be pulled into the infrastructure of the platform under the guise of standardization.

The greatest threat to achieving this type of platform power is the whims of a short-sighted, quarter-over-quarter revenue growth-seeking market. Only time will tell if Mr. Levie will remain true to building a legion of embedded developer advocates or bend to fickle shareholder pressure.

Greg Battle

Principal at Applico

@gbattle

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Filed under: Platform Innovation | Topics: Box IPO, platforms