Box is an online sharing service for businesses. It’s founder Aaron Levie established the company in 2005 after realising there is an opportunity for creating an online storage platform. Before the company was officially established, Levie needed a cofounder. He contacted his high school friend Dylan Smith and invited him to participate in the project as an investor and cofounder. The two avoided summer internships and jobs and in favour working on their new company. In July 2004 they managed to rise $80,000 for 25% of the company from 4 people, some of whom were retired venture capitalists, and the end of the summer 2004, the company had more than 1,000 paying customers. Responsibilities were growing with the number of users. The founders came to a decision to drop out of their colleges in order to solely focus on what would be called Box. The two moved to Levie’s uncle’s garage in Berkeley, California, where they could be closer to Silicon Valley. In 2006 the Box raised its first institutional funding and moved the company to Palo Alto with Levie, Smith, and two their partners Sam Ghods and Jeff Queisser. According to Jeff Queiser during that time “there was a lot of confusion around what Box should do and what Box should be” (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014).
Marketing Tactics
During the same time in 2006 Box started experimenting with the freemium model. The company began giving away one gigabyte of storage for free with an option to upgrade to a premium account with more space for extra monthly fee. Levie thought such methods would increase the number of sign ups, and help Box grow faster (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014).
Before 2007, Box was incredibly similar to what later the early DropBox would be. However, in 2007 the company decided to pivot and change their target market from individual consumers to businesses. The main reason for pivoting was newly introduced online storage products by Microsoft, Apple, and Google that were focusing on consumers. The products of those companies were either cheap or free, and were imposing a great danger to the startup (Gunzel-Jensen, 2015). Levie and his partners also realised they were chasing two different groups that wanted different products. Individual consumers wanted an easy to use platform that would allow them to share photos, videos, music, and would have an integration with social networks such as MySpace. The other group consisted of small and medium businesses who needed security and wanted an integration with other software as a service platforms such as salesforce.com. The team understood that it would be difficult to keep up with developing different products for the two groups at the same time, and after persuasion by investors decided to focus solely on businesses, because they believed that those clients would be more sustainable in the long run. The major problem in pivoting was that the team did not know exactly what kind of product businesses wanted. They started conducting interviews with clients in order to identify what clients’ needs were, and found out that technical challenges were not that strict, and Box could implement them rather quickly (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014).
By 2008, small and medium businesses were emerging as customers. They did not need sophisticated technologies as entreprises required, and could not afford solution from established companies such as Oracle or EMC (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014). Because software as a service is usually paid on a monthly or annual basis, and companies pay for using it and do not have to buy software itself, it becomes affordable even for small two-persons shops.
In 2008, Box approached its first corporate client, Procter & Gamble. However, Box did not just approach them with trying to sell the product on per-seat basis. Instead, the company offered 100 for free, with a hope to sell seats for 120,000 Procter & Gamble’s employees later. The move also allowed Box to have a company for reference calls and usage in their marketing materials. Because the strategy was successful, they continued providing a limited number of seats for some other clients too (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014).
Notwithstanding the fact that Box was focusing more on corporate clients, one of the major lead generation tools was the freemium model. As in case with DropBox, Box used its product as a Trojan horse to get inside of the corporations. Frequently, by the time buyer contacted Box to purchase a corporate product, the most of employees could be already using it. Individuals would try a product personally, and then introduce it to coworkers, and so this way the news about the product would spread (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014).
The company used some traditional marketing techniques as well. For example, in the early days of focusing on corporate clients, it had a number of billboards along California’s Route 101. The message was quite aggressively positioning Box against SharePoint, mockingly highlighting the routines customers had to deal with when using software of corporations like SharePoint, Oracle, IBM and others. The message on the billboards was showing that Box was after content management and read, “Box.net is like SharePoint but without the servers, setup costs, manuals, downtime, firewall restrictions, migraines, permissions issues, three years development cycles, hardware maintanace, storage limitations, backups, VPN, certification courses, browser incompability, setup time, hair loss, Microsoft…” (Miller 2015).
Box implementing the freemium model is a traditional example of how the model helps to leverage business. In the second year of operations Box had 500,000 registered users and the number was growing quickly (Gunzel-Jensen, 2015). Using the freemium model is a reliable way to grow the number of users fast. Furthermore, those numbers can be used when pitching to investors and negotiating investment rounds. In that second year of operations (2006) Box received $1.5 million in A-Series funding, and the year after that in B-Series it received $6 million (Gunzel-Jensen, 2015). Although not all users were paying, the numbers could clearly demonstrate the interest in the product.
However, what can be considered a mistake made by Box is a mistake of missing an opportunity to give an initiative to users to share the product. Many cloud storage platforms working on the freemium model allowed users to receive a part of the product for free for sharing the product with others. That strategy helped Dropbox to attract a large number of users for a relatively cheap price. Uber also motivated users to invite friends by providing existing users with promo codes, that would give them and new sign ups some dollar amount towards their uber accounts. Implementing a similar program within Box could also potentially bring more customers to the platform. Furthermore, for the free version users, Box limits on uploaded files were and still are 250mb, which is significantly lower than what competitors offer (Butler, 2014). Such limits, though, might not be a problem when working with text documents, could discourage users who need a cloud storage platform for working with large files such as photos and videos.
What Box did extremely well was working intensively on the corporate client’s’ side. Aaron Levie has been personally traveling to many clients a day to ensure that all their needs were met and the clients were happy with Box. It helped the company to create a good image and also market Box’s CEO as one of the most iconic and caring businessmen. This was a clear message to potential enterprise clients that Box would be working on their side trying to support them as much as it can, compared to other tech corporations such as IBM that have been charging large fees for their support and consulting services (Lane, 2014).
The decision of giving up on the consumer market, and primarily focusing on business sector might have been a right decision. If the the two target groups are compared, it is difficult to evaluate which one is more profitable for the business. Box shifted to business customers, because the team was afraid of the competition on the consumer market. However, Dropbox that was launched in 2008, several years after Box, was imposed to the same threat, but did stay primarily focused on the consumer segment. If a valuation is a measurement of success, then Dropbox is far ahead with its January 2014 valuation of $10B compared to Box’s July 2014 valuation of $2.55B (“Dropbox” 2016; “Box” 2016).
The idea of using a kind of tailored freemium model for corporations might be one of the reasons Box managed to enter the enterprise market. Large corporations require track record from other companies when using their services or purchasing something from them. That is why offering them part of the product for free in order to secure the client is a clever decision, that should yield profit for the service company in the long run. Having a large corporation in the portfolio opens doors not only for other enterprises, but also increases credibility in the eyes of smaller companies who can use the same services enterprises use.
While the freemium model tactics were quite successful, traditional marketing might have been not the best choice for Box. The company possibly have been relying too much on it. Although the Box’s revenues are growing fast, the company is still losing money. The main drivers for these losses are sales and marketing costs. In 2013 Box spent $171 million for those expenses, while bringing in revenue of only $124 million. Other expenses added, Box had a net loss of $168 million in the year ending January 2014 (Wilhelm, 2014).
Understanding
Although marketing strategy was working well with consumers, it did not properly target corporations. Box realised that they did not provide information about safety and quality of the product, something corporate clients would be particularly interested in. When interviewed by Shalie Gaskill, Whitney Bouck said that he “wanted to be able to do a top down and bottoms up selling motion where we could get virality at the grass roots level that proved the users love the product, and use the enthusiasm to get the early buy-in of senior IT stuff to say, “Oh, this is a safe option. We could endorse, and embrace, and offer this to our users as something they will love.” (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014). Notwithstanding new messaging, selling to big clients still is rather challenging. Corporate clients prefered to deal with larger and established firms such as SAP or IBM. Often managers of large corporations would be afraid to make a decision to purchase products of Box, because of the lack of track record (Gaskill, Shalie, Robert Siegel, and Robert Burgelman, 2014). One of the possible actions the company could implement is to find new ways to target corporations. Using a Trojan Horse is probably one of the most reliable techniques the company is using. If Box manages to fuel growth within the consumer segment, it is likely to get into the enterprises as well through employees.
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Wilhelm, Alex. “Box Files For $250M IPO On Full-Year Revenue Of $124M, Net Loss Of $168M.” TechCrunch. N.p., 24 Mar. 2014. Web. 25 Apr. 2016.
Butler, B. (2014). Nine free cloud storage options for small businesses. Network World (Online), Retrieved from http://search.proquest.com/docview/1511415431?accountid=17238
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Gaskill, Shalie, Robert Siegel, and Robert Burgelman. “BOX: BUILDING THE NEXT GENERATION ENTERPRISE SOFTWARE COMPANY.” Stanford Graduate Business School of Business Case SM-215, April 2014.