Box.net Creates “News Feed” for Business Documents in the Cloud, Takes On Microsoft in Collaborative Software

9/28/10Follow @wroush

If you live or work in Silicon Valley, you’ve probably driven past the Box.net billboard on U.S. 101, near the Ralston Avenue exit (aka the Oracle exit). It says “No Hardware. No Software. No SharePoint.” A brazen dig at Microsoft, the billboard makes the point that Box.net’s system for sharing business documents works in the cloud, without requiring customers to buy their own servers or install special software such as SharePoint, Microsoft’s business collaboration and Web publishing suite.

If Box.net had really wanted to rub it in, it could have added “No cost.” The Palo Alto, CA-based startup offers a free personal version of its online service with up to a gigabyte of storage. Licensing SharePoint, by contrast, is so complex and expensive that the details aren’t even published on the SharePoint website. (You have to call Microsoft to get a price quote.)

Box.net is one of the many Silicon Valley startups gleefully pounding older enterprise-software incumbents over the head with the flexibility and viral appeal of cloud services. But just five years ago, when it was founded by high school buddies Aaron Levie and Dylan Smith from Levie’s USC dorm room with a $350,000 angel investment from Dallas Mavericks owner Mark Cuban, Box.net was just another online file sharing service, alongside Xdrive, Omnidrive, Streamload, and many others vying to help consumers and office workers offload local files to Web-based servers, where they were supposedly safer and more accessible.

Since those days, however, many of Box.net’s competitors have disappeared or imploded. To take one spectacular example, Streamload—renamed MediaMax, then renamed again as The Linkup—went out of business 2007 after permanently losing data for 20,000 customers. Meanwhile Box.net has soared, winning more than 60,000 business customers and raising nearly $30 million in venture funding from top-tier firms like Draper Fisher Jurvetson, U.S. Venture Partners, and Scale Venture Partners.

Aaron LevieSo how did Box.net grow to the point where CEO Levie and chief financial officer Smith—both Seattle natives, and both just 25 years old—feel ready for a head-to-head battle with Microsoft? And just as interesting, why did Levie and Smith decide to focus on the traditionally stodgy enterprise services market at a time when virtually all of their twenty-something peers in the world of Silicon Valley Internet entrepreneurship are building consumer-facing services like social networks, online games, and mobile apps?

I sat down with Levie recently to go through those questions and many more. While part of the message of Box.net’s Silicon Valley billboard can probably be ascribed to the youthful CEO’s brashness, it’s clear that business software incumbents like Microsoft, with SharePoint, and EMC, with its Documentum system, will have to come to terms with cloud-based sharing technology. When a 100-employee startup can come out of nowhere to win 4 million users—offering a collaboration service that requires no initial investment and can be up and running in minutes rather than weeks—that’s what you might call a game changer.

Box.net “is our file system in the cloud,” says Scale Venture Partners managing director Rory O’Driscoll, using words that must strike fear into the hearts of the companies that brought the first PC-based file systems to the business world. “We think it’s a huge trend, and that five years from now everyone will have their files in the cloud, because it’s easier.”

O’Driscoll, who joined Box.net’s board after Scale led the startup’s $15 million Series C funding round in April, is actually a pretty typical example of a Box.net user. He says he uses Box.net’s iPad app to keep up with the required reading for the venture firm’s Monday meetings. “We get a package every weekend of all the business reading we have to do before Monday,” he says. “And what I found is that I can just upload the documents to Box on Friday, so I don’t even get the paper package anymore.” (Maybe printer and copier makers need to worry about Box.net, too.)

Levie says he got the idea for Box.net midway through college, which he calls “a point in time where you have a lot of mobility…You’re moving between the classroom and the library and your dorm room, and there’s a lot of data exchange between your computer and all the people you’re working with on projects.” Levie would exchange files with his classmates via FTP or e-mail, but it was all pretty inefficient. For online file storage, there were dot-com-era holdovers like Xdrive, but they were expensive. Levie needed a project for a marketing class, and he started talking about the sharing problem with Dylan Smith, who’d been his high school classmate in Seattle and was now studying at Duke University. “We decided to build a service that would make it really easy to share and manage information online,” Levie says.

The two dropped out of their respective colleges and used savings from previous ventures, along with $11,000 from Smith’s online poker winnings, to start hiring engineers. One of their gutsiest and most rewarding early moves was to cold-call billionaire Mark Cuban to invite him to invest in the idea. Recently, Cuban has had two cameo spots on the HBO series Entourage, and in one of them, he invests in one of the characters’ businesses. “That was really weird to watch, because we also got an angel investment from Mark, but ours really happened,” Levie says. “So I feel like I was on Entourage.”

2005 was the perfect time to launch a cloud storage company, according to Levie. “You had this lull [after the bubble burst] where there were a lot fewer companies being started in 2003 and 2004,” he says. “But starting in 2005, 2006, and 2007, there was a huge ramp-up. Fortunately we were in the early part of that.” That meant the company could get its story out without a lot of competing noise.

The idea that knowledge workers should have online spaces dedicated to documents sharing—their “boxes”—caught on quickly. “As soon as we launched the free version in 2006, the problem wasn’t getting the first 1,000 or 10,000 customers, it was how to we manage scaling up for hundreds of thousands of new users a month,” says Levie. The “free” part didn’t hurt signups—Box.net’s early users were mostly non-paying customers. (Now the company charges $9.95 per month for individual accounts with up to 10 gigabytes of storage, and $15 per user per month for business accounts.)

While many of Box.net’s early competitors have disappeared from the map, there is a thriving, closely related market for online backup services like Carbonite and EMC’s Mozy. These days, such services even make it possible to browse your files online and load specific files back to your computer. The key difference between Box.net’s service and online backup services, says Levie, is that Box.net is all about sharing information with the right people, not just putting it on the cloud.

To demonstrate the point, he pulled out his iPad and brought up Box.net’s app, and logged into his company account. “This is a stream of all the information that’s being updated within my Box network,” Levie said, pointing to a feed of updates running down the iPad page. “Ben updated an engineering product document. Menaka added a new marketing dashboard update. Shawn downloaded the e-mail activity file. It’s a view of everything that is going on with the content of our business, and all of the different projects and teams and contracts being signed and marketing assets. So the real value is not just getting to your own data, but to all of the data that is meant to be seen by you.”

Of course, users of the iPad app can also call up the documents themselves: the app can display Word files, PowerPoints, Excel spreadsheets, PDFs, and images. So if your office’s workflow centers around documents like these, it’s possible to go through much of your day using nothing but the Box.net app.

At least three factors have prepared the market for a content sharing service like Box.net, in Levie’s view. The first is the rise of a new generation of workers weaned on Facebook and Twitter and the iPhone. “We have all these amazing widgets for communicating in real time, yet when we get to the workplace it’s the opposite of that,” he says. “We have limited access, we’re behind a VPN [virtual private network], it’s not easy to share or use information. We want to build software that makes all of that extremely easy.”

Second is the fact that organizations have a growing need to share content across the boundaries of their internal networks. Systems like SharePoint were designed to be accessible only to people working within a company’s network of Windows computers. But “we may be collaborating with different partners and vendors and clients who are outside our firewall,” says Levie. “SharePoint hasn’t solved the problem with external sharing and collaboration, and that is where we are seeing business going today.”

Thirdly, there’s the growing comfort among IT administrators, whether in large, small, or medium-sized businesses, with cloud technologies. Amazon Web Services and Google Apps have been around for half a decade now. These services “have really shown that the cloud can be as reliable and secure and up-to-date—and way more scalable—than your internal systems,” says Levie. “A lot of IT departments are starting to get behind that, and I think we are the beneficiaries of a lot of education in that category.”

But if Box.net’s timing was good, the company has also made some wise engineering decisions. The biggest was probably the creation of an extensive application programming interface (API) allowing outside developers to build applications that access data stored on Box.net’s servers. Released shortly after the company’s launch—even before cloud storage utilities like Amazon’s S3 service existed—the API got developers thinking about how to build their own systems to make cloud-based sharing more powerful, all of which gives more options to Box.net users.

“Since then, we have done some amazing integrations with LinkedIn, SAP Streamworks, SugarCRM—all brand-new use cases that we didn’t initially anticipate,” says Levie. The iPad app itself, built entirely using data streams already available through Box.net’s API, was another such case. “It’s nothing that a third-party developer couldn’t do,” says Levie.

And Box.net’s enthusiasm for mobile platforms goes beyond the iPad. There’s an iPhone version, and last week the company released a sharing app tailored for Android phones. “If this stuff was all stuck on SharePoint, it would never be accessible on your iPhone or Android device,” says Levie. “But because it’s in the cloud, your phone with its 16 gigabytes of storage has access to hundreds of gigabytes of files.”

Box.net is far from qualifying as a form of social media. But it’s clear from recently introduced features, such as the updates tab on the company’s browser-based interface, that the developers behind the service are steeped in the culture of Facebook. “This is effectively a news feed for your content,” Levie explains. “We have 100 employees, so we have 100 different people creating new presentations, uploading new documents, and creating new contexts for existing documents. To be able to show all of that in real time to the relevant people is really powerful for building a more open and connected enterprise. That’s an area we are going to continue to invest in over the next year—making the service more intelligent and more social and enabling you to connect to more people in your business.”

It’s not clear to me whether the average office worker really needs to be updated every time a colleague tweaks his latest PowerPoint presentation. But it seems inevitable that lessons about sharing and collaboration from the Facebook age will rub off on the modern workplace. To hear Levie tell it, companies in Silicon Valley are simply a little farther ahead on the curve.

“I think we are very early in the cycle of adoption of these tools,” Levie says. “Being in Silicon Valley, we have a head start, and better visibility into what’s coming. With Box, we started the business in 2005, when you could already basically run most of your company in the cloud. So we got to build out a structure that could leverage the cloud infrastructure in every possible way. Most businesses have yet to catch up to that. A lot of innovation is still left to come, and we hope that Box can be a major part of that.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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