Turns out when you get free things online that normally cost money, it’s a relatively easy growth strategy. You just have to be able to fund it.
Turns out when you get free things online that normally cost money, it’s a relatively easy growth strategy. You just have to be able to fund it.
Box.com CEO and Founder Aaron Levie, who has been named as one of the "Top 30 Entrepreneurs Under 30" by Inc. Magazine, was one of the most energetic and enthusiastic speakers we’ve had, cracking jokes and talking really, really fast. It was almost hard to keep up with him! Aaron really knew how to entertain the crowd.
Aaron not only kept us entertained, he also gave us some good insights into the early start of Box and the Cloud storage industry, particularly why Google’s GDrive scared the crap out of him. He told us how Mark Cuban, entrepreneur and investor who owns the Dallas Mavericks, came to invest in Box and why he later split from the company. He also talked about why Box focused on its Enterprise customers.
Feel free to listen to the podcast below as you read through some of the highlights of the event below.
In 2004, when he was just 20 years old, Aaron built a simple product in his dorm room to let people store files online. He saw an opportunity to fill a space that had been left void by the Dot Com Bust. In the late 1990s, there were more companies tinkering with online storage, but many of them had vanished in the post-apocalyptic days after the bust. Those that survived, said Aaron, had limited storage space, horrible UIs and out-of-date business models.
When Aaron and Box’s co-founder Dylan Smith started to pitch the idea to VCs in Seattle, they turned them down because they didn’t want another Dot Com Bust failure on their hands. But the duo eventually got funding and that’s when Aaron cold-emailed Mark Cuban.
Mark Cuban is awesome, but he’s really, really eccentric.
But Cuban is a straight-forward businessman, said Aaron. He likes a very "here’s your cost, here’s your revenue" business model. However, there would come a point where Cuban and Aaron wouldn’t see eye-to-eye, all because of Google.
As early as 2005, rumors were rampant that Google was gearing up for a Cloud service of their own, called GDrive. It was a scary time for Box and Aaron.
I definitely have post-traumatic stress from the GDrive. You have to understand when you’re a small, little startup of five, ten people, and everyday the Wall Street Journal has a headline that says, "GDrive is going to crush the Internet and take every human alive into its fold," you’re like, "oh, god … that’s me."
With rumors flying, Box decided that it needed to dramatically open up its funnel. That’s when the company came up with the novel idea of giving away a free gigabyte of space online. But Cuban didn’t like the freemium business model, because it would mean that Box would have to take on more VC funding to subsidize the cost.
He liked this neat and tidey linear, understandable business model. So what ended up happening is he basically said, "If you guys are going to do this freemium then I don’t want to invest in the company anymore."
So Box found investors to buy Cuban out and they went their separate ways. At first, Aaron said, it was like a bitter divorce.
He wanted to go a different path and we decided we had to go for scale and do it our way.
Freemium turned out to be a boon for Box. It was number one on DIGG the day it launched, getting tens of thousands of sign-ups. In the first month, Box had a couple hundred thousand sign-ups.
Turns out when you get free things online that normally cost money, it’s a relatively easy growth strategy. You just have to be able to fund it.
With the ever-present threat of GDrive and other potential competitors, Box started looking for ways to stay ahead. At first, the company only looked at the competition from consumer-based Cloud services, but soon turned its attention on their Enterprise customers. Here’s why as Aaron put it:
We saw the world as we are constantly going to be in this back-and-forth, leaping frogging on price and storage amounts and all these things for a market that consumers will relatively not value the differences between these services. If one is cheaper, they will always flock to the cheaper service.
As Box edged into the Enterprise arena, they started looking at the competition, such as Sharepoint, seeing what it needed to avoid so it didn’t look like a carbon-copy. So Box hired, what Aaron called, “the best designer in the world” to help make its UI simpler than the competition.
Things that are really deep-end Enterprise functionality that we could then expose as a very, very clean UI that was not going to expose that complexity to the end user. But extract that and focus more of that on the Enterprise administrator. Long story short, that’s our design philosophy.
In 2007, Box decided to focus 100% on the Enterprise Cloud service market and build a different kind of Enterprise software company.
One that is faster, more innovative. That relies on end-user distribution and acquisition of the product. That relies on a new way of selling. That relies on openness and simplicity, and all these kinds of things. And that’s sorta where we are today.
When competitor Dropbox was mentioned, Aaron was very tongue-in-cheek.
That name sounds really familiar. I wonder how they came up with the word box? OK, I don’t want to sound like a Winklevoss guy over here. "If you would’ve invented Dropbox, you would’ve invented Dropbox!"
Aaron’s joke got a roar of laughter from the audience. All kidding aside, Aaron said what Dropbox has done is amazing and how what it did had his company rethinking its centralized data storage model.
Dropbox and other services came along and said, "OK, while that’s cool, we can also make a really easy way to synchronize your data across your own devices and to the Cloud." And we took note of that and our customers really responded very, very enthusiastically to that kind of model. So we’ve had a synchronization team since 2008 that’s been focused on that proposition.
Our chat with Aaron continued as he talked about how there has been a shift in the industry as more and more companies stray away from Microsoft, using more Macs and looking for the best possible solution by mix-and-matching services and products. We’d like to thank Aaron for dropping by our offices and giving us insight into the Cloud storage service industry.
Dmitry: We're excited to have such an energetic, wild crowd here today. Very, very exciting to have all of you show up.
Aaron Levy: That's usually where people go wild.
Dmitry: Whoo! Yes! [laughter] Before we get started, just a quick announcement. I wanted to let you know, we've been tackling this problem for a long time, helping people find product design talent. We just launched ZURBjobs which is a job board to help people find product design talent.
We've heard of this problem over and over again from all of our clients, acquaintances, our friends . . .
Aaron: There's no shortage of designers in the world.
Dmitry: [laughs] We launched the job board, it's in prior release, and we're looking for feedback if you can check it out at Zurbjobs.com, shoot us a note. With that, very excited, super excited, pumped, to introduce, Mr. Aaron Levy founder and CEO of box.net, or box.com, now, right?
Aaron: Yes. What happened was, when we started the company we could only get box.net. We had to emphasize .net as the domain, but we always thought of ourselves as Box. About a year ago we got .com. We decided to drop the
.net in the branding. Now you can check out Box and go to box.com and if you search Box on Google, it's number one.
Dmitry: Nice. Box.net, company . . .
Aaron: No, no we don't say that anymore. [laughter]
Aaron: Let's try that again.
Dmitry: Box Company, you started back in the dorm room right? Turned it to, what is it now, 82% of Fortune 500 Company to use their product?
Aaron: I'm sure it's about 84% by now.
Dmitry: Eighty-four. Nobody's counting, you know, and top 30 on the 30, on Ink Magazine?
Aaron: I don't know.
Dmitry: Yes, I saw that online.
Aaron: Have you been looking at me on the internet?
Dmitry: The internets', yes.
Aaron: So, who is everybody?
Dmitry: These are entrepreneurs, designers, and some are just out there building product out there. Hackers . . .
Aaron: Raise your hand if you're a designer? Okay. All right, everybody wants to hire you. Raise your hand if you are starting a company. Okay. Raise your hand if you are going to try to compete with me. [laughter]
Dmitry: Just one right here, right in front.
Aaron: Who is doing consumer stuff? Okay. Who's doing enterprise stuff? Oh yes! All right, enterprise brothers, thank you. Cool.
Dmitry: Let's get into early days. You have this idea, right? You're in the dorm room. How did this start? It was a project for school, right?
Aaron: Yes it was a confluence of things, if you remember 2004 on the internet, who remembers 2004 on the internet? Okay, great.
Aaron: That was a pretty ugly period on the internet. You basically had a post-apocalypse, bubble stuff, and a few tech companies that were growing. Facebook had just started, Friendster was the hottest thing on the internet, and there was not as much innovation as there is today.
In 2004, when we looked out at the internet it was difficult to share data and information. There were companies that were started in the late 90's such as, X-drive, IDrive, and driveway.com. A funny fact that some people will remember is that Myspace was actually an online storage service before it was a social network. They took the domain name and turned it into a social network. If you would have accessed Myspace.com on archive.com in 1999, it was an online storage service.
What happened is in 2004 there were very few of these companies that had survived, and a lot of them had gone out of business. Very few of them beyond that had updated their business models and their technologies to support a 2004, 2005 ecosystem. Storage limits were, like, you would get like, 10 megabytes of free space on the internet.
Still in 2004, even though the cost of storage had dropped by about 10 times. Interfaces were just horrible, like, god awful. They looked like they were from DOS. Not great design even though AJAX was emerging and you could make a much better user experience around managing your files.
In 2004, we looked at the internet. It seemed like there was this big problem that could be solved around how do you store and share your data from anywhere? That is why we decided to start box.net. It coincided with a project that we were also doing for school.
Dmitry: You emailed Mark Cuban [sp]. What was that exchange like?
Aaron: It was a little bit later in the process. That not, like, first thing I did when we started this company.
Dmitry: [laughter] You were, like, we'll email Mark Cuban.
Aaron: I'm starting a company. I have to read up on Mark Cuban. These are the only two events that are necessary to be on [inaudible 0:05:07].
Dmitry: There you go. [laughter]
Aaron: We started the company, designed the product, built it up, users started coming on board. Raise your hand if you were hanging on the internet and doing nothing in 2004. The top blog on technology was in Gadget and Gizmoto at the time, right? There was no TechCrunch. There was no Tanner [sic] Daily, I don't think there was Rebray[sic] web, was there?
Am I wrong? Gigaom didn't exist yet, and Windows still had Business 2.0 or whatever. There was very little in the way on how you go and market these services, you know, twitter.
The first thing we did was a contest on Gadget. Well, we did it on Gizmoto first, and then we did it on Gadget. I think, we gave away five gigabytes of space to the winner of this contest. That was the largest number we could think of to give out for free to the winner of this blog contest. We just started doing things to help virally promote the service and it started picking up and started working. Mind you, the product wasn't free at that point; it was a pay only service.
We were classic business people and you wanted revenue to exceed your costs. We decided that we would charge for the service.
Dmitry: That's how people did it back then, nothing was free back then.
Aaron: This was before mass popularization of freemium which we later hooked onto, but it was a pay only service.
Eventually we moved to Seattle for the summer, to run the company in the summer of 2005 from our hometown, in Seattle. Is anybody from Seattle here? Okay.
Aaron: How do you like it?
Audience Member: There or here?
Aaron: In Seattle.
Audience Member: I like it here better.
Aaron: Okay. [laughter] A data point of one, but I think it's because it's 100% of people that I talk to. There has to be one more person that's from Seattle. Who didn't raise their hand? No? This is amazing. I can talk any Seattle shit I want. Even the people who look grunge, you're not even from Seattle [laughter]?
Seattle lags Silicon Valley by about 4 to 12 years in internet evolution. What happens is, something crazy will happen down here and Seattle people will read it on blogs three and a half years later [laughter].
By 2005 we were these 19, 20 year old kids, and my co-founder and we're going to venture capitalists in Seattle trying to pitch them on funding this new start up. They were saying, "Look, the last kids we funded were in
'99 and we lost all of our money, so we're not doing that again."
Our co-founder, god bless him, at 19 he looked like he was 12 and-a-half
[laughter.] It looked like he was going to run off to Disneyland with the money [laughter], so I respect why they wouldn't want to fund him, but me?
Dmitry: Manly stallion.
Aaron: Yes. This is what you were getting, it was just, call a friend back then.
It makes sense that we ended up, at the last moment, with a real estate mogul, and some other dude in Seattle putting together enough money. Back in the day when your aims were around was $80,000, we pulled it all together, raised that. Then we started growing faster and reaching out to Mark Cuban.
Actually, we didn't necessarily want his money. Again, remember,the internet, 2005 now. Top 10 blog on the internet was probably blogmaverick.com. We just wanted a guy to promote the service and talk about it.
Aaron: We were just introducing him to the company and he ended up responding, "Hey, are you guys raising money? Do you want an investment?" That was cool. We didn't even have to necessarily pitch him on it.
Now I am up to the point in your story [laughter] [inaudible 0:09:15]
going, I'll get you there.
Dmitry: You get some investments . . .
Dmitry: . . . from Mark Cuban. Talk about the business model . . .
Dmitry: . . . and the disagreement there . . .
Dmitry: . . . premium versus paid, right?
Dmitry: With Mark Cuban going back and forth.
Aaron: You have read the internet [laughter].
Dmitry: I read the interet, yes [laughter].
Aaron: Here's what happened. Is anyone invested in by Mark Cuban, or know Mark Cuban? Raise your hand, I know who I'm offending. You?
Audience Member: I know him.
Aaron: You know him?
Audience Member: I don't know him personally.
Aaron: You've heard of him, okay [laughter]. I could see why you would be the only person raising your hand then. [laughter] Raise your hand if you know who Mark Cuban is. [laughter]
Mark Cuban is awesome. He is really eccentric and that's what happens when you make billions of dollars. He invested in Box when we were a pay-only service. The idea was, you pay for storage in the clouds, you will use it, and you will pay for more of it over time. He liked the in- out, here are your costs, here's your revenue aspect of that business model. As crazy as he is, he likes understandable business models. He doesn't like three dimensions of weird craziness. It's all pretty straight forward in his world; just a side note, in case you ever pitch Mark Cuban.
People would pay for space, then they'll use more, and they'll pay for more, et cetera. We came to Mark in the end of 2005 and said, "Mark, there's all of these rumors about things, like, Gdrive coming on the market, there is Apple that has MobileMe, and that seemed like it'll evolve over time." Remember the company Yahoo? There was this thing called "Yahoo Briefcase" at the time, which could have been evolving.
We were in a meeting with Katarina, and a couple of executives at Yahoo pitching them on partnering with Box. We got an email a week or two later about how Briefcase was going to evolve into this powerful service and we wouldn't need to partner. Briefcase was scary and our way of being more competitive in this market, we simply cannot grow at the rate of simply people paying us, we would grow too slowly.
We decided to give away some space and we will make up for it at scale. It was like the pets.com model.
Dmitry: Right. Pets.com ended up doing well, yes.
Aaron: That is why we probably should not have referenced that [inaudible 0:12:00] mark. [laughter]
We had to dramatically open up our funnel. This is the very end of 2005. We came up with the idea of giving away a free gigabyte of space online. I promise you, you can look it up on the internet; this was novel at the time. In 2006, you could not get a free gigabyte of space anywhere on the internet. Yes, Gmail gave you 5 gigabytes, or free gigabytes, or whatever it was at that point.
That infinite thing is a crock of, whatever. It's growing at kilobytes a month. Back then it looked like it was bigger, but you couldn't use Gmail for storing information but people thought that they could. They would email themselves files and think that was a lot of space.
We decided, let's give away a gigabyte of free space, we'll get way more customers, and we would have 2%, or 3%, or 5%of that. That was the business model. Mark didn't like that as an idea because it meant that we would need to go on and take more funding and subsidize the user base initially through venture capital. He liked the neat and tidiness of a very linear, understandable business model. He basically said, "If you guys are going to do freemium, then I don't want to invest in the company anymore." We decided we would have to get new investors to buy him out, and go along with our model.
We parted with Mark in early 2006. It was sort of a bitter divorce at first, but I think he has moved on, I don't think he cares that much
[laughter]. He has his money and he's fine. We got to this juncture and he wanted to go a different path, and we decided that we had to go for scale and do it our way.
Dmitry: How did you come up with such a crazy idea at the time, right?
Free, free stuff, nobody is giving away free stuff at that time.
Aaron: At that point, we could do what Flickr was doing for photos. We could do it for all storage. We were early in the storage market doing free, but not relative to all services. We thought the math would work and we thought we would scale it up from there.
Dmitry: Did you have some targets you wanted to hit, as far as, how many people want to convert, or it won't work?
Aaron: Yes, we had some estimation. We knew that we were going to be flying blind regardless of the service; we just put it out there and see what happens. It was pretty remarkable.
Remember this site called Digg? Is Kevin Rose here?
Basically, we were the number one thing for Digg for a day, the day we launched. We got tens of thousands of sign-ups the first day. Within the first month we had a couple hundred thousand sign-ups because we opened this thing up.
It turns out, when you give free things online, it normally costs money. It's a relatively easy growth strategy. You just have to be able to fund it, but it was cool. Servers were blowing up and breaking. It was complete mayhem for the first 3 to 6 months of us doing that, and we evolved from there.
I can tell you the next part of the story, but I don't know where you are going.
Dmitry: I wanted to talk a little bit about Gdrive, too. I know that won't be the next event in the story, but yes . . .
Aaron: That will be the next event in the story, but yes.
Dmitry: Somehow get to Gdrive, because I know it scared the bejeezus out of you, and kept you up at night.
Aaron: Every night. It was crazy. I definitely have post-traumatic stress from Gdrive. You have to understand, when you are a small, little startup of 5-10 people, and every day the Wall Street Journal has a headline that says, "Gdrive, going to crush the internet and take every human alive into its folds."[laughter] In 2006, it was like that, and then in 2007, it was like that, and in 2008. Then Eric Schmidt casually mentions Gdrive, and holy shit! All of your investors email you thinking, "Oh my god!" Eric Schmidt mentioned the word "Lighthouse". Do you remember Lighthouse? It was one of the nine code names for Gdrive.
We just got this over and over again. This was now 2006, beginning of 2007. Was this going to be our lives forever? Where any company that then goes and subsidizes this proposition, we are just going to be competing fiercely with? The one initial fear, that all investors had.
The great thing about storage is, as a provider, every single year, 18 months, 24 months, your cost halves, and your density doubles. You basically can store two times the amount of information for the same amount of money.
Seven years after starting the company, we can store data about 15% cheaper than we could the day we launched the company. That is a great thing as a provider because our costs are constantly lowering. It is also a great thing for all other providers. This means that anybody who has a business model where they can subsidize that sort of eventual decay in price is going to be able to get massive scale.
The fear was that Google, Microsoft, and Apple, have these large computing farms, and they'll be able to amortize those costs across all of these other things that they are doing. This would make a single storage provider in a very, very weak position.
At some point that taxed us and we started thinking, "What if Gdrive did .
. ." [phone ringing] Oh god, who's that?
Dmitry: Kevin Rose, I think [laughter].
Aaron: It's either Kevin or Mark Cuban.
Dmitry: It might be Mark. We're streaming live so, or Schmidt.
Aaron: No, I didn't make fun of Schmidt. I didn't make fun of anybody; I didn't hear an invite [laughter]
Dmitry: You talk so fast.
Aaron: Just my co-finder.
You could see that the costs were going to go down over time, that was obvious. The question was; would another company who has an alternative business model than just charging for the storage be able to effectively offer infinite computing and storage?
I will take you to the 2012 version of this problem. Which is even crazier than it was in 2006 and 2007. We saw the world as we are just going to be constantly in this back and forth leapfrogging on price and storage amounts for a market that consumers relatively will not value the differences between these services. If one is cheaper, they will always flock to the cheaper service because we are always looking for ways to save money et cetera, et cetera.
When we called our customers and asked, "What are your alternatives to using Box?" They named Apple, MobileMe. They could use Yahoo Briefcase, and these sorts of things. Eventually, it felt like it would be hard to get people to pull out their credit card for a personal service that somebody else is eventually going to subsidize.
We decided that we had to look for an alternative business model. We start talking to our other customers, our business customers, enterprise customers. We asked, "What do you pay for your alternative services?" Then they started mentioning words that we had never heard of, like, SharePoint, and Documentum, and this crazy, complex, high-end enterprise technology that we were not familiar with. We were only 15 people and we were trying to be an all-purpose paid service.
When we talked to these customers and they were telling us that they would normally be spending hundreds of thousands of dollars on the low end to millions of dollars on the high-end for roughly the same amount of value that we were giving them for $10.00.
You could tell that there was this wide delta in what was then going to be possible, what we could then go build and make possible for our customers. We got this massive amount of input of every feature. Tell us every feature you would want us to build. If you wanted this for the enterprise give us a long list of everything. Amazingly thoughtful and visionary customers that gave us every possible piece of security, reporting, monitoring, control, identity management, innovation.
Dmitry: That's a lot. How do you go through that?
Aaron: It's a lot of emails, texts, spreadsheets, meetings, and whiteboards.
Dmitry: Do you prioritize three of them or something?
Aaron: Four [laughter]. There's probably five to six different...
We took all this input from our customers, we then looked at things like SharePoint and said, "If we do look into these things over here, we're going to end up looking a lot like SharePoint over time so we are going to avoid these things."
We got so lucky. We hired the best designer in the world. This guy was able to take extremely complex things, that in SharePoint; they manifest these things as complex things. In our world, we could have them show up as really elegant, simple ways to interact with security policies and permissioning.
Things that are deepend enterprise functionality that we could then expose as a very clean UI that was not going to expose that complexity to the end-
user, but would rather extract that and focus that on more of the enterprised administrator . That's our design philosophy, we can talk more about that later, but basically the idea was; we got all these requests, we've said which ones were going to be most implicable to the most number of customers, and that is the rough prioritization.
Aaron: Which things allow us to execute on our vision, and are most applicable to the widest number of customers. That was the calculus, and we constantly went through the latest stuff that people were looking for.
In 2007, we hired our first sales guy who was all-star VP of sales at that time and is today. We said, we are going to become an enterprise software company. From that day forward, we decided to focus 100 percent on enterprise, and we will build a different kind of enterprise software company. One that is faster, more innovative, that relies on end user distribution and acquisition of the product, which relies on a new way of selling, openness, simplicity, and these kind of things. That is where we are today.
Dmitry: How did you react when Dropbox came in? Are you friends with Drew?
Aaron: I was thinking, "That name sounds familiar, I wonder how they came up with the word box?"
Dmitry: Yes. [laughter]
Aaron: I don't want to be a winkle boss guy over here. [laughter] You invented Dropbox! You would have invented Dropbox! [laughter]
Kidding. Drew and I go way back. It's cool what they have done, it's amazing. There's just no question. This again will bring us to modern day. Does everybody remember Rightly [SP]? Rightly got acquired by Google, became Google Docs and a week after Rightly launched in 2005, I called Sam Shillace[sp], the CEO of Rightly. There were three or four people on, and I said, "Is there any way that you could take a document from BOX, open it up in Rightly and save back Rightly into Box?"
This made sense because you have this cloud service where your data would be more interacted with at the web level in the browser. We bounced off some ideas, tried to figure out how we could possible make it work , then all of a sudden, Sam said, "I'm not going to be able to speak to you for the next 6 weeks." I thought that was awkward . . . [SS] . . . it was,
'Google buys Rightly" and I was thinking, "Damn you!" Rightly got acquired and became Google Docs et cetera.
The way that we thought about the world was, especially in collaboration, in collaboration the proposition is a lot less about my relationship with my data on my computer, my devices, and me. It's much more about my relationship with you and your data, and the data I have access to that you are working with et cetera.
We went with more of a centralized platform model where data will effectively get checked into Box. Everybody would put their data into the central environment and you could have unlimited amounts of these. In my Box, I have access to about 120,000 files within my corporate network and maybe 300 different kinds of collaboration environments that I am working.
The model was; you would not be able to scale that on my desktop. It had to be a cloud service where it was a web based model. We had built up with that as the paradigm. Dropbox and other services came along, and that's coo. We can also make a very easy way to synchronize your data across your own devices and to the cloud. We took note of that, and our customers certainly responded very enthusiastically to that kind of model. We've had a synchronization team since 2008 that has been focused on that proposition.
For enterprise customers, it's all about how you connect your computers up to the cloud, but it has to go one step further. You have to make sure that information is collaborative. We like the technology, and we have applied some of our concepts on this idea of, how do I connect my devices, the people I'm working with, the other platforms I'm working on, in an enterprise context.
We want to be more of the oracle of this space, minus all of the bad connotations, because of our focus on the enterprise.
Dmitry: How did you guys meet with Drew?
Aaron: I don't remember.
Dmitry: [laughs] Was he inspired a lot by Box? A little bit?
Aaron: Okay, what? [laughter] We met up in '07 or '08 when there were two people. I try and track everybody who is putting anything . . .
Dmitry: In the space.
Aaron: . . . in files, so watch out. We got to know each other and learn what they're doing. It's a very, very, big market and we are focused on different things, but we certainly see them in the market.
Particularly as the pro-summer enters the SMB and the SMB looks like a consumer, it's that middle of the marketplace, where we see each other most significantly. We don't do anything in the consumer space. We don't want to connect to your TV's, your cars, or Xboxes, and we're not really going to be the best way you are going to share photos.
However, when you are a pharmaceutical company, investment bank, or you are a consumer goods Fortune 500 company, we want to be the absolute best way that you are going to manage information at scale in your business as opposed to a SharePoint, or traditional on-premise infrastructure.
Dmitry: Got you. You mentioned design strategy . . .
Aaron: Yes, I was just trying to fit into the group [laughter].
Dmitry: Hey, there's a lot of designers here. Tell me more about that. Tell me more how you guys make decisions.
Dmitry: Which things to bring in and which things to not.
Aaron: Little known fact, does anybody remember, I don't mean to ask that question that way. I apologize. Can anybody remember what was the Microsoft... Two dollars, or, how much money do I have? Okay. I don't have any money. [laughter] All right, no reward. Cool, no. High-five if you remember the product from Microsoft that was the Photoshop competitor. It was really horrible.
Audience Member: [audience calls out answers]
Aaron: I am sure there are five, but I only used one. This is the Microsoft way of doing things, no, no. Anybody else?
Audience Member: Live, something live.
Aaron: Maybe, but I don't remember the name so I'm asking, I'm trying to get somebody...[laughter]. It came with front page. No, no. You could open and start designing it in this other product. Nobody? Nobody was this lame?
Come on. [laughter]
Anyway, somehow the front page came with this design. The Photoshop lite, really crappy thing, and in high school I got very into it because it was easier than Photoshop and that works better for me. I got into designing in high school, a lot of graphic stuff. I designed the first two UI's in versions of Box and all of the marketing stuff. If you go to archive.org back in '05, you can see our website, the hideous version; that was me. I thought I was good at it, and I liked design.
Is there nobody that knows the name of this thing?
Aaron: No, you call yourselves designers! [laughter] Should I maybe Google this? Does Google help? Bing, maybe, can solve this problem? [audience interaction]
Dmitry: Not paint, Microsoft paint. Yes. [laughter]
Aaron: Although, the latest version of paint will let you do some crazy shit. Window 7, paint has a couple of interesting things.
Audience Member: Undo it?
Aaron: What? Undo it? [laughter] Yes, you can undo it for three times. Nobody remembers this?
Dmitry: I don't think they do.
Audience Member: I want to say Photo Editor but that's not right.
Audience Member: A couple people saying Picasso.
Aaron: No! Microsoft! Fine, you can say words if you want. [laughter]
I got really good at that, which again, is a very low bar, in the design world. Everyone will remember this one I think. Remember Swish, the really, lazy man's flash editing thing? No offense if you still power your life on that.
I then got into Swish. I didn't do anything in flash, but Swish is actually pretty good at doing mock ups and designs because you had all of the main components. You had gradients and layers and shapes, and all these things. Most of our website was designed as Swish things, then turned into a PNG, and cut it out.
Long story short, we have always liked design a lot. When you look at SharePoint, Lotus, Documentum, and even traditional, deep infrastructure stuff, there is no design, there is no usability, and there is no UI that is pleasant to look at. We decided we would just frickin' over-invest in design. We have a bunch of designers at Box that are completely focused on how to build the best user experience relative to what you would ever expect from enterprise software.
We try and do a couple things. First we try and abstract anything very complex from the user. That is the first way we solve a lot of problems. In SharePoint, when they add new features, they add it as a new button, when they add new components they add it as another tab.
In our world we do a lot of calculus. We say, "What market is this going to fit for? How many people is this relevant for? Do we need to hide it a couple layers back, or is this something that you will only run into progressively if you need it?"
You do a lot of work to say, "Okay. If your user is not running into 'X'
scenario, don't show them 'Y' information, or don't show them that button that is only useful if you are this kind of person and user." That is on the main UI of props, and then what we said was, "Enterprises need a lot of functionality." This is why enterprise software companies keep coming. This is why Microsoft is worth $240 billion dollars. This is why IBM is worth over $200 billion dollars, it's why Oracle is $150 billion dollars. These guys have to build legitimately complex things.
We said, "Okay. We will build legitimately complex things, but we'll make them abstracted from the people who don't want the complexity." If you load up Oracle European Financials, it's confusing as hell because they didn't do that. They showed you everything that was possible at the system. We decided we were going to let the enterprise IT administrator, the enterprise IT buyer deal with all of that complexity. We have an administrative platform which has all of the right tabs you need and all of the right settings because you only run into it once every couple of months.
We started doing a lot of breaking down of: is this something you are going to actively use, yes, no? If no, then it goes in this section of the UI, and there is constant running of that. Two days a week we have designer review, where all new products come and funnel through one designer you process where, it's me, it's our product managers, it's our designers, and we move buttons to pixels. We have to get everything as right as possible simply because this is our competitive advantage against SharePoint, EMC, and Oracle, because they are not doing that.
Dmitry: Do you get feedback from customers?
Aaron: Yes, tons and tons, usually not on the UI as much, but absolutely on functionality and usability. Certainly they're biggest contributor to telling us what we need to do.
One of the interesting things about the enterprise world as much to the consumer space is, this changed with our kind of business. We are free and because we're cloud, we have a lot more scale than your traditional enterprise software companies. We get a lot more visibility and do what people are doing on the site. We have all of the real time analytics of what's going on, on the servers, how people are using buttons, and what people are using. We will do meetings every couple of months that say,
"Hey, it turns out that .03% of our users are clicking this thing. Can we remove it?" We will say, "Yes, throw that feature."
We are constantly doing the kind of iterative things that you would only see from a consumer internet company by applying that to the enterprise, and that is our agility, and our competitiveness, that is important.
In the enterprise phase that you have as an advantage is, you have a lot of people in the sales organizations that are talking to customers constantly. Most people in technology are scared of sales organizations because they can then create a massive road map and massive commitments that you will never be able to adhere to. That was our fear at first, until we realized that we can have a more thoughtful execution of that.
Usually your product analytics, and what your customers are doing on your site, can only tell you the things that you have exposed to them as functionality. This is pretty intuitive, but what your sales people can do, the people in the service organization can do, and what you can do by talking to customers, is to understand more of the context in which your product fits in their world.
It's the things that happen before they use your product that then help instruct us to what we should be doing next. It's the things that happen before and after the events on our application. The things that our data can never tell us, that we, then, get a lot of instruction for what we should be doing on our roadmap and what we should be building.
We can continue to consolidate more of the ad hoc processes and the complexity that they have in their applications into a very seamless way that they can use our service.
Dmitry: Let's open it up to questions out there.
Audience Member: Digital Image Pro, Image Suite. Digital Image Pro, Publisher.
Audience Member: Microsoft Photo Editor.
Aaron: Image Editor! Isn't it Image Editor?
Audience Member: Image composer.
Aaron: Image Composer! I think its Image Composer.
Dmitry: Boom, Image Composer, $1000. [laughter]
Aaron: What was that? How much do I pay you? [audience interaction] Okay,
$2.00. No, that's when I thought I had cash, I think it was nothing.
Dmitry: A high-five, I think. A high-five. [audience talking]
Aaron: I think that was it, yes. Did any of you use Image Composer?
Dmitry: Let's open it up...
Aaron: Okay, one guy. What do you use now? Hopefully still not image composer?
Dmitry: OK. Let's open it up to questions.
Audience Member: What was the functionality of the very first product? How did you get your first underwriting?
Aaron: Before all this lean concepts, there was just a rotten, put together, product that made sense. Our first version was; how do you store files, how do you share files; either you access your files from different computers. I think we had a mobile version, no; the mobile version was three months in. It was just html version that you would load up from something like, a [QSR] phone or something. The first version was plain old MVP, but it could do enough that you would pay money for it.
This is the state of the market. In three months of work, we had something that was probably more advanced than the people who had been around for seven years, simply because those guys stopped building their technology which is an important lesson in the technology industry. Don't stop innovating.
Dmitry: You're right. Go ahead, back there.
Audience Member: [inaudible 0:37:33]
Aaron: The really amazing thing about cloud and freemium is, you get the best optimization of the freemium business model. If you thought consumer freemium was cool, enterprise freemium is even better. What you have is this perfect juncture of, if I'm the user, all I care about is getting my job done and I have no budget to do that. Nobody is giving me much money to do that, I need something that is fast, cheap, and easy. That is our freemium product.
If I am an IT buyer, I need something that is secure, robust and integrated. That is not very conducive to a very lightweight freemium kind of product. What you have in our business model, and a lot of other businesses are building similar to ours is, "Let's get the viral low touch, get as many users as possible into the enterprise, that will give us the right distribution spread across a very wide range of businesses." The 'X'
percent of those businesses that want the better, more secure, integrated technology. "I want it to plug into my active directory system and my identity management platform." They will pay because they value those things and they have a big budget.
We are microscopically small, compared to what they are spending on Oracle every year. What we do, is we let freemium be the distribution mechanism, and then we add partnerships. as well. We will partner up with mobile device manufactures and other platforms out there, but the vast majority of the product comes from the free user base.
It's really cool, because not only does that act as a lead gen tool into our sales funnel, it also does one interesting thing that we didn't realize at first, is it helps us navigate where there is the need for Box is. It effectively acts as a proxy for a company that says my company can't share files. When P&G has 200 users up from 50 in a week, it is telling us that SharePoint is not working in this organization, and that is going to be a hot spot for us.
It does two things for us. It feeds in customers to us, they raise their hand, and then they want to upgrade to the new stuff. It also helps us directionally know where there's a problem that we can go solve.
Audience Member: I have a question about your sales strategy in the enterprise, coming in through business users versus IT, and how you manage that, always tension. Is IT starting to welcome you more? As typically, enterprises are very Microsoft-centric in . . .
Audience Member: . . . everything they do in the desktop and collaboration.
Aaron: Yes. Do you mind?
Dmitry: I'm not sure I can do a downward dog . . .
Aaron: How ergonomic is this chair, really? [laughter]
Here's what we are seeing, five years ago we would not be able to sell Box to a CIO. Five years ago, the CIO would say, "I am an all Microsoft shop, I'm all Windows, I use Microsoft Exchange, Microsoft SharePoint, I use Microsoft's SQL server." People are building applications on Access, just crazy shit. That is what my enterprise runs off of.
This is five years ago, and for Box to be in the enterprise, it would literally be because the department is running into a problem and they have provisioned Box on their own. That would be the only way we would break into an organization.
A couple series of events, that had nothing to do with us, but greatly benefited us and every other start up out there in the enterprise, which were, the sales force got critical mass as new cloud platforms that you could rely on for your business. Users on web services came out of nowhere and really helped push the cloud model. Google Apps got significant traction for Gmail and low class cloud applications.
These three things started to happen, and they started getting very critical maps in 2005, 2006, 2007, and 2008, time range. Remember, none of those guys were in the traditional Microsoft stuff. Already now, you have IT buyers that are saying, "Okay. There are different services out there that I'm starting to look at." Those three things happened, and then the next thing that happened was the iPhone.
The iPhone came out, and instead of everybody not having a smartphone, and thus having no need for applications to run on the phone, they were enterprise ready, and you just had voice, or Blackberry which was deeply integrated into the enterprise, but all you could do was access your email. You now had a device that could access all of your business information wherever you were, but there were no applications that were ready for it, and there were very few things that you could do.
The iPhone enters in a price. All these customers start saying, "How do I start to get information from this device?" Microsoft is certainly not supporting it, IBM, Oracle is not supporting it. Then Android comes out, and that's another attack on the traditional armor and system. Then the iPad comes out, and this is no longer a toy that lets you communicate and be in a portable web browser. This is a real business computing device.
We have everything from the sales people in the pharmaceutical industry to, investment bankers in the finance space to construction workers on construction sites, using the iPad to do the vast majority of computing they would normally be doing on a laptop because most of their stuff was consumption anyway.
That guy is a little late. [laughter] Does he work here?
Aaron: Okay. Cool.
Basically, you had all of these cloud services merge. You had mobile devices that couldn't be supported by the enterprise, merge in massive quantities. You then had a recession that was the third compounding effect which meant that nobody invested in their technology at that point. Users kept bringing in their own devices and their own applications to solve their problems. All of a sudden this gets to a tipping point where in 2010 the CIO wakes up from the recession and look into their organization. They have iPhones, iPads, there's sales force, Google Apps, Amazon, and for the first time in history, it's not logical to call up Microsoft first for your technology strategy.
Very few of your technologies are on the Microsoft stack. Microsoft, in a five year period, partly because of what they had screwed up on, and partly because of the dramatic forces that they could have no control over, went from a world where you could buy everything from Microsoft and everything would be under Windows Microsoft stack, to a world where everything is far more ad hoc, best of breed, I'm going to mix and match the best solutions.
Two extreme examples; the CIO of a major law firm that everyone would know the name of, is 50% Mac, and very few of their technologies are Microsoft. This is a law firm, all they care about is security of data and information management. They buy very little Microsoft, 50% of them are on Macs, and continuing to tip more in favor to Macs over time.
Number two, the CIO of DreamWorks down in L.A. has almost no Microsoft. The people that are making the phones are on Linux and open source. The people in finance and HR are on traditional ERP systems. The people who are more creative in the marketing are on Macs, they are on Google Apps kind of shop. In that world, Microsoft is doing almost nothing to power their environment.
I think over a period of a few years, that kind of emerged, that is still the bleeding edge, these guys are still on the edge of the industry, but it's very easy to see why that will continue as a trend. When that continues as a trend what you have is a massive market for startups, where customers are not only going to Microsoft and saying, "What do you have next that I can go and support?" You have more of a world where, "I, as a CIO, am going to implement the best of breed solutions for my enterprise. It is going to be a work day for my ERP or HRM. It is going to be net speed for my ERP, it is going to be success factors for my performance management, Google Apps for my email, good data or some other player for my business intelligence." This is becoming a responsible, best in the class, IT model.
It all happened in a three or five year period and it's made it possible for us to be able to go have and credible conversation with the CIO.
Dmitry: We are out of time, but if you guys have questions, come up here after. Thank you.
Aaron: Yes, thanks a lot. Cool.
Dmitry: Aaron, thanks for coming.