Last month we wrote about our thoughts on Gartner’s ECM Magic Quadrant for ECM. For the Gartner post, we were surprised that Box, while not included in the overall evaluation of ECM vendors, had a considerable note for small to midsized companies as well as a reference in the IBM review as a strength of IBM. This post will present our analysis and recommendations in regards to the market factors that will contribute to Box never being truly on par with other serious ECM vendors.
Serious ECM – Evaluating Feature functions versus the marketplace
In reviewing Gartner as well as prepping for this article, we wanted to get away from a technical “can the product do this” article and focus on the other, non-technical, market factors that distinguish serious ECM from file sharing and collaborative tools. As a consulting firm, we do still get a serious amount of RFI’s that typically have the same questions and weighting (someone seems to be sharing a template out there). The first two questions are typically:
|Library Services||Does the proposed solution provide document check-in/check-out capabilities and document-level security? Describe.|
|Version Control||Does the proposed solution provide version control for documents? If yes, does it support both major and minor versions? Explain.|
Rather than evaluate Box on what the product can do (and what the engineers say the product will do in the future), we thought we would evaluate more of the reasons that, despite adding the above or other ECM functions, what are the market and other factors that will influence the success of Box against other ECM alternatives.
We would define serious ECM as more than just the ability to access ECM capabilities but also the governance and compliance DNA to enforce consistency for serious ECM challenges. Some examples from our clients:
- Managing the SOP documents for a life sciences, high-tech, or plant operation.
- Managing millions of policy and claim documents for an insurance company
- Managing the ultra-sensitive and secure R&D documents for a defense contractor
Serious ECM requires that the solutions be used correctly for every document or the results could have major implications. While Box (or other ECM alternatives) might be able to answer yes to RFI questions (or at least say the product will do these things in the future), serious ECM requires customers to understand where the product is positioned in the market for their given application. Understanding the obstacles/opportunities that might impede, distract or enable a vendor like Box to play in the serious ECM space is the focus of this article.
Box – A short history
For some background on Box (see Wikipedia for additional information)
- Started by Aaron Levie (present CEO) while a student in 2004. Left school to pursue full-time in 2006. Initial investor was Mark Cuban ($350,000).
- Leveraged a “Freemium model” where consumers can sign up for free but are charged for additional features or functionality. Best article on early box approach in 2011 available from Forbes – “Box.Net and the Freemium Business App” – also see follow-up article from 2014 from Forbes – “Why Box, The Latest Tech IPO, Is Losing So Much Money—And What It Says About The Future of Tech”
- Has pursued market share via freemium as well as with massive capital investments. Has never been profitable as it has built up losses in pursuit of revenue growth and market share.
- Went public on January 23, 2015. IPO price was $14, Opened at $20.20 and closed at $23.23 (highest price). Declined to low of $10 between March and July of 2016. Current price (as of November 30th) is 15.48 – up despite the other tech stocks struggling over the last two weeks.
- Box’s revenue has been growing quickly from $124 million in year ending January 2014, to $216 million in 2015 and $302 million in 2016 with expected increase for January 2017 to somewhere close to $400 million. Box’s net income has reported losses of $168 million in 2014, $168 million in 2015 and $203 million in 2016. Last quarterly earning call on November 30th reported a loss of $37.8 million for the quarter, down from $55 million for the previous year’s quarter along with revenue $103 million, a 31 percent increase year to year.
Box has capitalized on the Cloud, Software as a Services (SAAS), mobile and the file sharing success of applications like DropBox and a variety of other file sharing tools.
Gartner’s thoughts on Box for Small to Midsized Companies (Full Report available here)
Clients looking for basic content management needs with a focus on mobility and external collaboration should consider Box. The company is traditionally viewed as an EFSS vendor, but it has made several functional changes to expand its document management and content handling tools in classic ECM directions. Features such as tagging and metadata, life cycle management with retention and legal hold, content protection across devices, applications and storing at-rest content in multiple regions have been added. These enhancements make Box a viable option for organizations looking for basic content management tools. These capabilities would be in addition to Box’s already-mature EFSS and collaborative tools. Box’s U.S.-based cloud data centers are compliant with FINRA, HIPAA and FedRAMP standards, making it attractive for midsize regulated industries. Potentially, Box can provide ECM and EFSS capabilities with less time and cost investments than a traditional ECM tool. Because the service is cloud based, it minimizes the impact on IT resources. Customers can also leverage Box’s partnership with IBM to provide more traditional ECM functionality beyond Box’s basic content management services.
In pursuing ECM, Box added two notable Documentum veterans since 2011.
- Whitney Bouck joined Box as SVP and GM in October of 2011 (left in December 2015). Whitney was with Documentum from 1995 to 2011 in a variety of roles ending as Chief Marketing Officer at EMC/Documentum.
- Jeetu Patel joined box in August of 2015. Jeetu has been at EMC/Documentum from 2011 to 2015 ending his role as GM of Syncplicity (direct competitor to Box). Jeetu’s previous role was a leader with Doculabs, a well-respected analyst group heavily involved in ECM and AIIM.
From 2011 to today, Box has been hinting that it would continue to add more ECM like functions. See a key graphic from the recent third quarter earnings call in regards to the products and how they are moving from Enterprise File Sync and Share to Enterprise Content Management.
Reason #1 – Why Box will never be serious ECM – Collaboration does not lead to ECM
Box’s greatest strength, the ability via the Freemium model to quickly have users store, share and collaborate on documents in the cloud, is the greatest hindrance it to becoming a serious ECM alternative. From the interface as well as the perspective of Box users, users can quickly do anything they want with a simple interface with minimal governance. For serious ECM, the concept of an enforced data model, rules on meta-data population as well as security are key requirements. Collaboration users
- Don’t think (or didn’t pick) the collaboration tool for it’s ECM capabilities
- Can be confused by features that are just bolted on (for example – why use check-out/check-in when I can just upload the file again?)
- Want the key feature of EFSS in that the documents themselves are always “synced” to their many devices. Typically serious ECM solutions want many of the documents to never be shared outside the network or on different devices.
In some ways, we have heard this story before. In 2010, SharePoint was seen by most in the ECM vendor marketplace as a serious disrupter of the ECM industry. Despite the ties to Microsoft, tons of enterprise customers, proprietary links to Microsoft Office, hugely competitive pricing (basically giving it away) and a war chest of cash to invest in SharePoint, SharePoint’s collaborative sprawl (unknown sites, no governance) had the effect of pushing serious ECM users from even considering it for their applications. Lots of other collaboration efforts by the ECM vendors themselves, including multiple Documentum efforts with eRoom (killed by SharePoint) and Syncplicity (competitor to Box that has been since sold off) have confirmed that collaboration/sync and share doesn’t always tie to serious ECM.
One great paper by Gartner – “From EFSS to ECM – Consider the Spectrum of Needs in Your Content Management Strategy” included the following quote.
EFSS tools will meet the basic collaboration, mobile and content needs of midsize enterprises in less regulated industries. However, not all EFSS products support the existing and future content management needs of many organizations. Midsize organizations should look for solutions with capabilities beyond core EFSS functionality to support their specific content management needs…Organizations in highly regulated industries are more likely to require an ECM product than those looking for simple collaboration capabilities and mobile access with content management features. Midsize organizations with strong legal and regulatory needs should consider an ECM solution that has stronger content control and includes imaging integration with line-of-business applications.
Reason #2 – Why Box will never be serious ECM – Integration Requirements and Custom Development
Serious ECM is more than just the ability to store documents with searching and meta-data. Many of the more complex systems include integration into a variety of other applications. Some examples:
- SOP systems typically have a tie to training and configuration management.
- Contract Management will have ties to Vendor Management.
- Insurance ECM will have integration ties to Policy and Claim systems.
- Accounts Payable ECM will have ties to SAP or other accounting systems.
While Box provides the ability to store documents, the ability to easily integrate to/from systems that are often behind the firewall can be complex and difficult as well as justifying replacing existing integrations to other ECM systems.
As an integrator, we have been working for years with clients that look to avoid custom development with configuration but, for certain client specific requirements and integration (ex: security, attribute population…) some custom development may be required. Box took a never customize/multi- tenant approach early on as presented in the Forbes Article where Levie criticized Microsoft for providing and environment where programmers could tweak SharePoint.
Most of Box integrations are with other cloud partners (SalesForce, WorkDay….). Box does have a good API set for some integration. See related post for some of our own API development as we have helped clients move from collaboration on Box to in-house ECM solutions but we have never seen leveraged to integrate into more serious ERP or other back-ends.
Reason #3 – Why Box will never be serious ECM – Development Partners
Box, like OpenText, initially began as the solution that “didn’t require integration partners”. While this fits well for a SAAS based “one size fits all” collaboration tool, Box is looking to develop out more of a platform (think Salesforce). Box has never really developed a community of different vendors to build out solutions for different applications or verticals. Documentum’s success in life sciences is as much a part of their focus as well as the different offerings from partners including CSC, TSG, Glemser and others.
Going forward, Box is aggressively partnering with IBM. From our experience as an ex-IBM partner, Box partnering with IBM is not going to inspire other development partners to pick up Box where they know they will be competing with IBM sales and consulting.
Lastly, in our experience, most development partners are “born and raised” with the ECM Vendor. At TSG, that was growing up with Documentum (1996) and Alfresco (2006). With ECM, many of us already have our ECM “dance partners” and picking up a new partnerships take a long time. It is difficult to see Box having the focus to add serious development partners so late in the game.
Reason #4 – Why Box will never be serious ECM – IBM Partnership
In the Gartner report on ECM, Gartner found a strength of IBM included:
IBM’s technical and business partnership with Box enables IBM to offer innovation and new user experiences to its traditional enterprise customers by leveraging integration with Box’s cloud-based EFSS capabilities.
The relationship with IBM complicates Box’s ability to add ECM in regards to competing with IBM’s own serious ECM toolset. Would IBM really encourage them to build out ECM (or Watson) replacements? Many are surmising that the relationship is a first step in buying Box by IBM (especially if the stock price stays low). With a pending purchase, would Box add components that compete against IBM products?
Reason #5 – Why Box will never be serious ECM – On Premise and Cloud Based Infrastructure Competitors
Most ECM tools currently exist behind the company firewall. Box will have difficulty ripping and replacing these systems for multiple reasons:
- On Premise – Certain industries (insurance for one), have requirements, PII concerns or other regulations (documents can’t leave the state for some insurance) that require on-premise. As a cloud only solution, Box can never take the market-share from the ECM vendors that include clients that continue to support their own data centers.
- Multi-Tenancy – While Box is/will be able to offer more private clouds, it’s DNA is all about leverage from a multi-tenancy approach in both hosting and software. Box does offer private cloud solutions to remove multi-tenancy from the infrastructure but the core Box capabilities are for a multi-tenancy approach.
- Cloud Alternatives – Box, by maintaining their own infrastructure, cannot offer (and competes with) Amazon, Azure or other cloud based alternatives to on-premise. Clients that have committed to Amazon for other infrastructure will look to extend that infrastructure with ECM that can run in their private Amazon or Microsoft cloud.
Box will counter that new products “Box Zones” leverage AWS and we would expect more partnering with AWS and Box (unless the IBM purchase happens) but that is not the point. Serious ECM is sold to both business users and IT. Box’s freemium model can end up with business users buying Box with minimal IT involvement. When it comes to on premise or AWS cloud, IT will have influence for serious ECM in regards to on-premise, cloud and multi-tenancy and could push back for non-consistent alternatives like Box.
Reason #6 – Why Box will never be a serious ECM – Pricing
While we can’t provide specifics here (Software/SaaS pricing is incredibly dynamic), Box pricing includes both the ECM capabilities (the software) as well as the hosting (the hardware – includes CPU and storage). From discussions with clients, Box is pricing three to four times higher than many clients on-premise maintenance costs for their existing ECM solutions. While the Box price, given the reduced need for client infrastructure and maintenance, will probably pay off in the long-run, it is difficult to see clients that are traditionally very short-sighted giving up control of cost components. Quote from one client:
“What guarantees do I have that, once they have all my files, I will be locked in and the price will go up?”
Again, the combination of partnering with IBM, a consulting firm not known for low prices, would infer that the cost of integration could be high as well.
We have talked about it here before but many of our ECM clients continue to “kick the can” down the road for their legacy ECM solutions. Can they justify the move to Box if it doesn’t save money in the short-term?
Reason #7 – Why Box will never be serious ECM – ECM Competitors and their offerings
It isn’t as if Box is entering and empty marketplace. Most, if not all, of the ECM vendors offer collaboration and partnerships for EFSS. Some examples of cloud based offerings/partnerships:
- Documentum buying (then selling) Syncplicity
- Microsoft SharePoint Cloud Offerings
- OpenText offering SAAS with their own hosted environment
- Documentum Project Horizon to offer cloud based options to extend their on premise or cloud solutions.
- Alfresco partnering with Amazon
ECM vendors aren’t staying still and, from what we can tell from our customer base, are not being moving these documents to Box.
Reason #8 – Why Box will never be a serious ECM – Collaboration Competitors
It isn’t as if Box is dominating all EFSS. Multiple competitors and other entrants are beginning to disrupt Box.
While Box is a leader, this area is very fluid as disruptors can easily emerge when it comes to other ways of file sharing. (ex: Slack). Box began with a clear competitive focus on Microsoft and SharePoint specifically. Competitors will continue to emerge with a clear focus on Box and DropBox. Some would argue that Box is adding ECM capabilities to hold on to clients as Box becomes more of “yesterday’s” hot tool. Adding ECM will not help hold on to collaborative customers who can always just pick the next hot tool, reducing Box’s market share for collaboration (and the funding that goes with it).
Reason #9 – Why Box will never be a serious ECM – Understanding the technology pivot
As mentioned above – the Forbes Article is a great reference for understanding Box’s somewhat different business model. In a nutshell,
- Freemium – Box works on giving users free access and then working to upsell them as well as the enterprise where they work. It is an interesting model but requires a ton of marketing and sales to attract those free users and turn them into paying customers. Back in 2014, Box was spending 137% of their revenue on marketing. In the recent 3rd quarter earnings call, marketing was 81% with plans to reduce the percent tied not to reducing the amount (60 million per quarter) but by continuing to grow revenues.
- Enterprise Sales – Selling to big companies (who buy ECM) is a long sales cycle. It takes patience and the losses are being reduced but are still loses.
- Subscription fees – Box is selling for a subscription which can be a great business model with recurring revenue but the revenue needs to keep recurring. Will Box be sticky enough to hold on to customers with the wide range of alternatives? So far the answer from the earnings call appears to be yes (95% recurring revenue).
Let’s face it, ECM (or File Sharing) is not as sexy as the latest hot product. A quote from one of our clients that is struggling with ECM and Box was:
Well it was 2013 and everyone wanted Box back then……..
As Box is hunting for more revenue to continue to fund growth, what is the likelihood that they don’t pivot to something else more trendy? They are experienced with the freemium/marketing model (and a huge email list) and could easily be distracted away from ECM to a messaging (Slack) or other hot tool in the pursuit of the “next thing” that doesn’t carry the complexity of serious ECM.
Summary – Box for serious ECM – SharePoint 2010 Déjà vu?
In lots of ways, Box becoming a serious ECM alternative mirrors our thoughts and experience around SharePoint 2010. In lots of similar ways, Microsoft could add features to SharePoint but would collaborative users want/use them to do serious ECM functions? SharePoint did become more ECMish but the speed and use of collaboration and the issues with SharePoint sprawl led to SharePoint being branded in a certain way so that users either loved it or hated it. It is hard to envision Box, that doesn’t have the capital, market reach, EMC history, and considerable competition, not having the same issues moving from collaboration to ECM.
Pretty long post – thanks for reading. Please share your thoughts below.