Analysis: Week after week, month after month, IBM (NYSE: IBM) deepens its commitment to “cloud” computing as part of its new strategic vision. From an OpenStack acquisition to committing “hundreds of millions” of dollars to big data analytics to this week’s deal with Box, Big Blue keeps making headlines. But is the Box deal one that erases its cloud challenges? No, says Allan Krans, principal analyst at Technology Business Research.
HAMPTON, N.H. – IBM and Box together ease, but don’t erase, challenges faced in cloud
Though Box and IBM are both successful in cloud, both also have some fundamental flaws as well.
For Box, they are a fast growing pure-play cloud vendor with low barriers to entry, a valuable and easy to use product, and relatively strong awareness in a niche segment. However, as a small company, Box is limited in how quickly it can accommodate vertical and geographic needs to sustain its rapid growth rate.
Furthermore, the strain of such a small company doing all the sales and distribution for its offerings is apparent in the large losses incurred in its operations.
IBM is coming from nearly the opposite end of the spectrum, enjoying lots of scale in its distribution capabilities, but lacking the strong connection to the new type of IT customer that is focused on flexibility and ease of use first and foremost.
Although this partnership does not erase the challenges faced by either company, it does a fair amount to address them.
IBM fills another slot in the “want” list for enterprise end users
Very few companies will keep pace with how customers want to evolve the way they use cloud services. Enterprises want to deliver a mobile, flexible service to their end customers, but at the same time need to do that securely, with reliability, and compliantly. Though IBM address the “needs” of enterprise cloud customers, this partnership joins the existing Apple alliance in addressing the “wants” for what end customers expect.
The partnership with Box provides customers with additional storage and collaboration capabilities to wrap around IBM’s cloud and application services. From TBR’s cloud end customer research streams, collaboration is a leading use case for customers moving to the cloud and this partnership directly addresses those customer requirements. With Box’s existing partnerships with leading cloud providers like Salesforce, IBM is now better armed to provide leading applications that include the collaboration and file sharing they need to get more value from their data and files.
The end result is that IBM can now bring a more complete service portfolio and user experience for joint Apple, Box, and IBM customers through this agreement.
Box gets sales relief and checks items off the “needs” list for enterprise IT
Box benefits from this agreement by diversifying its go-to-market strategy and addressing some more of those “needs” on the cloud delivery side. In terms of go-to-market, Box has been able to sustain high double digit growth rates, but is both running at steep losses and seeing the rates of its growth taper over time.
Though revenue growth of nearly 45% YTY in 1Q15 is still notable, it represents a drop-off from the 100%+ rates of growth reported before the end of 2013. Despite the added scale of Box, the efforts in sales and marketing continue to take their toll, accounting for more than 80% of revenue and driving operating margin losses of 70% – 80% of revenue. Though running at a loss in the cloud market is not unique, partnerships like this one with IBM will help add some much needed scale and efficiency for Box’s go-to-market strategy.
In nearly that same vein, having IBM as a partner also enables Box to provide more enterprise class security, compliant delivery, and geographic scale to Box customers. With SoftLayer as a delivery option, Box can now address IT evaluation “needs” like additional security, reliability, and compliance.
By checking those “needs” off the list, it puts more of the focus for Box customers on the value and user experience built into the offerings.
(C) TBR
