What is the future of enterprise? Box’s co-founder and CEO Aaron Levie offers a peek into that future in a recent lecture he gave to Draper University students in California.
The latest research from Gartner suggests that the enterprise software market reached more than $320 billion last year, a 6.9 percent increase from 2013. Moreover, another study from MarketsandMarkets projected the enterprise collaboration market to soar from $47.3 billion last year to $70.61 billion in 2019.
These types of figures that would please a business such as Box, an enterprise cloud company, which is becoming an important force in this segment of the overall enterprise software market. It offers 10 gigabytes of free online storage and charges fees for extra storage. Box currently maintains a userbase of 32 million users.
Box recently generated quite the buzz when it debuted on the New York Stock Exchange at $20.20 per share in January, pricing the data storage provider at $1.67 billion. This had been one of the most anticipated tech-related IPOs in recent months.
Aaron Levie on Enterprise
Levie recently spoke with students at Draper University. In his 15-minute speech, Levie discussed how the future of enterprise has changed and how Box evolved and surpassed its competition.
He started his talk by discussing the time when Box introduced its service simultaneously to both customers and enterprises. When it launched the free service, he realized that it was growing rapidly with hundreds of thousands of new sign-ups per month. However, this presented a huge strategic challenge because, at that time, Box didn’t know what kind of company it wanted to be when it grew up.
The management realized that they were facing challenges from both sides of their business. Consumers wanted better functionality and more storage for photo and music sharing, while users also had several alternatives, such as Microsoft, Google and Yahoo. These services were giving consumers lots of free storage because they had ulterior motives. Microsoft wanted to sell its software, Google wanted to increase sign-ups to Gmail and Yahoo! wanted more traffic so they had reasons to give away infinite space.
On the other hand, enterprise firms wanted security and more effective tools to manage their data but for enterprises, there were no substantial alternatives available. In fact, most enterprises hated the products they were using and hated the prices even more, Levie explained.
Box realized at that time that by trying to cater to both segments, it was underserving enterprises and overserving consumers. This resulted in an awkward gap and put Box in a situation where it was not excelling in any market. The company then decided that it would be better off finding a price point in between the high prices of alternative vendors and its low price. In 2007 Box decided to exclusively focus on the enterprise market.
One of the biggest challenges of dealing with the enterprise market is that you are selling the software to the buyer and not to the end-user. Under the traditional model, vendors approach a huge panel of IT buyers and convince them to buy their technology. The problem here is that the CIO is the one who is making the decision but he is not the one who will actually be using the technology, Levie noted.
Box decided that the old model was fundamentally flawed and that it was time to approach business differently. The new model, as explained by Levie, would comprise of these five basic elements:
Simple Software Solutions
This would entail building directly for the end user and to bring your technology to the people who would be using it and not the CIO.
Under the traditional model, vendors would use a sales team that would go around asking organizations to purchase their software. This could take up to 12 months and then the product may finally be purchased, and then it would take another 12 months or so for the organization to actually implement the software.
During this time, new and improved technology may arise, making the old one obsolete fairly quickly. Levie’s freemium model is based on the concept that people should go in and adopt the technology for free. This would help them see if the technology is useful and will encourage them go out and choose those vendors.
Customer Delight & Customer Satisfaction
Once a sale was made, that was it. With cloud solutions you have to provide service every month because customers are paying every month. If you don’t provide the service they will drop you and move on to someone else. So you have to design better software and provide stronger services to remain competitive.
Under the old model: enterprises would buy all technology products from one or two vendors. Under the new model: since there are so many new kinds of tools and a much more open system enabling users to go out and select the right technology.
As part of the previous model, software was either shipped through CD or downloaded making the rate of change for the client very limited and expensive. But with cloud technology, clients can update the technology much faster.
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