In the past two decades, the cost of digital storage has gone to almost zero, raising significant questions about the prospects for businesses like Dropbox, whose primary source of revenue comes from charging for online storage. The storage price swoon means these companies will soon have to find alternate, if not primary, new revenue streams. They have to figure out a new value proposition for investors and consumers through building services on top of what has become commoditized online storage.
Aaron Levie — founder and CEO of soon-to-be-public Box, which sells enterprise services built around online storage and file sharing — sat down with BuzzFeed to talk about the evolution of selling online storage, the shift to mobile consumption and how is company is adapting to both. Below is an edited transcript.
So, why is simply selling online storage a bad business model?
Aaron Levie: What do you think the drop in the price per gigabyte is between 1994 and 2013? Two decades.
It has to be something like 50,000 times cheaper now.
AL: Well, you ruined the game. It’s 20,000. You can’t possibly have an industry where the raw unit of resource goes down by 20,000 times and not have dramatic change in the business models. When we started the company and were evaluating the landscape in 2004, the reason we thought this could be a viable business was that there had already been a 10 times improvement in storage costs from the late 90s. If you just extrapolate out and every two years the cost of storage goes down by half, then every year a business model that has storage as an underlying component of the business becomes twice as efficient. You multiply that out and that becomes a powerful exponential number.
Storage costs were declining, bandwidth was going up, people needed to access files on more devices, and we were sharing and collaborating from more places. Those were the components that led to us thinking in the future you’d want your files all in the cloud. In 2005, we launched the company on that theory, and we did that for both consumers and enterprises. Within a year, we realized that the players that could afford to give you free storage would win the consumer market, and anyone who could subsidize that would be able to give free infinite space for consumers. Conversely, on the enterprise side, while you have the exact same economics in play, our theory was enterprises would choose their vendor based on who could add the most value on top of the storage, and the delta in value between your software and the pure storage would be infinitely large.
That’s what we’ve been doing for seven and a half years — all our 200-plus engineers are building value on top of the component of storage. The way to think about it is, we buy storage, and sell the service on top of that.
How has the concept of a “file” evolved over time?
AL: Twenty years ago people mostly managed their customer databases as a spreadsheet. Today, you’d be crazy to do that. You should just use Salesforce.com. In other areas, there’s a massive increase in files. Medical images, field services, construction, all of what you’ll be capturing and working on is imaging data or video data. In one segment it’s changing from being a file to an application. In some areas the creation of files are exploding because we have more tools to create them and much lower cost to store them.
If you go back 10 years, it was cost-prohibitive for anyone to do mass creation of data because you had nowhere to store it in a feasible or economic way. Today it’s trivial to just say I want to store every piece of content that a company can create forever and build a corpus of knowledge around that. You can afford to do that in a fairly efficient way. What we’re moving toward is a world where enterprises will care about their content and will want to store as much as possible. They’re gonna want to make as much of it as searchable as possible, they’re gonna want to share it in a very secure way, and that is a layer above the cost-per-gigabyte of storage.
So why are Microsoft, Google, Apple and Amazon getting into the business of online storage?
AL: Because it’s sticky. They’re not doing it because there’s any economics in the storage of information, the economics are that information is now currency. If you can have more of a customer’s photos, then they’re going to want more of those apps and devices to get those photos. That’s the reason why you see these players getting into the space. They have large amounts of computing and it offers a great consumer experience that keeps you coming back to their platform. Which is why, seven years ago, we decided we are going to focus on the services on top of the storage.
How have you dealt with the increased competition, particularly on the enterprise side?
AL: We’ve chosen a space that’s always been oriented toward brutal competition, and we’re going to continue to run the business as we have. In a world where I’m already competing with Microsoft, Google, Oracle, EMC, we’ll take one more. Just add them to the list. Our job is to build whatever we think is the next thing that people are going to want to do with their content once it’s in the cloud in the enterprise. It’s our job to both predict as well as synthesize our customer’s needs, and create the future of this industry.
How, precisely, do you synthesize what comes next?
AL: I spend a lot of time with customers. I used to be 80% product and 20% video games. Kidding! Now I’m probably 40% to 50% product and 50% customers. On a weekly basis, I’m talking to at least a dozen customers. It’s all about consuming as much information around what they are trying to do with their information in the future. You can build a whole business model around asking about these things.
How does sharing on mobile devices differ from sharing from a desktop?
AL: It’s 100% different. The things you are creating are vastly different. On a mobile device, it’s audio, images and lightweight note taking. On a desktop, it’s content meant to be published. It’s totally different content types, and often you’re creating content on the desktop to be shared across any device. On mobile you’re more creating content in a mobile environment that’s meant to be recorded or transactionally shared with a few people. Inevitably, the same business values are at play — I want to be able to share with some set of people in a secure way information that’s gonna be more important to the task at hand. In healthcare, that’ll be a medical image, for instance. We work now with utility companies and it might be the instruction manual for a big part of the power grid.
What we’re moving to is a world where the CIO and the IT admin is not going to think about the storage, they are going to think about the business value. So it’s going to be, what is the solution you’re trying to get to, not the building blocks you need to get there.
Has the proliferation of different devices helped or hurt you?
AL: Our ability to succeed is correlated with the amount of fragmentation there is on devices, on systems and platforms. The more fragmentation, the more you need platform-agnostic tools to help with that fragmentation. We far prefer a world where there are two or three healthy operating systems on mobile and desktop.
What are some of the core principles you think about when designing new products?
AL: When you have a piece of content, the questions you ask are: who is it meant to be shared with, what kind of analytics can you provide, who is sharing it back around, and what is the person it’s shared with trying to do with it. You have a document, how do we give you analytics around who accesses those files, where it’s accessed from, the data about the sharing of your information. We want to give you security. How does it sort of flow through your business. How do you know it’s at the right step in the business process and shared with the right people. Roughly, we are always thinking of these attributes of the content, that’s why it’s not about storage, it’s about what can you do with that information.