Cloud storage and content management company Box is fast becoming a focal point of the cloud computing era. While other cloud ventures such as Salesforce.com and NetSuite have become productive service providers, Box plods along with high cash-burn rates and an indeterminate exit strategy.
Yesterday US time, Box announced it raised another $150m (£88m) in fresh venture funding, adding to its $80m in cash reserves and bringing its total investment backing to $450m. The company is now worth, by some estimates, $2.4bn -- even though its revenues are somewhere around $200 million.
What makes Box an interesting study is its expenses. Until recently, the company spent much more on marketing and communications than anything else in its operations. According to Forbes online, Box spent $171m on sales and marketing in 2013 - nearly a third more than its total revenue.
The company says its business model, which relies on adding accounts and subscribers, requires heavy investments in sales, marketing and infrastructure.
Box's high expense has long been a sour spot. The company is showing signs of reining in expenses and expanding sales faster than spending. In the first quarter of 2014, marketing spending was still 40 per cent over the same quarter in 2013. Sales doubled.
The challenge Box faces is the same as for many cloud services providers. Cloud revenues compound over time, and deferred revenue counts more than point-in-time sales.
Box is counting nearly $90m in deferred revenue from the first quarter - twice the same period in 2013 - and it's added some 5,000 paid corporate accounts.
All cloud services providers see weakness in revenues while building their base. If they manage the transition period, they will hit an inflection point where compounding recurring revenue will exceed and accelerate past expenses.
Another company experiencing this phenomenon is Adobe. In 2013, Adobe abandoned its traditional software licensing model to embrace cloud subscriptions. Initially, Adobe revenues and profits plummeted to the point where alarms were going off on Wall Street and among partners and users.
The precipitous dip made many ask whether Adobe could weather the financial transition.
Today, Adobe is profitable and growing. Its compound recurring revenue - based on nearly 2.2 million paid users - is generating positive cash flow. And the company expects to exceed 3.3 million paid subscribers before the end of 2014.
Box is a bit different from many cloud providers, as it supports millions more unpaid users than paid subscribers. This puts a burden on the company to build around that broader base with infrastructure and support, which adds expenses.
However, Box may prove the broader base is worth the expense, as it contributes to the conversion of net-new paid accounts.
The ultimate lesson that Box may exemplify is that marketing makes a difference in building cloud brands. If Box turns the corner, goes public and becomes another cloud powerhouse, it will change the rules on what it takes to build a successful cloud-era business: loud and persistent marketing and communications.
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