Never Ending Funding Cycles

Welp, the cloud storage giants Box and Dropbox are at it again; hunting for another 250 million and 100 million in funding, respectively. In mid-November Dropbox announced their plans to seek out 257 million dollars at an 8 billion dollar valuation (up from their previous 250 million funding and 4 billion dollar valuation). With the fear of being overshadowed by Dropbox drawing near, it took Box execs less than two weeks to begin the initiative to grab 100 million dollars atop the 309 million they have gathered from previous rounds of funding.

What is to be said for a company that has an 8 billion dollar valuation with more than 200 million users and STILL needs to seek VC funding? The fact of the matter is, Dropbox’s’ revenue has been slowing in the last two years, and it seems that their consumer-based business model has possibly reached its potential.

Box’s decision to seek additional funding is not thought to have been made lightly, nor was it made strictly to maintain a monetary threat. This was rather a very appropriate reaction to Dropbox altering their business model to appeal towards enterprise users (like Box). It seems the two competitors had been living somewhat harmoniously until Dropbox’s revenue became sluggish; making it clear that a bit of reconstruction was necessary. Bad news for Box-- this redesign involves the Dropbox team revamping their solution to appeal toward enterprise users. You can only imagine the pressure felt by the Box team as their younger and larger competitor took aim at their primary user demographic.

Obviously the Box team has to think of something to protect their position in the enterprise service, and fast. Hopefully 100 million dollars will be sufficient to take a few steps in the right direction. So how exactly does Box plan on defending themselves against this top cloud storage contender?

While both services were originally designed for consumers, Box soon redesigned their image to gear toward enterprises. This is the one advantage Box currently has, and they are undoubtedly doing their best to make the most out of it — so, while Dropbox spends their 250 million dollars and the next few years building a more suitable business platform, Box will take their 100 million with the sole goal of expanding their enterprise users internationally (taking them off the market before the new Dropbox enterprise solution is even available!). The only questions that remain are: will Box be able to build their numbers quickly enough to compete with Dropbox, and if so, will it be enough to keep users away from what Dropbox has in store?

When you look at the two companies, they have a lot in common. They were both founded by college students and were successful in targeting consumers by offering simple and easy-to-use services. They were both successful on marketing by leveraging on social media and referrals. Finally, both providers required several rounds of VC infusion to maintain their business models. Though the question must be eventually be begged: why would a company that has received more than 250 million dollars in funding need more and more just to stay afloat (this is not a profitable business)? Do investors not fear that this is an ever-growing bubble, or is there some sort of Ponzi scheme at play? This sounds too harsh to those optimistic tech editors that measure a company’s success only by how much VC money they have received. But if you think about it: you would believe a company needs VC funding because they have some competitive products/technologies that need marketing or advancing. You would also expect that when the company reaches their projected number of users, they will be profitable (something we are failing to see with these two cloud storage leaders).

Now look at Dropbox with their 200 million users; if the company is still not turning a profit, you have to wonder when it will – after 2 billion users? Well that doesn’t seem likely since Facebook only has 1.1 billion. Though the worst part is; even if they actually got 2 billion users, these are likely to be free members, and will result in even more cost and less profit (hence the pickle the monopoly is currently finding undergoing). The competition from Microsoft, Google, Apple and Amazon will ensure this is a low-margin or money-losing business.

With this in mind, both Dropbox and Box are now placing their chips in the enterprise service game. Though the ironic part is that both of these providers were initially designed for consumers! While Box did changed their model to appeal towards businesses it cannot be forgotten that they too started out as a consumer-driven service. As of 2013, the Box folder sync can handle no more than 40,000 files at a time – doesn’t sound like much of an enterprise solution to us. You can synchronize your files across your own desktop, laptop, tablet and smart phone; but for large enterprises folder synchronization just does not work with Box (see our review documents for more detail). You cannot realistically synchronize data across 1,000 users. It will be messy and is any business’s security nightmare. Enterprises need a service like DriveHQ’s cloud file server – using a File Manager client or Drive Mapping service to access cloud files. Enterprise users often need to share various folders to different users with selective permissions, which can only be accomplished with DriveHQ. Moreoveer, enterprise users need more than just online storage service; they need a comprehensive cloud IT service.

Given enough time, Dropbox and Box might be able to catch up; though the rest of the world is not standing still. Other companies are also moving forward, even if Dropbox and Box can match DriveHQ’s features in a few years, they can never match the business service price. With prices at $125/user/year (Dropbox) and $180/user/year (Box) – the $6/user/year price with DriveHQ is the lowest offer in the industry. If Dropbox/Box lowered their price to match ours, their revenue would shrink by more than 80%: and then a 2 billion dollar funding round will be needed to keep their heads above water.

As you read through reviews about cloud providers, you will see that VC's and tech writers/editors care only about the impressions on their article. And VC’s – well they just want to get the company an IPO and exit with a pockets full of profit.
VC funding is a fast and easy way to give your starting business with little to no market-cap the boost it needs to fit your model. However if you become dependent on this funding you run the risk of being unable to manage a business without it (perhaps what we are seeing take shape with Dropbox and Box).