Box Delays Its IPO as Microsoft Goes for the Kill

Box has reportedly delayed its IPO just days after Microsoft increased the cloud storage available to business customers by a factor of 40. With both Microsoft and Google getting more aggressive, Box is in big trouble.

May 3, 2014 at 12:30PM

Box, the cloud storage start-up that filed for an IPO in March, is reportedly now delaying that IPO due to poor market conditions for cloud-related stocks. But Box has deeper problems than the timing of its IPO, with both Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG)(NASDAQ:GOOGL) offering cloud storage as part of their respective ecosystems at a fraction of the price that Box charges. The latest salvo in the cloud storage battle, coming from Microsoft just a few days before Box delayed its IPO, makes Box's service look almost completely irrelevant to enterprise customers. 

Microsoft is not messing around
Through a blog post on the Microsoft Office website, Microsoft announced that it would be increasing the storage available through its OneDrive for Business product from 25GB per user to a whopping 1TB per user, a 40-fold increase that will be rolled out over the next few months. This increase is applicable to both users of the stand-alone OneDrive for Business product as well as users of the various business versions of Office 365. 

In the blog post, Microsoft offers a fairly direct criticism aimed at its completion: 

File sync and share solutions represent key capabilities that keep people on the same page and responsive. There are several solutions offered, many from companies that have sprung up to focus exclusively on this market. Some have come from the consumer world and are new to the enterprise software market and the requirements around delivering enterprise-grade cloud services. Others are focused on the enterprise, but only as a point solution. Few are prepared to meet the evolving needs of businesses looking for a holistic and comprehensive approach to meeting the full needs of their employees as they live a cloud first, mobile first workstyle.

We believe Microsoft offers the most complete solution for businesses looking to maximize their employees' ability to create, collaborate, analyze and act – and sharing, storing and syncing are foundational to that.

This quote sums up why stand-alone cloud storage companies like Box stand little chance against companies capable of offering cloud storage bundled with everything else that enterprise customers need. Microsoft Office 365 includes its full Office productivity suite, business class email, and now 1TB per user of cloud storage space. Google's Apps for Business offers its own web-based productivity software, business-class email, and 30GB of cloud storage, although it's likely that Google will eventually raise this number in response to Microsoft. 

The biggest problem for Box is price: 

Product

Main Features

Price/user/month

MS OneDrive for Business

1TB Cloud storage

$5 ($2.50 for promotional period)

MS Office 365 Business

Full Office + 1TB cloud storage

$12.50-$20.00

Google Apps for Business

Google online productivity suite + 30GB cloud storage

$5.00-$10.00

Box Business

1TB cloud storage + basic file editor

$15.00

Box Enterprise

Unlimited cloud storage + basic file editor

$35.00

Box charges the same for 1TB of storage as Microsoft charges for its mid-sized business plan, which includes full Office and business email, and will soon come with the same 1TB of storage. As a stand-alone product, OneDrive charges just one-third of what Box charges, or one-sixth at the promotional price. Google also undercuts Box's pricing, offering less storage space, but its productivity suite is far more featured than Box's basic file editing. 

Compared to the competition, Box is now in even worse shape than it was a few months ago. Given that Box recorded a loss of nearly $160 million in 2013, before Microsoft and Google got so aggressive, it's difficult to see a scenario where Box ever becomes a profitable company.

While most companies have yet to make the switch to a subscription-based productivity suite like Office 365 or Google Apps for Business, the trend is clearly headed in that direction. When a company does make the switch, both Office 365 and Google Apps offer cloud storage as a feature, and it makes little sense to buy separate cloud storage from another company like Box. Even for companies that don't use a subscription-based productivity suite, Box is the most expensive option for storage. Box's product doesn't seem to have a place. 

The bottom line 
Box doesn't make much sense as a stand-alone company. It can't compete with Microsoft or Google on features or price, and both tech giants are becoming increasingly aggressive. Microsoft's 40-fold increase of OneDrive storage, likely to be followed by Google at least matching it, makes Box look even more expensive in comparison. Box could try to sell itself instead of going public, likely a better choice at this point, but it's not clear who might want to buy it. One thing is clear, though -- Box is in serious trouble.

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Timothy Green owns shares of Microsoft. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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