Box (BOX) and Salesforce (CRM 3.23%) recently unveiled a partnership that dramatically deepens connections between the former's cloud storage and collaboration services with the latter's CRM (customer relationship management) platform. This partnership will let Salesforce customers directly access Box's services without swapping between applications, or using workarounds with two new products.
The first product is Salesforce Files Connect for Box, a plugin which lets customers directly access and share Box files within Salesforce. The second one is the Box SDK (software development kit) for Salesforce, which developers can use to create Salesforce apps with embedded Box features.
Box Senior VP and Chief Strategy Officer Jeetu Patel told TechCrunch that the partnership combines both company's strengths. "We are a leader in content and collaboration," said Patel. "Salesforce is the leader in customer success. It wouldn't make sense if we didn't make sure that the two systems interacted with one another."
Box's strategy of partnering with bigger companies
When Box went public earlier this year, bearish critics warned that the company could be crushed by bigger companies that use cheap or free cloud storage to tether more users to their cloud-based ecosystems. Last November, Box CEO Aaron Levie told The Information that cloud storage would likely become "free and infinite" in the future. However, Levie noted that cloud storage was merely a foundation from which Box could sell security and collaboration solutions.
Another bearish thesis is that Microsoft (MSFT -0.32%) can leverage the dominance of Windows on PCs to push enterprise users to use OneDrive, Office 365, or Dynamics CRM instead of competing products. But as of last quarter, nearly all of Box's 42 million registered customers, and more than half of its 4.8 million paying customers, were employees of Fortune 500 companies. Meanwhile, Salesforce controlled 16.3% of the global CRM market in 2014, according to Gartner, while Microsoft's Dynamics CRM only claimed 5.8%. Those numbers indicate that, although Microsoft owns the top OS, there's still plenty of room for other cloud-based competitors to thrive.
Box's future growth depends on its ability to forge symbiotic relationships with bigger companies. Last September, Oracle (ORCL -0.26%) announced that it would add deeper Box integration to its Marketing Cloud. Earlier this year, Box partnered with Microsoft to integrate its platform into Office 365.
Box also partnered with IBM (IBM -0.02%) to leverage Big Blue's portfolio of security, social, analytics, and content management tools to create new services for customers. IBM also agreed to integrate Box's platform into iOS apps developed for its MobileFirst initiative. Expanding its partnership with Salesforce clearly complements these moves, and ensures that Box doesn't get marginalized as a stand-alone service.
Other CRM vendors could follow Salesforce's lead
Salesforce's decision to integrate Box into its CRM platform could convince the other major CRM vendors -- Microsoft, IBM, Oracle, and SAP -- to expand their existing partnerships with Box. Microsoft would obviously prefer Dynamics CRM customers to use OneDrive instead of Box, but it might introduce native Box support to match Salesforce's features. IBM, Oracle, and SAP all partnered with Box before, so expanding those deals to cover all of their CRM solutions makes sense.
Securing these deals can help Box capitalize on the growth of the global CRM market, which Gartner predicts will grow at a compound annual growth rate of 15.1% between 2012 and 2017. Bessemer Venture Partners believes that 62% of all CRM software will be cloud based by 2018, indicating that demand for native integration with cloud platforms like Box will keep rising.
What does this mean for Box investors?
In the long run, securing deals with companies like Salesforce and Microsoft will help Box remain relevant and stay ahead of its closest direct competitor, Dropbox. In a bid to match Box's symbiotic partnerships with those enterprise heavyweights, Dropbox launched its own partnership network in November.
But in the short term, Box's core problems of rising expenses and big losses remain. Last quarter, Box's revenue rose 38% annually, to $78.7 million, but it still posted a net loss of $45.4 million. Developing more integrated solutions with larger companies could cause operating expenses to rise and keep Box's bottom line deep in the red.