The Australian newspapers are outraged after finding out that the tech giant managed to work out a way of avoiding giving billions to its taxman. In the meantime, the company has already been in hot water for overcharging the local citizens for its shiny toys. Now Apple seems to be refusing to pay tax in Australia.
Local media pointed out that part of the idea of a trickledown effect is that Apple should pay tax to fund such things as welfare programs, but Apple has worked out a way of avoiding paying most of the tax. The company is said to have shifted almost $9 billion in untaxed profits from its Australian operations to a tax haven structure in Ireland within the last 10 years. For example, back in 2013, the company reported pretax earnings in Australia of only $88 million, but before that Apple sent an estimated $2 billion of income from its Australian sales to Ireland via Singapore, where it negotiated a secret tax deal 5 years ago. The local media got a decade’s financial accounts for Apple Sales International, the secretive Irish company at the heart of Apple’s international tax arrangements. That information revealed the mark-up company charges for intellectual property on its products across the globe. It is known that it was the first time that the financial details of the scale of Apple’s tax avoidance has been made public. So, Apple Sales International has reported over $100 billion of profits in the last 5 years, while paying less than 0.05% in tax. Apple’s contempt for paying tax was the focus of a 2013 report by the US Senate’s Committee on Homeland Security and Government Affairs, Permanent Subcommittee on Investigations. The report in question also pointed out to the amount of tax avoidance that the American authorities let through. Despite the fact that the tech giant is creating worldwide revenues the size of the California state budget, it is refusing paying tax anywhere. Although the architect of its tax strategy, the chief financial officer, has announced his retirement in the US a few days ago, the company is likely to continue his course, as it is perfectly legal. The matter is that Apple moves all cash to Ireland where it pays no tax because the company is managed and controlled in California. At the same time, Apple pays no US tax either because American legislation disregards where a company is managed and only looks at where it is legally registered. After the Irish government tried to close this “double-non-taxation” loophole, the company simply chose a tax residence with no corporate tax – Singapore, and continues to pay no tax.
20 of the passengers travelling on Malaysia Airlines Flight 370 appeared to be working for the chipmaker Freescale. The Texas-based company confirmed that twelve of the employees were from Malaysia and eight were Chinese. It is known that Motorola spun off its chip making division to form Freescale.
Why there were so many Freescale employees on board at the same time? A former Motorola employee said that the company had a policy not to allow that many employees on board a plane at once. Apparently, the company forbade 2 executives and 6-8 regular employees to board the same plane. The reason was situations like that with Flight 370, rare as they are. However, it is unknown whether Freescale still had those rules and ignored them, or the company simply didn’t copy them over. In the meantime, it was unclear why the plane lost radio and radar contact, but it turned out that 2 people with stolen passports were on the passenger lists. The Boeing 777-200ER departed Kuala Lumpur International Airport at 12:41am in good weather and was expected to land in Beijing at 6:30am after making a 2,300-mile trip, but it didn’t. Air traffic controllers outside Kuala Lumpur lost contact with the plane about 1:30am.
Cameron and Tyler Winklevoss, known for once accusing Mark Zuckerberg of stealing their idea of Facebook, revealed that they have used their Bitcoins to buy tickets for a trip on one of Virgin Galactic space flights.
The twins, Olympic rowers who earned MBA degrees from Oxford University, are currently Bitcoin evangelists and investors. Moreover, they are even going to create a fund to make it easy to trade the digital currency on the stock market. In his announcement, Tyler Winklevoss compared Richard Branson’s space endeavor and Bitcoin entrepreneurs to major historical figures who changed the way the world was perceived, like Copernicus, Marco Polo, Columbus, and Vasco da Gama. He added that it was in that vein that his brother and him contemplate their tickets into space – “as seed capital supporting a new technology which may forever change the way people travel, purchased with a new technology that may forever change the way people transact”. It is known that Virgin Galactic, an American offshoot of Branson’s London-based Virgin Group, is selling tickets for its SpaceShipTwo for $250,000. Winklevoss twins aren’t the first to pay for Virgin Galactic tickets with Bitcoins, but it remains the highest-profile flight booking to date using the currency. A few months ago, Branson announced that a flight attendant from Hawaii(!) had become the first person to pay for a seat in the spaceship with Bitcoins.
Former NSA contractor tried proper channels to raise concerns about government surveillance programs before turning into a whistleblower. Edward wrote to the European Parliament that he reported policy or legal issues related to snooping programs to at least ten officials, but since he was a contractor, he had no legal avenue to do anything. All of those officials ignored him.
Edward Snowden confirmed he had reported spying programs to more than ten distinct officials, but none of them took any action to address his concerns. The Snowden’s problem was that he wasn’t protected by American whistleblower laws, and wouldn’t have been protected from retaliation and legal sanction for revealing classified data either. Last summer, President Obama said that there were “other avenues” available to a whistleblower like Snowden, whose “conscience was stirred” and who believed he needed to question government actions. Nevertheless, the president seems to be unaware that the laws didn’t apply to contractors, only government employees. Instead Edward was just warned not to rock the boat, threatened with the sort of retaliation former NSA whistleblowers like Wiebe, Binney, and Drake faced. All of them were subject to intense scrutiny and the threat of criminal prosecution. Some believe this issue should be someone else’s problem – even the highest-ranking officials Snowden told about his concerns failed to recall when an official complaint resulted in the shutdown of an unlawful program, only saying that “there clearly was a unanimous desire to avoid being associated with such a complaint in any form”. In response, the National Security Agency disputed his account, claiming that after extensive investigation, including interviews with Snowden’s former NSA supervisors and co-workers, they didn’t find any evidence to support his claims that he tried to bring these matters to anyone’s attention.
It seems that cyberwar is flaring up between the two countries in what could appear a beginning to a physical fight. A few days ago, a group of unidentified people took control of some communications centers in Crimea, maintained by Ukraine’s telecom provider Ukrtelecom. The men wrecked cables and knocked out almost all landline, mobile and Internet services in the area.
Some believe that wireless equipment could also be illegally installed to spy on the mobile phones of Ukrainian MPs. The local security service confirmed that an IP-telephonic attack was under way on mobile phones of Ukrainian MPs for the last several days. They said that telecoms gear at Ukrtelecom in Crimea was illegally installed to block the phone of all Ukrainian deputies, regardless of their political affiliation. In the meantime, the local hackers or sympathisers have also been busy: they cracked the website of Russian state-funded news channel and changed all references to “Russia” and “Russians” in headlines to “Nazi” and “Nazis”. Although the attack lasted 1/3 an hour, it was just the beginning. Soon a group of Ukrainian hackers calling themselves “Cyber-Berkut” (Berkut are special war forces in Ukraine) have boasted about defacing over 40 Russian news websites, posting an image with a Nazi Swastika over Crimea. As for the Russian infamous social network Vkontakte (InTouch), 13 community groups set up to support the new interim government in Ukraine’s capital suddenly faced blocked access to Russian IP addresses. According to Russian news media, a message appears when users try to access the groups, stating that the groups have been locked down by “the Russian Federation”. Now Ukraine fears that Russia could expand its military activity to include DDoS attacks to bring down crucial servers in the country, as they have done before.
It’s 11:00 AM on a bright October morning in Silicon Valley.
Levie, the bright-eyed young chief executive with patches of grey hair, has strolled into a third-floor conference room at the headquarters of Box, the enterprise software company he co-founded.
He usually arrives in the office between 11:00 and 11:30 AM, which might raise eyebrows, but then again he spends most of the day on his feet in his red Converse high-tops, running between meetings with investors and employees. His head usually doesn’t hit the pillow until 3:00 AM. As such, his first request, “water,” might seem even more surprising. Coffee would be the more obvious choice.
Box has grown rapidly since it was established, from offering a simple cloud storage service to hosting an all-inclusive enterprise platform for workplace collaboration to content management and editing. The Los Altos, California-based business has inked deals to integrate its portfolio with some of the biggest brands in tech including Google, Salesforce.com, and NetSuite.
Following up the completion of its Series F round of venture capital fundraising, which brought in another $100 million at the end of 2013, Box is now valued at $2 billion and is one of the most highly anticipated tech IPOs of the year.
Along with growing its public profile, financial reserves, and services (both developed internally and through a few calculated acquisitions), Box’s workforce has grown to nearly 1,000 strong, primarily in Northern California, but it’s increasing internationally as well.
However, just like other startups, it wasn’t always that way. Almost a decade ago, Levie’s brainchild took off with just four friends doing all the work.
Growing up entrepreneurs
Every startup has a story. Too often, as demonstrated with Facebook, Twitter, and Snapchat, those origin stories are crammed with ego and infighting over money and control. In contrast, the history of Box seems refreshingly straightforward.
“I don’t even remember life before Box, so that’s going to be hard to talk about,” Levie told me during our first conversation in that conference room at Box’s headquarters in Los Altos, a town just south of Palo Alto—as close as one can get to the beating heart and financial epicenter of the Valley.
“I’ve been doing this as far as my memory goes back. I assume that I was born and just got into the cloud storage industry right after that moment. That’s about where my memory trails off.”
Box as a platform and company was born in 2005, but even that was well after the establishment of the friendship between Levie and his co-founder and Box’s chief financial officer, Dylan Smith.
Smith and Levie met as classmates at Islander Middle School in Mercer Island, Washington, a suburb southeast of Seattle, and then went to Mercer Island High School together.
“Even back then he started getting me interested in entrepreneurship,” Smith recalled. “He was much more interested in technology [than business] back then.”
Two other key members of the Box team were also childhood friends.
Jeff Queisser, currently vice president of Box’s technical operations, met Levie when they were in the fourth and fifth grades, respectively, as neighbors. By high school, Queisser recalled that the two were starting “kinda crazy businesses.”
“[Levie] was a magician, and I was very much a hard core nerd and doing programming,” Queisser laughed.
Sam Ghods, now vice president of technology at Box, joined the group in the 10th grade when his family relocated from Illinois to Mercer Island. The same year in school, Ghods recalled that he and Queisser became friends on the bus to school, eventually hanging out more frequently with Smith and Levie as well and getting involved in various business schemes.
In high school, Levie’s parents’ hot tub served as the discussion forum.
“We would get a call at about 12:30, and it would be Aaron, ‘What do you think about this? I think this could be absolutely insane. Like, come over right now. I got towels, just bring shorts, come over,'” Queisser remembers. “This would be at 12:30 and by like 12:40, we were in his hot tub just iterating ideas.”
And while he built a lot of websites in high school, Levie doesn’t brag about having a strong technical background, admitting, “They weren’t very good websites.”
One example was a search engine dubbed Zizap, which Levie facetiously peddled as “the world’s fastest search engine if you have never been to Google.” Another project was Fastest.com, a website that let people buy and sell their homes online. Levie notes sarcastically that it “made sense as a high school senior to launch that company.”
The origins of Box
These early rumblings of entrepreneurship would soon pay dividends. Levie enrolled at the University of Southern California in 2003 to study business, which is where the idea that was to become Box began to develop.
“It’s not like a lightning bolt that hits you in the head, and all of a sudden you just get so obsessed with storing files online. It was a series of factors,” he explained.
The first piece of the puzzle came from the basic difficulty of getting work done: He and his fellow students were working from lots of computers, collaborating on projects, and accessing files from different places, including libraries, classrooms, and dorm rooms.
“It felt unbelievably kind of painful and taxing to share data across those different systems and with other people. It seemed like there should be a simpler solution,” Levie remarked.
A business school project in which students were asked to evaluate a particular industry added another piece to the puzzle. Levie chose the nascent online storage industry, and wrote a paper on flaws with existing businesses in the market and what one could do to build a better business effectively. It didn’t take long before he realized the massive potential.
“It was very obvious that there should be a technology category that solved this problem,” he said.
Getting his school friend Smith involved was an important early step.
“We all grew up together.”Aaron Levie
“When we were talking about just the things that we were doing and the stuff we were working on, Box came up,” Levie described. “It’s very, very early in the process, and he decided to join on board as the other half of the business and product side. He handled the finance and some of the early marketing stuff. That was how we started.”
There might also have been another reason: “I gave him some really bad tips that lost him some money, so I felt indebted,” Levie joked.
After arriving at Duke University in Durham, North Carolina, Smith had realized that business, and entrepreneurship specifically, was the route he wanted to pursue.
“Aaron and I were always bouncing ideas off of each other just because we were generating them a mile a minute,” Smith said. “It was always, ‘Well that’s interesting, but I’m not interested in this space or why wouldn’t this company just go crush that?’ or whatever else.”
Despite going to college on opposite sides of the country, Levie and Smith kept in touch frequently, primarily via email and instant messenger. The two would meet up in person from time-to-time back in Seattle during school breaks.
“I probably spent more time talking with Aaron than I did with my family at that stage, so we stayed in pretty close contact when we went off to school,” Smith noted.
Box was the first time both of them were really excited about the same idea. The two combined their intellectual as well as financial resources, using funds earned from previous projects they had each worked on to grow Box.
Building Box: the early years
Development for Box, then Box.net, started at the end of 2004, but really got off the ground and went online in 2005 during their sophomore years of college.
Levie and Smith went back to Washington that summer to build the platform, and the company, from the Smith family’s attic. But Smith was reluctant to dive in head first, returning to Duke — at least for the following fall semester.
For the first version of Box, Levie wrote the front-end design and coded out the front-end of the application, eventually drawing in some contract work to fiddle with more back-end pieces and put servers online.
Levie noted that this was before Amazon Web Services, “so we had a guy in Texas that was managing our servers.” Levie also labored at bringing his high school friends Ghods and Queisser on board to run the engineering side. Acknowledging they were “a bit reluctant,” Levie got them to join within a year.
The year after Levie and Smith packed up and shipped off to USC and Duke, respectively, Queisser enrolled at Western Washington University. Ghods followed Levie to USC to study engineering. Queisser dropped out of school after a year and a half after Levie convinced him to join in on launching Box.
“We paid ourselves essentially nothing, but we were doing commune-style living. It came with a bed. It came with Aaron’s mom’s crappy minivan, which could be shared for transportation. It covered most things. And then it was mostly pizza for the rest of the week,” Queisser remembers.
“It was very obvious that there should be a technology category that solved this problem.Aaron Levie
Ghods was still feeding his interest in business and dabbling with a few startups on the side during his first two years at USC. In February 2005, Levie approached Ghods about joining Box. By that summer, Ghods dropped out of USC to join the growing Box crew.
However, Box had yet to clearly define its audience yet. Was it going to serve consumers, businesses, or suffer the pitfall of trying to serve everyone at once?
“At that time, it was very unclear what was going to happen,” Ghods said, listing all of the questions filling his head, such as “Could we make a huge business out of consumer file sharing? Were we going to go sell to soccer teams, conferences, and different types of configurations?”
“Business wasn’t really on the road map because none of us had ever worked in a business. So we didn’t realize that this opportunity existed,” Ghods admitted. “It wasn’t until we started selling to businesses that businesses were calling us and saying, ‘We’re not paying you nearly enough for what value you’re providing. This is great!’ So we started to catch on that there’s this entire enterprise market that is very available for the taking.”
Levie and his team reached out to entrepreneur Mark Cuban, who became Box’s first high-profile investor (there is even a conference room named after him on the first floor of Box’s headquarters). Smith characterized Cuban’s $350,000 investment in 2005 as happening “almost accidentally,” being that they weren’t trying to raise money yet — at least not that much.
With that money, Box was finally able to get real marketing momentum going by October 2005 as well as more engineers. But even at the beginning of December 2005, Smith still seemed like he was on the fence about where all this was going.
Less than 24 hours before Smith was going to board a plane back to Seattle for winter break, a phone call with Levie turned out to be decisive for both of them.
“Aaron and I were talking about it saying, ‘Look, this is a once in a lifetime opportunity, things are going incredibly well. We’re skipping half our classes anyway to work on Box. Why don’t we just see what we can do? Leave school, and do this thing, full time.”
Smith added it was a “a pretty quick and easy conversation because it felt like the right thing for both of us.”
Smith packed all of his stuff into boxes, went to FedEx, and shipped it all back home to the West Coast. Smith talked with his parents and the university dean about his decision after the fact.
“Fortunately, they were all supportive,” he continued.
Over the cliff
On a blustery afternoon in November 2013, I had the chance to catch up with Smith and Levie and witness their camaraderie in person. Instead of the icy stereotype in which co-founders of the most successful startups are usually not on speaking terms outside the office (or maybe even in the office), Smith and Levie’s friendship looks stronger than ever, with Levie comparing the decision to quit school to jumping off a cliff.
Smith added, “It was a rational jump that we did. We saw a sort of pattern below us.”
But at the time, success was by no means certain.
“We had a lot of unsuccessful pitches in Seattle in the venture capital community up there, and most of them turned us down,” Levie recalled. Part of this was down to timing.
“If you think about it, Seattle had gone through the bubble just like everybody else, but they hadn’t come back in the same way the Valley had,” Levie explained. “The Valley was experiencing Facebook and YouTube and some very successful early companies. Seattle didn’t have it. People didn’t rely on the same sense that there was going to be this re‑emergence and renaissance again on the Internet.”
The youthfulness of the two didn’t really help, either, as Smith noted, “I think it was just a much more traditional approach to venture capital and much more of an old school approach. A couple of 19- and 20-year-olds starting a business isn’t that old school.”
Many startup stories, going all the way back to the early days of Apple and Microsoft, typically include a parent’s garage. So it’s fitting that Smith and Levie first set up shop in 2005 in Berkeley, California in a garage converted into a cottage owned by Levie’s uncle near the Ashby BART metro station.
“We tried to attack every sort of conventional way that people thought of their information, and that’s what Box sort of became.”Aaron Levie
Queisser and Ghods eventually moved in, and the four of them lived and worked there for roughly 10 months before moving down to Palo Alto.
The garage-turned-cottage housed a central living area with a bedroom and small kitchen, the latter of which Queisser simply described as “always really not in great shape.”
Then there was a second cottage on the property, mainly used for sleeping. The living room floor plan consisted of four desks pushed up against each of the walls. The four of them would be working full-time throughout most of the day with headphones on, communicating vocally rarely but rather sticking with instant messenger — even though they were less than two feet away from each other at all times.
Queisser remembers, “This was like camp. It was the most fun thing ever. I got to full time, just do the thing I really want to do. All day coding, then at night not just being a developer, a software engineer, then also being heavily involved in the strategy and the future of the company. It was really amazing.”
“It was just a crazy roll of the dice that you had Aaron as the business guy, the overall strategy guy. And you had Dylan as the finance, numbers, insurance, HR, and legal guy. And then you had myself on tech ops, and you had Sam on engineering. So it all clicked pretty early.”
After Berkeley, the Box team moved operations across the Bay into another cottage, this time in Palo Alto at 1895 El Camino Real, described by the founding team as a larger house with a bedroom on the second floor, which included a loft, as well as two garages.
Ghods said, “Our first thought seeing the garages was, ‘Oh, we could live in the garages, and we could let the main space be for work.'”
Queisser and Levie shared one garage, and Ghods got one for himself. Smith nabbed the actual bedroom.
The living room on the second floor served as the “boardroom,” decorated with Ikea tables and sometimes hosting senior executives from Dell, Hewlett-Packard, and other major companies.
“What happened is these meetings, of course, would also be at 9:00 AM, so they’d be meeting and then we’d wake up around then and think, ‘Gee, we really have to use the bathroom.’ But the bathroom is down there. You have this conflict of wanting to wait it out, but if you just walked downstairs it was very awkward because it was very clear we were up there the whole time, which nobody knew,” Queisser said.
Consumers, freemium, and the enterprise
The challenge at the time was to persuade customers to choose online storage over a USB stick in their pocket. “We had to convince people that there were actually benefits to having your information securely stored online, which is that you could share it,” Levie said. “You could lose the USB stick and go to any computer and find a file. Now it’s kind of super obvious.”
Within a few months of launching, Box netted a few million users, including thousands who paid for Box services.
But by March 2006, Box wasn’t growing at a rate that its leaders thought the platform could be competitive without a free plan. Thus, the option of 1 GB of free space was introduced.
“That’s when we decided to launch that ‘freemium’ service, and that was really pretty unheard of at the time. That was just not a distribution model that anyone was really familiar with,” Smith recalled. “But it worked incredibly well, being able to rise above the noise and attract a lot users to the platform really quickly.”
“It was that sort of thing that was an innovation at that point,” Levie asserted. “All of the other services had this concept of you would email a one-time sort of link to people to your file. We just said, ‘Why don’t you just have a URL that you can share with anyone at any time that stays available as long as you want?’ It was just these basic sorts of things of questioning the conventional wisdom of how you should be able to store and work with your files. We tried to attack every sort of conventional way that people thought of their information, and that’s what Box sort of became.”
Box had already raised a small amount of capital from angel investors in Seattle, but Smith characterized Cuban as Box’s first “real angel investor.” Draper Fisher Jurvetson (DFJ) soon joined as the first major Silicon Valley-based venture capital firm to invest, leading Box’s Series A round, pulling in $1.5 million by the time it was completed in October 2006.
Gradually, businesses became an important part of the customer strategy, as Levie already saw the writing on the wall that tech giants such as Google and Apple were going to be able to offer storage to consumers at a much lower cost than Box could as an independent startup.
“Yet, on the opposite end of the spectrum the competition was more like Microsoft, IBM, and Oracle,” Levie argued. “We felt that they were companies that were too slow, and they didn’t have the DNA to build amazing software. And, there were massive budgets that enterprises were using to spend on technology.”
The initial corporate clientele included Crocs, Procter & Gamble, and Sony. But, Box was still going through growing pains from honing its vision from a consumer company to an explicitly enterprise software company.
“That was harder for investors to credibly buy into, given our inexperience and given how early we were,” Smith said. “That was really hard, when they understood and grokked to the vision, but it wasn’t something that you could believe would actually work because of the skills and resources that we had at the time.”
Mahmood Hamid, who at that time was just launching his career in venture capital, recalled that he first learned about Box in 2006, primarily for “consumer file sharing in the cloud.” It wasn’t until the following year that he started looking to actively invest.
Getting into the enterprise tech market at relatively young ages, both Levie and Hamid had something to prove, indirectly forging a professional bond.
Hamid clearly remembers his first meeting with Levie in a conference room at the offices of U.S. Venture Partners on Sand Hill Road in 2007.
“I remember specifically because within the first few minutes, I wanted to invest with him,” Hamid recalled, adding he near-instantly thought, ‘This guy is a winner, and he knows what he’s talking about.’ It made too much sense. This level of clarity of thought from a 21-one-year-old was like gold.”
Hamid’s first memo from that meeting read: “I really like Aaron Levie. He has terrific acumen and a great sense of product.”
But much like Levie and Smith, Hamid had his work cut out for him in proving to his bosses that Box was worth the investment. For starters, Hamid noted that enterprise software like this wasn’t on the radar yet. Additionally, Hamid jokingly lamented that Box actually had “revenue” back in 2007, which he explained wasn’t a “great” word during the peak of the Web 2.0 era.
But perhaps most importantly, Box wasn’t alone in what it wanted to do.
“There were 50 other companies doing something similar to Box. That’s not hyperbole.” Mahmood Hamid
“There were 50 other companies doing something similar to Box. That’s not hyperbole,” Hamid asserted. As a junior member at U.S. Venture Partners, it was Hamid’s responsibility to prove Box wasn’t just one out of 50 companies. Hamid conducted the arduous task of going through each company and comparing them feature-by-feature, testing 49 products with due diligence. Going through this process only deepened Hamid’s confidence in the company.
“I found most of the other companies didn’t just have the product look and feel,” Hamid said. “I remember calling a few other companies, and those guys would talk and think about photos and videos. Aaron had a broader mindset. It’s about all your content. Your work stuff, PDFs, Excel files, the stuff you tote around on a USB stick for work.”
Hamid admitted that Box had difficulty raising funds for about a year and a half, offering the simple explanation that “2008 happened.”
“I was the only one on Sand Hill Road to raise my hand,” Hamid remarked. He revealed that Levie even mulled over selling to another private company.
In the end, words and statistics about revenue turned out to be a saving grace.
“For me, it was a bunch of numbers. You can convince a bunch of VCs with numbers,” Hamid explained. “The churn was low. The revenue was up. Talking to the customers, the sentiment was that this could grow within their companies. There was a huge market with cloud-based file sharing with both consumers but also enterprises.”
That shift toward the enterprise also helped elevate Box above the crowded startup field. Timing didn’t hurt either.
In 2007, the consumer market was still the target at Box. But by 2008, individuals were using Box’s file storage and sharing services for business. In 2009, groups started using Box products within their companies. In 2010, Hamid said that “whole departments moved onto Box,” with entire businesses joining in more wholeheartedly in 2011. By 2012, the CIOs finally realized (or admitted) that hundreds of employees were using Box, essentially forcing their hands to get involved.
“In 2013, I think yes, Box is that company that provides those files and folders. It has the potential to touch every single employee all over the world,” Hamid posited. He concluded that Box is now signing “seven-figure deals” with large corporations worldwide.
Even years later, both Smith and Levie look back at jumping over the Series B hurdle with humility.
“We’ve raised a few different rounds… and in each case we’ve been in a pretty fortunate position of having that trajectory, and having really good data as well as the forward-looking vision,” Levie said.
Box brought in $6 million more when it closed the Series B round in January 2008.
Levie points to the recession of 2008 as a significant turning point, asserting that many businesses were looking at legacy vendors and re-evaluating what they needed to grow. Levie added that Box was “very fortunate in that scenario,” while acknowledging that at the time such choices weren’t obvious given the challenges the country was facing.
“It turned out that all businesses still needed a way to store and share their files,” Levie stated. “What happened was during the recession companies looked towards more efficient and more cost-effective and lighter-weight solutions to solve their problems. Instead of signing up for the big multi-million dollar, very slow, very cumbersome types of software that they used to be spending money on. They actually went to more efficient solutions.”
Enter the iPhone and the iPad
An unexpected but major catalyst for Box was Apple’s debut of the iPhone in 2007, and its unveiling of the iPad in 2010.
“There’s no device that truly captured our imagination of what would be possible with your content until the iPhone.” Aaron Levie
“When you finally have a powerful device that was so separate from your traditional technology model of your computer, and the computer network that you work from, we sort of theorized that mobile was going to be important just because it was just a term,” Levie said. “There’s no device that truly captured our imagination of what would be possible with your content until the iPhone. What the iPhone did was it said ‘Okay, I can finally be untethered from my computer, and I want to be able to get to all of my information.'”
After the iPhone, all bets were off when it came to legacy technology. “You had to have a new set of tools that could help you work with your files and your information,” Levie said. In regards to the iPad, he further suggested that was the first time where a new device category wasn’t just a consumption tool but actually a tool on which people would do work.
“The consumerization of IT is driven by consumer devices, but you still have to have enterprise applications on those devices,” Levie explained. “What we found was the best mix was the iPad, the new form factor that could let people do entirely new things in the enterprise that weren’t possible before. A doctor can pull up a medical image, a construction worker can pull up the plans for the construction site, and we realized they would need new types of software to make that happen. That consumer grade software wasn’t going to be enough to allow them to really pull out the kinds of workflows and business scenarios that they needed.”
“What the iPad, and mobility in general, has done has really just opened up an entirely new set of challenges and opportunities for businesses.” Dylan Smith
Smith said the entire enterprise cloud services market would be “less developed” without the iPad.
“What the iPad, and mobility in general, has done has really just opened up an entirely new set of challenges and opportunities for businesses,” Smith declared. “It’s not like, ‘Oh, well SharePoint can do this well enough, or my private servers do this well enough.’ It literally can’t get the job done. You just can’t extend that content outside of your business onto an iPad.”
Smith said it is here where Box has been able to solve a burning pain point that CIOs across all industries are trying desperately to remedy. Slowly but surely, there has been a noticeable shift toward more willingness, even “excitement and energy,” as Smith puts it, among businesses in moving to the cloud. Smith maintained a somewhat conservative analysis though, saying we’re still in the early stages of seeing adoption, and that there are still “always” going to be many slower-moving IT departments and CIOs, especially when it comes to regulated industries like healthcare and financial services.
Competitors plus partners
Regulated industries was an opportunity that Box seized upon much faster than its competitors, large and small. Box started tackling healthcare industry needs first, including becoming HIPAA-compliant at the end of 2012.
“It’s something that we wouldn’t have thought of five years ago, that this would be the use case for people using Box,” Smith admitted. “But we’ve been pretty intentional around going after that opportunity and making sure that we’re going down this list and doing everything that we needed to do to be successful.”
In covering government-mandated compliance certifications along with integrating dozens of third-party healthcare software applications, Box already has some high-profile medical organizations as clients across the country. Stanford Hospital in Palo Alto rolled out Box corporate accounts to 20,000 users. Box has since moved on to providing similar services for legal firms and agencies. Beyond that, Box executives remain tight-lipped about the next target.
“We have success in a ton of different industries. But most of them, they’re not as regulated, so we don’t talk about them in the same way that we talk about healthcare,” Smith followed up, adding that Box has a strong footprint across everything from high‑tech to retail to media and entertainment.
That doesn’t mean the management team have grown too comfortable. Success has also brought Box to the attention of a new set of powerful rivals.
“We remain sort of paranoid, and as a startup, you never want to assume you have won,” Hamid advised, immediately singling out Microsoft SharePoint as a competitor, or rather the “300-pound gorilla in the room.”
Famous for publicly jabbing at SharePoint, Levie said, “We talk to Microsoft very actively [about] more ways to partner even though we’re going to be competing with them directly in some areas.”
Smith has a different view about feeling pressure from Microsoft, notably Office 365.
“We do think about Microsoft as really being the gorilla in the space we’re running into most often,” Smith replied. “They’re also a great partner. We work really, really well with Microsoft and [are] always having conversations about how to even deepen that relationship, which is why it’s such an interesting space.”
“What Box is trying most to do is fulfill the promise of Microsoft SharePoint,” observed Frank Gillett, vice president and a principal analyst at Forrester Research, highlighting Box’s approach has always been to offer a solution that’s simpler and easier-to-use. Gillett acknowledged there is some overlap with Google Docs, but he insisted there isn’t a strong comparison there given that Box “comes from a deeper place and focus on collaboration than Google Docs.”
Looking at how long Box’s strength will endure in the long run, Gillett suggested a few different roadmaps, including the possibility of being acquired by a larger enterprise software provider (perhaps even a player at the level of an SAP or a Salesforce.com) after an IPO. He also hinted that Box’s current strategy of focusing on the enterprise, which is arguably its biggest differentiator from the likes of Dropbox and other growing cloud storage services, might not be enough.
“I do think Box needs to address the consumer in the long run. But for now they’re doubling down on enterprises,” Gillett said. He continued that the imaginary digital borders between enterprise and consumer software will eventually evaporate. Gillett pointed toward another growing software company, Evernote, as an example of a cloud business that likely already has a steady handle on satisfying both worlds.
Google arguably could instill fear in just about any company given its seemingly limitless base of financial and intellectual wealth. Remembering a scoop in The Wall Street Journal in 2007, Hamid speculated that Google Drive was reportedly on track to be launched then.
“It gave us pause for concern because Google can just eat your lunch,” Hamid said plainly. Smith also recalled when Google was working on a storage service around the same time Box held its Series A round, remembering the project codename as “Platypus.”
Timing might have proved to be on Box’s side once again, because Google Drive didn’t emerge as the evolution of Google Docs until 2012. Hamid also noted that Box works closely with Google Apps, describing the relationship as possibly “the least competitive” and more cooperative.
Setting Google aside, if Microsoft is the gorilla, then the elephant in the room must be Dropbox. Hamid acknowledged that Dropbox is “close to our heritage,” albeit with a few differences.
Dropbox has largely been focused on the consumer market from the beginning and is now delving deeper into the business world. While it shares similar roots in consumer tech, Box’s path has largely gone in the other direction. Both companies have also benefitted greatly from the emergence of smartphones and tablets and the technological revolution those mediums have birthed. But Hamid broke down how the strategies differ.
“Box was all about moving the files you need into the cloud and having them available from any device,” Hamid said. Dropbox’s angle, he argued, was syncing content. As for those other file storage startups in the early days of 2007 and 2008, Hamid admitted he isn’t even sure which (if any) of those 49 companies still exist.
Despite plenty of glowing coverage of Box over the last few months highlighting billion-dollar valuations and successful fundraising rounds, Levie also remains vigilant. When asked about giants such as Google and Salesforce.com as well as private software vendors Evernote and Dropbox, Levie responded, “Every company you just mentioned I can name a scenario of how they compete with us, how they can become more competitive with us, and how we need to become more competitive with them.”
Yet at the same time, Levie replied that we’re moving to a world that will be fundamentally more heterogeneous, allowing for mixing and matching of tools and capabilities.
“I think we’re just moving to a different type of ecosystem where you compete aggressively on some dimension, and you differentiate aggressively on some dimension,” Levie explained.
“For us, it’s combining security and simplicity to build a very unique type of way of working with information.”
A major common trend for software companies scaling its platform and customer bases is to hold a conference of some sort, whether it be for sales reps, developers, or both.
These days, Bay Area calendars are often booked up between the last week of August through Thanksgiving with one-day summits to week-long expos sponsored by the likes of everyone from tech news sites such as TechCrunch to software and service providers like Evernote and Oracle. Box held its first event of this kind in 2010 with the cloud-friendly moniker Altitude, targeting IT executives and influencers.
The exponential growth of this now-annual occurrence (which has been renamed BoxWorks) mimics the rapid scaling that Box has experienced in the last three years. In 2011, the one-day summit packed in just about 300 attendees into an oversized conference room crowded with tables at the Hotel Nikko in San Francisco. Fast forward to September 2013, BoxWorks has grown 10 times in size. Approximately 3,000 attendees filled out the ballroom at the opening keynote of the three-day powwow held at the Hilton Union Square.
“As soon as you get to a certain scale in the enterprise software world, you have enough large customers that want to hear from both other customers, as well as other Box employees, and see your vision, roadmap, and strategy,” Levie posited. “Then you wrap it all in a bunch of great industry content around how do you innovate more in your business, and how you develop better IT strategies. Then you put all that together and you throw in a blink‑182, and you have yourself a customer conference. That’s what we do.”
While clarifying that BoxWorks is a “customer and developer event,” Smith hinted that Box might be adding a specific developer event to the mix as soon as this year.
“I think it has been an incredible experience,” Smith said. “We obviously continue to feel that we are still at the very start of a new experience, and that is sort of ongoing. You constantly feel that no matter what stage you get to, we are ready to continue on the journey.”
Enterprise software that doesn’t suck
Box currently employs roughly 180 engineers with another 60 to 70 people on technical operations. Box continues to incrementally move toward embracing the concept of being both a platform and an infrastructure. Queisser argued that the shift is going more toward a “platform-oriented model,” explaining this as something that can be used internally, and then selling it as a standalone offering.
Neither Ghods nor Queisser would talk specifics as to which other companies they might be challenging with this particular roadmap, but Ghods said that Box could deliver a platform that is “super easy” for developers to get started on.
“What we do is bring this strategy of enterprises, to have all of the productivity and flexibility and velocity of consumer products and organizations without paying the cost for the security and compliance and all that stuff they need,” Ghods asserted.
“You can call it enterprise software that doesn’t suck,” Queisser joked. Ghods laughed along, “Yes, and so next we want to build an enterprise platform that doesn’t suck.”
Then there is the increasing task of driving the business forward overseas. Box has been steadily building out its footprint in Europe, starting with a sales office in London followed by some roots being planted in Berlin. The next scheduled stop is Asia, starting in Tokyo.
In the case of someone who grew up in a big enterprise software company, Box chief operating officer Dan Levin touted that younger hires help the senior management better understand what’s going on with the latest cutting edge stuff and how to think about the ways the next generations of workers are going to behave.
“I think one of the things that people don’t always appreciate about Box is that we have all the trappings of sort of the sexy, young company,” Levin remarked during a lunch break interview at BoxWorks 2013 in September. “We’ve got the slide in the lobby. We’ve got people riding around on scooters.”
Levin acknowledged that “culture is a very overused word,” but he stressed its importance as a key to success and attracting the right talent among a highly-competitive pool of A-List brands constantly clamoring and aiming to outbid each other for the best engineers and developers. Levin also pointed out a common problem — especially for the Valley — that hiring enough people is easy. It’s hiring enough of the right people, he argued, that’s hard.
“It just boils down to the rules that we choose to adopt for how we’re going to interact with each other, how we’re going to treat each other,” Levin explained.” Those people want to work in an environment that’s fun, that’s stimulating, that’s challenging, that’s engaging.”
But as Box gets bigger, it’s finding itself trying to recruit the same engineers and developers who are interviewing and receiving enticing offers from the likes of Facebook and Twitter as well as other still private but growing tech brands like Pinterest and Square, just to name a few.
Box senior vice president of engineering Sam Schillace said that the “best way” in recruiting against Google, for example, is a single word: Microsoft.
“Basically just tell them, Google is turning into the next Microsoft. It’s becoming very bureaucratic,” Schillace observed. “A lot of bright people, a lot of interesting projects, a lot of good intent. But it’s very big and very heavy now. It’s pleasant to be there in the sense of you get paid well, and you get to eat well, and all that other stuff. It’s not that pleasant and satisfying to be there as an engineer.”
Despite Box’s obviously younger workforce, Schillace said this approach actually works better with more experienced, older hires. This is because younger engineers just out of college or graduate school, he said, are usually a bit “starstruck” by these bigger companies with lots of perks, but they’ve never been burned by a job either.
Still, Schillace admitted that his hiring pattern has skewed toward the younger set, but he’s been trying to move the needle to more experienced engineers.
“When we compete for engineers now, we’re not competing with random, ‘you’ve never heard of them’ startups or crappier companies,” Schillace remarked. He boasted a solid track record with eight of the last eight offers he made being accepted, at the time we spoke with him.
The expectation of Box going public has been widespread since Levie revealed in an interview with Bloomberg in January 2013 that an IPO was the goal in 2014.
In October 2013, Levie told me that the IPO climate is a “very good kind of market right now for enterprise software companies,” pointing to recent successful debuts by the likes of Workday, Splunk, and Palo Alto Networks.
“IPO is sort of the natural path that companies take on, and we’re building a company that we think can be robust enough and successful enough that it makes sense as a public company,” Levie explained. “We’re at a period right now where we are growing internationally. We’re growing in new verticals. We’re going after a lot of new segments.”
Once again, Smith was more measured in his evaluation, noting that an IPO should serve as “another milestone in what is going to be a very long game for us.”
“I think the biggest thing is just setting expectations appropriately, not just with investors, but, even more importantly, with employees,” Smith asserted. “Educating people early on, getting them visibility into why we’re doing this, what it’s going to look like.”
“We all grew up together,” Levie reminded. “We’ve done lots of different businesses and projects, some technology, some other, throughout high school. Then we kind of went our separate ways, and decided to regroup for the cloud industry.”
The fact that Box has been able to maintain its core leadership team through all of its success, funding rounds, and now heading toward IPO is one of the things that distinguishes the company.
“One thing that strikes me is that these two co-founders, Aaron and Dylan, are very young but unbelievably wise beyond their years. It’s not like they just had a great idea and brought in senior management to run it. It’s still very much them running the business,” said Peter Goldmacher, managing director and a senior research analyst covering software with the Cowen Group.
An IPO should serve as “another milestone in what is going to be a very long game for us.” Dylan Smith
In an empty meeting room amid the hubbub of the first day of BoxWorks 2013, Levin took a moment to ponder the future history of the company.
“I think someday the story of Box is going to be written, and what’s going to be written is that we were able to, not only envision a pretty amazing future, but actually make it happen,” Levin said.
“So many companies in Silicon Valley struggle with the execution part, the actual doing of it. They’ve got this amazing, visionary leader, or amazing bunch of people, or amazingly cool bits of technology. They can’t sort of put the whole package together, or they can’t keep that package together when it’s growing 100 percent year-over-year, for year, after year, after year. We’ve been very fortunate to be able do that.”
The tech giant had to threaten the State of Arizona that if the latter brings in an anti-gay bill Apple will move its glass manufacturing plant elsewhere. It seems that the Republican governor Jan Brewer had a plan to save the world by allowing businesses to discriminate against gays on religious grounds. Apparently, it is what Jesus would have wanted.
Although the bill in question passed, Brewer is currently facing pressure to drop it, as it is deemed illegal, “state-sanctioned discrimination” and proof that Arizona is almost as backward and retarded as Florida.
Now Apple and a number of other international companies issue letters and make some phone calls telling everyone that Arizona would take a financial hit if the anti-gay bill passed. For example, Apple was ready to launch a large new glass manufacturing plant in Mesa, Arizona, but now says that it won’t do so if the bill goes ahead. The company can be understood – who wants to see their employees banned from a local restaurant?
In addition, the Marriot hotel chain also claimed that the measure “would have profound negative impacts on the hospitality industry of the state and on Arizona’s overall economic climate for years to come”.
Finally, a couple of the state’s senators (both Republican) also weighed in on Twitter, asking for a veto. In the meantime, other Republican Arizona state lawmakers preferred to change sides, after they realized that being anti-gay probably may not get them as many votes as they thought before, but rather hack off their corporate sponsors.
As a result, 3 state senators, who initially voted in favor of the law, changed their mind and claimed that the proposal had been mistakenly approved in haste and would cause “immeasurable harm” to the state’s national image (or already did). The Republican governor Jan Brewer replied that she has time to make a decision on whether or not to sign or veto.