Box CEO: More Customers Looking to ‘Retire’ Legacy Content Management Systems

Box continued to see momentum in new customer wins during its third quarter (ended Oct. 31) as the company expanded its artificial intelligence (AI) and machine learning (ML) initiatives, according to CEO Aaron Levie.

The company is “seeing increasing momentum from customers looking to move to Box and retire their legacy content management solutions over time,” he said Nov. 29 on an earnings call with analysts. As an example, he said, a leading North American insurance group became a Box Governance customer in the quarter to enable that company to expand its use of Box across more of the organization and ultimately replace its legacy enterprise content management (ECM) systems.

“We maintained solid customer momentum, landing wins and expansions with leading organizations” including Lionsgate and the Nuclear Regulatory Commission in Q3, he said. Box now has 80,000 paying customers and it closed 36 deals over $100,000 in Q3 (down from 38 a year ago), four deals over $500,000 (down from 7 a year ago) and one deal over $1 million (down from 2 a year ago), he told analysts.

A few of the company’s major deals “slipped into Q4 in the last few days of the quarter and they’re now progressing towards closure before the year end,” he said, adding the company is already, so far in Q4, “on track to execute a record number of big deals” in one quarter.

Pointing to Box’s optimism that the majority of the slipped deals will close in Q4, MUFG Securities Americas analyst Stephen Bersey said in a research note: “We do not think that the deal slippage points to any weakness in Box’s end markets. Furthermore, the company’s add-on products continued to have high attach rates, with 67% of six-figure deals including KeySafe, Zones, Governance, or Platform.”

Box, meanwhile, continues to focus on two major objectives this year, Levie said: “Innovating in cloud content management with additional products and platform capabilities that help move enterprise workloads to the cloud” and “advancing our global go-to-market efforts so that we can reach more enterprises around the world.”

In Q3, the company held its annual BoxWorks customer conference in October in San Francisco, where it “made our most significant product announcements ever,” including its strategy to bring AI and ML to content in Box, he noted.

The “major announcement” was the unveiling of Box Skills and Box Graph, two new ways in which the company is bringing AI and ML to content in Box, he said.

Box Skills is a framework for applying ML tools such as computer vision, video indexing and sentiment analysis from the leading technology platforms to content stored in Box, he pointed out. At BoxWorks, the company showcased three initial skills: audio intelligence powered by IBM Watson, video intelligence powered by Microsoft Cognitive Services, and image intelligence powered by Google Cloud, he said.

“Our approach is to take the best-in-class innovation happening in AI and bring those capabilities into Box,” he explained to analysts, adding: “With Box Skills, enterprises will be able to uncover insights and re-imagine business processes that have traditionally been too costly or impractical to digitize and automate further disrupting legacy ECM systems. While these initial skills are applicable to any business in any industry, we also wanted to extend the Skills frameworks, so our customers can leverage machine learning to solve their unique business challenges. That’s why we announced Box Skills Kit, a collection of tools to allow independent software vendors, system integrators and enterprise developers to create custom Box Skills. Custom Skills will allow developers to build new, intelligent content experiences for use cases ranging from customer service call analysis to legal contract management. Box Skills and Skills Kit will be generally available next year.”

Box Graph is the company’s “proprietary” ML technology that matches how an organization works with content by “analyzing and weighting the relationships and activity between users and content in Box,” he said, noting the first experience powered by Box Graph is Feed, a personalized activity feed that “curates in services recommended content for each user [and] will be rolling out next year.” Box Graph will also “allow us to bring intelligence in automation to new experiences in areas like workflow and security,” he said, adding: “For instance, in the area of security, Box Graph can help us identify … unusual behavior that may represent a potential threat and allow a security team in our customers’ environment to respond in real time.”

Box is convinced that AI and ML will “fundamentally change how we manage, secure and collaborate on content in the enterprise,” he told analysts.

Regarding the expanded partnership that Box and Microsoft announced in June to jointly offer Box cloud content management with Azure to enterprise customers, Levie told analysts “we’re very, very early in our ability to go to market with Microsoft.” He went on to say: “What we are seeing is some pretty active conversations with our sellers as well as Microsoft’s, especially in accounts where an Azure sales rep is trying to penetrate an organization and get more adoption or new adoption of Azure in that environment. We have found that those conversations are very collaborative with Microsoft…. We have a lot of optimism and confidence that this is going to be very helpful in the field as we go into more and more accounts together with Microsoft, just as you’ve seen with us working with IBM and many of our other strategic partners.”

Box reported Q3 revenue grew 26% from a year ago, to a record $129.3 million. But its loss widened to $42.9 million (32 cents a share) from $38.2 million (30 cents a share).