“For us, it’s all about how users are enjoying our products and using them or not,” said Chris Yeh, Box’s senior vice president of platform (pictured). That’s why business- and enterprise-tier customers’ usage of applications determines just how much money developers can make in $rev. Box will provide up to 15 percent of a Box seat price to developers with applications inside of OneCloud, which now has more than 500 apps. Going forward, metrics in addition to usage will also factor in to developer compensation.

The business model differs from those in place at app stores from other Software-as-a-Service (SaaS) providers. Google Apps Marketplace asks app vendors to pay $100 up front, and that’s it. Developers putting their apps on Salesforce.com’s AppExchange have to share their revenues with Salesforce.

Box’s approach gets good marks from Alan Lepofsky, principal analyst at Constellation Research. “What I like about the compensation model … is that it goes beyond simple pay-per-download, and instead rewards partners based on a detailed analysis of which add-ons are actually being used,” he said via email.

The $rev program initially applies for 10 popular pilot apps, including CamScanner, CloudOn and SmartOffice. In six weeks or so, it will roll out to many more mobile apps inside OneCloud.

Box wants to make it easier for mobile developers to come up with apps for Box, with iOS and Android software-development kits (SDKs) that include code for key functions such as accessing files within Box and implementing single-sign-on support. As for Windows Phone, Box is in the process of extending OneCloud to the platform, Yeh said.

Windows Phone or not, the broader concept underlying $rev — tying developer payout to usage — does sound smart, because it compels developers to get solidly behind ongoing efforts to make Box the Dropbox of the enterprise. Box could use all the help it can get there, but if the program succeeds, competitors could institute me-too app stores with similar models.

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While Box has been taking an industry-by-industry approach to enterprise adoption, the Crocodoc buy showed that Box is also serious about serving up a slick and intuitive consumer-grade user experience for the enterprise. The Folders deal is more proof of that, and offers important capabilities that keep Box competitive as enterprises let employees bring their own devices — many are iOS based — into the workplace.

Folders code viewer. Source: Folders

Users can also search files stored across Box, Dropbox or Google Drive. But perhaps this support for multiple clouds could fall away as Folders gets absorbed into Box — Google and Dropbox, after all, are key competitors against Box in the fight to be the Dropbox of the enterprise.

The Folders technology will be worked into “the next generation Box for iOS” that’s currently in the works, according to the Box blog post from Sam Schillace, Box’s vice president of engineering. (Schillace will talk with my colleague Derrick Harris at GigaOM’s Structure conference in San Francisco on June 20.)

The Folders app was designed by Martin Destagnol, the CEO of Reedian. It’s unclear how Reedian will be affected by the acquisition.

Even though getting enterprise adoption is important, in day-to-day reality, sometimes it’s the small things that matter to people. If enterprise employees see that they can open certain documents on their mobile phones, they might be less likely to get annoyed. And if employee discontent is minimal, companies could end up sticking with Box instead of flocking to other cloud-storage providers. The Folders deal looks like it will help Box move closer in that direction.

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Kevin Egan, VP of sales for Dropbox.

The San Francisco company says it has more than 100 million users overall. More to the point, it claims a presence in more than 2 million businesses, including 95 percent of the Fortune 500. But like other vendors that led with a free version of its service to win mindshare, it won’t disclose how many pay for the Dropbox for Business version. Dropbox execs say its name recognition among consumers — many of whom brought it to work — is a draw for these resellers that can provide services around Dropbox for Business.

Pent-up demand?

“We’ve seen a lot of inbound requests from MSPs and IT consultants who want to bring Dropbox to customers and at this point we feel Dropbox for Business is ready,” Kevin Egan, VP of sales for Dropbox said in an interview.

Dropbox for Business, once known as Dropbox for Teams, adds IT-friendly features including Active Directory integration, single sign-on and an admin console for managing corporate users — and pricing starts at $795 per year for 5 users.

Neither Egan or Adam Nelson, the Dropbox executive in charge of the partner push, would share details about the number of partners Dropbox seeks or what sort of incentives they can expect. Nelson said the goal is to select MSP, IT consultant and VAR partners to work collaboratively with the company’s own sales team. “We view partners as an extension of our sales force, evangelists who go out and fulfill demand externally and create a great customer experience,” he said.

Of course, that’s the pitch most tech vendors make, but the reality is that inside sales teams and third-party partners often end up competing for sales and for the incentives they bring. The rationale here seems to be that there is so much demand for Dropbox and related services, that there will be enough work for everyone.

A couple of partners familiar with Dropbox’s plans — both of whom requested anonymity because they’re not authorized to speak about them — said the company has a shot.

One MSP said he gets “a ton” of requests for Dropbox and he sees huge opportunity moving small and medium businesses over to the service instead of updating aging file servers. In return he will get recurring revenue from a service that requires little or no end-user training and will be easy to support.

An IT consultant said Dropbox inside sales can provide a list of employees in any given account that are already on the free Dropbox version. He can then use that data to convince IT it’s time to go to the paid version that will give admins more control. [Update: According to a spokesman, Dropbox will not provide partners a list of names but would offer information about the number of employees using Dropbox on a given domain.] 

‘Dropbox of the Enterprise’ wannabes on the rise

Dropbox has huge name recognition and a devoted consumer base, no question.

But this is a hotly contested space. Microsoft hopes to parlay its Office-and-Windows-and-SkyDrive play here while  Google  does the same with Google Apps and Google Drive. At the same time, Box has staked its claim as an IT-sanctioned cloud storage and file sharing service and then there’s an array of other players including Accellion, LogMeIn  and OwnCloud  vying for share.

All of those companies would love to become the “Dropbox for the enterprise.” As Dropbox rolls out more IT-friendly features and a business-focused partner program, it’s clear that it plans to assume that title for itself.

Note: This story was updated at 11:57 a.m. PDT with Dropbox’s clarification of what customer information it will provide partners.

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“We have to build a consumer-grade experience,” Aaron Levie, Box’s co-founder and CEO, said at a Thursday meeting at its San Francisco office. The deal will be Box’s second acquisition; it acquired Increo in 2009, a company representative said.

Crocodoc already takes care of this type of document conversion for files on several sites, including the recruiting function on LinkedIn and document sharing on Yammer. Once a document is there, users can see the details of fancy typefaces and add comments on desktops and mobile devices, without Flash or plugins required. Other document functions, like editing, are not yet available.

“We want to bite off different pieces of that puzzle,” said Ryan Damico, Crocodoc’s co-founder and CEO. “In the end game, we want to cover all of them.”

Yammer document previewing via Crocodoc technology

Box will swap out its existing previewing mechanisms with the Crocodoc technology in the next few months. Also coming are new versions of previewing, such a carousel with pages passing by, a sliding option, a scrolling option and perhaps a page-flipping option, Damico said. Box will also enable developers to keep using the Crocodoc API to upload documents, spin them around into HTML5 and then do things with HTML5-enabled content to embed in their own websites.

“This is what Instagram is to Facebook,” Levie said. “Photos are important to them; documents are deeply important to us, and they’re deeply important to business use cases.”

While it’s been four years since the previous Box acquisition, Box does want to keep building out its product lineup. “We intend on being very acquisitive,” Levie told me. Box has raised $312 million to date, including contributions from Andreessen Horowitz, Draper Fisher Jurvetson and NEA. Crocodoc has raised more than $1 million, with investors at SV Angel and 500 Startups.

As Box makes itself into more of a platform than simply a venue for document storage and sharing — last month I wrote about its health care applications and compliance with the Health Insurance Portability and Accountability Act — it also needs to make sure documents show up clearly. It does seem like a no-brainer, which is why it seems like this acquisition should have come earlier.

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Compliance with the Health Insurance Portability and Accountability Act means that Box provides file redundancy to prevent data loss in a disaster, restrictions on employees’ access to documents, a breach-notification policy, data encryption and other features.

Beyond talking about meeting regulatory standards, Box is also promoting 10 new partner applications in its marketplace, including the drchrono iPad application for viewing electronic health records and the TigerText Software-as-a-Service (SaaS) for texting and sharing documents among health care providers.

It’s not as though Box has yet to take on business from health care companies, though. It’s got hundreds of paying health care customers, said Whitney Bouck, general manager of Box Enterprise. Customers include the Garden City Hospital and the Henry Ford Health System, both in Michigan, according to a Box statement. Still, Bouck said that because of the HIPAA compliance and application partnerships, the company expects a much higher annual revenue growth rate in the health care area than the companywide figure, which stands at 160 percent.

Adding creature comforts to entice customers in health care and other sectors is important for the cloud-storage contenders such as Box, Dropbox and at least a dozen other storage providers, all of which want to become the Dropbox of the enterprise. Box is following Salesforce.com, Microsoft and other cloud collaboration providers by connecting with apps catering to industries. At the same time, those software giants are adding Box-like cloud storage capabilities of their own.

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It’s working with identity management experts — Ping Identity, Okta, OneLogin, Centrify and Symplified — to bring SSO to those users. And, in case it’s not clear that Dropbox wants to attract business users, it’s re-christening Dropbox Teams as Dropbox for Business. Got it? Good.

IT admins can already integrate Dropbox with Microsoft Active Directory, the directory services scheme used by many companies, to automate the creation and removal of Dropbox for Teams accounts from an existing directory. But until now (well, actually until next month, when it comes online) it did not support SSO.

Dropbox is the undisputed king of consumer-focused file-share-and-sync — as of November it claimed more than 100 million users. It is far from clear, however, how many of those users graduate from the free to the paid consumer service. Nor does the company provide numbers of Dropbox for Teams, er, for Business users, which costs $795 per year for 5 users plus $125 for every additional user. But it does say that Dropbox is used in 95 percent of all Fortune 500 companies.

As we all know by now, people sho use a given service at home like to use it at work, which means that the 95 percent figure is credible. We also hear about Fortune 500 companies — including IBM – prohibiting the use of such consumer-focused products (including Dropbox specifically), and that’s the trend that Dropbox is trying to nip in the bud here.

Earlier this year, Dropbox added a more IT-friendly console that lets admins restrict access and transfer of company documents and helps them track user activity.

Sujay Jaswa, VP of business development for Dropbox, said the company does not see Dropbox competing with SkyDrive — which Microsoft has tied tightly into Office and Windows — nor with Box, which would love to be the Dropbox of the Enterprise. “We just want to build the kinds of features people love,” he said.

But anyone outside of Dropbox would say that it is definitely contending with Microsoft, Box and the Google Apps-and-Drive tandem in business accounts.

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The Mountain View, Calif. company has always maintained that companies want to be able to keep some their files and other digital paraphernalia within their own data centers and some in external clouds. But till now external clouds consisted of its own considerable infrastructure — the company has 9 petabytes worth of cloud running out of data centers in northern California, Asheville, N.C. and Amsterdam.

But, as we all know, latency is an issue in cloud world, so the addition of these massive third-party clouds, which run out of data centers around the world,  might appeal to companies with far flung offices.

Egnyte is focusing more on enteprrise accounts and claims some big ones, including a large advertising agency for which Egnyte manages 125 TB worth of storage, according to CEO Vineet Jain.

The company, with about 159 emplioyees worldwide, brought in $16 million in Series B funding last summer from Google Ventures and others, bringing total venture backing to about $32 million.

Jain said he sees the pace of cloud storage adoption picking up and fast.”Last year we got one or two requests for proposals a month and now we get three to four per week. People have budgeted for this, they’re now comfortable with it. In 2007 or 2008 we’d bring on 10 TB every 15 days and now we add as much every 48 hours.  There is just a deluge of data and people need to deal with it.”

The new EgyntePlus is available now. The market may be booming but so is the number of competitors. Box is very aggressive in targeting enterprise cloud storage market as are Panzura, Nasuni, OwnCloud and other companies including legacy storage giants EMC. And, don’t forget that the big cloud guys — Google, Microsoft and Amazon — have their own enterprise storage plays.

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One example of the new Box security features is a tool to allow account administrators to block individual users from sharing a document or documents or creating folders outside the company, said Whitney Bouck, GM of Enterprise for the Los Altos, Calif., company.

Also new from Box:

• Device pinning: Lets administrators authorize a specific device for Box, making it eligible to receive and view company documents.
• Integration with Samsung KNOX mobile device management: All of Samsung’s upcoming mobile devices will ship with KNOX MDM which enables them to run dual personas: One device will support both a work and a personal profile for a given user. The work persona integrates and runs with Box applications. If the owner leaves the company, just that data will be wiped clean.
• Support for CipherCloud and Code Green Networks data loss protection: Box already integrated with ProofPoint on DLP, now it adds CipherCloud and Code Green to its roster.
• Integration with GoodData: This tie-in gives customers a dashboard across multiple applications — now including Box.

Box is making a big effort to solve what some think is the unsolvable bring your own device (BYOD) problem. Companies want employees to use their devices of choice but also want to control what they do with those devices. IT’s nightmare scenario is an accountant emailing herself work documents to a Gmail or Hotmail account or uploading them to Dropbox where they disappear from IT view and control. That kind of stuff happens all the time and poses huge compliance and risk issues.

A crowded cloud file-share-and-sync field

Box competes with Accellion, Egnyte, OwnCloud and others that focus on cloud-based file sync, share and store,  but also with bigger, broader companies that are adding similar capabilities to their own roster — hello Salesforce.com, Microsoft et al.  Those are tough straits to navigate and Box relies on partnerships with big enterprise companies – IBM, Oracle etc.– to boost its credibility in large accounts. But many of those same companies have their own competitive offerings as well.

Box has raised a ton of venture capital but it remains unclear how many of its claimed 15 million users actually move beyond the freemium version. A recent article in Forbes raised some eyebrows when it reported that 3 percent of those 15 million are paying customers. A Box spokesman would not verify that number but said the company experienced 150 percent year-over-year sales growth.

At some point, Box will have to talk about profitability, not just revenue or sales gains.

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Comcast’s business services brought in $2.4 billion in 2012, up 34 percent from the previous year. That’s only 6 percent of the company’s cable sales, but it’s growing at almost 6 times the pace of total sales. And those customers were asking Comcast for choices on document storage, security and other resources, which led to the ISP building Upware.

While spokesman Charlie Douglas declined to give specific financial details associated with the app store, he did say it would be a revenue-generating service for Comcast. It will also be great for the partners who will have their services listed for Comcast’s business customers. Those companies so far include:

• Data Backup – Carbonite, DigitalSafe and Mozy.
• Data Security – Norton and Websense.
• Collaboration – Box, Microsoft, Soonr and YouSendIt (see disclosure.)

This is a good example of how a service provider can add value for its end users — value that it can monetize beyond a monthly broadband fee. Comcast has been pretty aggressive about adding connected home products on the residential side as well as beefing up it’s pay TV service to compete more with web-based on-demand services.

Disclosure: YouSendIt is backed by Alloy Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media.

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The rest, as they say, is history. Writely went on to become the foundation the foundation of Google Docs. Schillace went on to lead just about every product that falls under the Google Apps umbrella, leave for a stint to launch a new company, then come back as a member of the Google Ventures team. Box, well, it’s flush with cash and set for a 2014 IPO.

Sam Schillace (Credit: Google Ventures)

But although their paths diverged, Schillace and Levie would find each other again. In 2011, while still with Google Ventures, Schillace joined Box’s technical advisory board along with then-Facebook VP Jonathan Heiliger, LinkedIn SVP Kevin Scott, then-Flipboard CTO Arthur van Hoff and some other notable Silicon Valley names. (Schillace calls himself “the dumb guy to make all the other guys seem even smarter.”) It was good camaraderie and a lot of fun, Schillace said, and “once a quarter they’d bring all their really hard technical problems to you.”

Then, in mid-2012, Box COO Dan Levin asked Schillace to come on as the company’s vice president of engineering. He actually didn’t want to take the job initially, but when he realized the decision was really between continuing to have conversations with the smart people around him — both on the advisory board and within Box itself — he knew what he had to do. ”I really liked the people and I really liked the team,” Schillace told me.

He officially joined the company in August 2012, and is now bringing his considerable expertise to bear on Box’s very pressing technical challenges. With crushing data volumes and millions of users, Schillace explained, “There’s a little bit of a success disaster we’re having to deal with here.”

Laying the groundwork at Google

It’s a good thing Schillace has some experience dealing with some difficult issues, in both technology and business. When he started Writely, even his co-founders thought it was a stupid idea; web browsers then were so primitive. There was no documentation, no standardization (even around how they handled HTML), and browsers were slow and underpowered. The only solution was to “just poke at the browser until it behaves,” Schillace joked.

“The crown jewel of hard problems … is around collaboration,” he explained. Although the Google Docs team eventually rebuilt Writely as a native word processor, Schillace and Writely co-founder Steve Newman didn’t have that luxury. Because the browsers all behaved differently, they had to write some “hairy” logic to merge changes on the server and then send it back down to the user in a format that particular browser could understand. Sometimes, they’d run into what Schillace calls “edit fights,” where a browser would actually fight itself.

“It was totally Wild West,” he said. “We had to invent a lot of stuff even to get it to even work a little.”

Credit: Google

Schillace also knows how to overcome, or at least manage, the non-technical issues that come as a company grows from a small team into something much, much larger. When he started at Google, his team was about 40 people. By the time he left, it had grown to 600.

But despite its size, Schillace said, Docs was never a huge priority at Google because of its minimal effect on the company’s bottom line.

“The only reason we managed to make Docs happen in the first place, really, was Eric Schmidt was such a big supporter and we were kind of tyrants because we were so feral and so much in the startup mentality,” he acknowledged.

Hellbent on earning every dollar possible from their contracts, Schillace and his team worried much more about continuous execution than about following the rules. “Every once in a while we’d get in trouble and Eric would protect us and get us out of it,” he said. “We just sort of shoved through it and made it happen.”

Fast-forward a few years and there’s “not a lot of room for the feral programmer at Google anymore,” Schillace explained. Because the company is so big, everything you do is under extreme scrutiny and it becomes impossible to recover from even small mistakes (e.g., Wave and Buzz) because there’s so much exposure. And as part of such a large company working on such large projects, it can become hard for individuals to stand out or to see the direct effects of their work.

Building a better Box …

Box, Schillace said, feels a lot like Google did when he first came on board there. It’s a big enough company (with nearly 700 employees) that everyone is doing real work, but not so big that all the problems have been solved. He thinks there’s a good two to four years of really fun stuff to work on, and the company can bring in smart people from places like Facebook and Google to help find the solutions.

For Schillace personally, Box’s size also fits in with his current state of mind: He’s done with the emotional roller coaster of startups after spending more than 20 years building them. “When you’re initially a programmer, you learn to program with 10 fingers,” he said. “And then maybe if you go to management you learn to program with 10 people. And then if you go to the level of management that I’m at, you get to program with 10 teams of people.”

But works that’s “fun” isn’t necessarily work that’s easy. Technologically, he said, the hardest problems at Box are dealing with the company’s scale. From a data volume perspective, it’s growing at 10 percent a month, which means it’s doubling roughly every seven months and growing by about a factor of four every year. Box’s storage capacity is into the multiple petabytes now, Schillace said.

On the infrastructure side, that means Box is always working on the next generation storage of scale-out storage architecture. It takes between 6 and 12 months to build one, he explained, but they only last about 18 to 24 months.

In the case of Box, though, its focus on real-time collaboration means mere storage capacity isn’t enough when designing a database. That’s why Schillace’s team ends up building a lot of its own technology to deal with the company’s unique needs. It’s able to buy a few things off the shelf and use some available open source tools, but, as Schillace said, “every company has its own set of tradeoffs you have to make, so you basically end up having to build this stuff yourself.”

And as Box signs up more deals with companies that have tens of thousands of users — sometimes more — it has to make changes around caching and metadata to account for that many people potentially sharing a folder or a document. ”That does strange things to your product,” Schillace explained. “… All complicated by the fact that everything’s moving all the time.”

A sample of Box’s large-enterprise users.

“The other technical problem is, ‘what’s the next generation of the web app itself,’” he noted. “Where do we go with that and what does that need to be in order to be successful?” At Box, for example, the user interface is starting to show signs of stress because of the number of users, meaning its search has to become more functional and certain pop-up menus and lists are getting too big to present.

… and re-imagining content for the mobile world

But even beyond building out Box’s current product to handle the company’s scale, a bigger challenge might be figuring out how to build a collaboration application in the age of powerful mobile devices and cloud computing. Schillace said he’s very proud of Google Apps (the couple of times a week he still gets thanked for it probably doesn’t hurt the pride), but it was essentially just a matter of building traditional office applications of the desktop world for the web, and he thinks Google’s anti-desktop dogma is a bit simplistic.

“The interesting challenge is to have one foot in many worlds at once,” Schillace said — mobile, web and desktop, consumer and enterprise. ”We’re just at the beginning of this tidal wave of enterprise going from on-premise to the cloud … . I think all the boundaries and functionalities of that stack are still up for grabs.”

A debate at Box, he said, is whether to build a full suite of editing applications a la Google Docs, or whether that’s “chasing the last war.” Rather Schillace is inclined to look at what a company like Evernote is doing to enable creation and collaboration “outside of that paradigm of word processor, spreadsheet, presentation.”

All of this speaks to the evolution of documents. They used to be more like artifacts — things like properly formatted business letters with high latency, high transaction costs and “all this artifice around the structure of the document,” Schillace explained. Then the web came, reducing the focus on formatting and adding a collaborative element, but keeping in place a certain level or linearity. With the advent of Evernote and the erstwhile Google Wave, documents have become more abstract, mixing images, text, communications, web pages and whatever else onto a digital canvass.

“Underlying all of this, what’s really going on is the business interaction you want to have,” Schillace said. “The point of the document is you usually either record something for yourself or to have an interaction with another human being. And I think we can gradually start peeling away layers of artifice and try to get down to the raw core of that interaction.”

He thinks mobile devices with their small screens, portability and omnipresence in our lives might present the biggest challenge for achieving this goal. Users probably need a native way of interacting with documents that doesn’t involve opening a Word document and trying to read and edit it on a tiny keyboard. The right test, according to Schillace, might be if a co-worker has a question, “could I answer it while I was standing in line at the store in 30 seconds?”

If someone is going to hit a homerun with the ideal mobile collaboration experience, building it probably won’t come easy and might not look too much like anything we’ve seen before. If there’s one thing Schillace has learned building six startups over 23 years, it’s that good entrepreneurs spot obvious, but futuristic opportunities and start building, knowing they “personally are going to suffer an enormous amount of pain because the world is not ready.”

“The really radical stuff always looks stupid and crazy, ” Schillace said, “but the real disruptions always look like that.”

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