Box, Inc. At $2B: Fundamental Shift Or Yet Another Bubble?

$2 billion. That's billion with a "B". That's a lot of money. That is also what Aaron Levie's Inc. Magazine Entrepreneur of the Year company, Box Inc., is being valued at today. According to an article in the Wall Street Journal, Box has said it recieved a fresh round of $125 million in investment, with $100 million of that money coming from a single private equity firm. Also according to the article, Box is expecting to close out 2013 with approximately $100 million in revenue, giving the company a 20x multiple. The numbers are certainly impressive, but is this a bubble or are we seeing a fundamental shift in how businesses of the future will operate, thus justifying the big dollar signs?

A recent article in Forbes stated the following: "Taking a cue from the Dot-com bubble’s playbook, investors have resorted to valuing today’s profitless tech companies on a price-to-sales ratio basis, yet even this metric shows that Twitter’s valuation is quite overvalued at 22 times its expected 2014 sales, which is approximately double the multiple carried by Facebook and LinkedIn (which have high multiples in their own right)."

20x revenue is a very large multiple. It's the type of price-to-revenue multiples we start to see when a technology bubble is in place. In most cases I'm a bubble believer; however, in the case of Box, I think there might be some real merit to this size of valuation. What is giving these companies the high multiples and expectation of success is the fact that they have a high potential to turn into an Internet enabling protocol.
 
Box, and some of the other competitors in this space, are well positioned to capitalize on the mobile, cloud, and consumer transformation that is occuring. By providing application programming interfaces (APIs) and software development kits (SDKs) to developers world wide, Box is enabling the mobile application ecosystem to be built on top of the Box "protocol". Box is making a play at becoming the de facto business and personal storage cloud for any application looking to store data.
 

Applications and data in the cloud are taking over the concept of files. A perfect example of this is Evernote. I'm writing this blog post in bed at 5 a.m. on a Saturday in Evernote from my tablet. This content will never be stored on my laptop hard drive, it will never hit my traditional computer file system. It will only ever be stored as a data object in the cloud at Evernote and eventually moved over to a data object in the Forrester online blog system. Evernote has to store the data object somewhere and it is future storage protcols such as "Box" that will enable the transition from file system storage to data objects in the cloud. If it doesn't end up being Box as a protocol, then look for Amazon.com and other major online data storage providers to excel here as well.

A better metric of success for companies like Box, Twitter, and others looking to become an Internet enabling protocol isn't the price to revenue multiple, it's the price-to-usage ratio of the API and SDK they provide to others. If this ratio improves dramatically, the company is really beginning to see the lock in network effects that will drive revenue for a very long time. While the future is never certain, I do believe that Box is one company that gets this vision and can make it happen. If Aaron and team focus their attention on these network effect measurements, they will become an indispensible part of the future of the Internet.