Silicon Valley startups used to tremble when Google released a product similar to their own. Now? Not so much. On April 24, Google unveiled its long-awaited Drive service, which lets people store files online and synchronize them across all their devices. Drew Houston, the chief executive officer of file-syncing service Dropbox, goaded the juggernaut with a tweet: “In other news, @Dropbox is launching a search engine. :)” Box, another cloud-storage provider, hosted a previously planned party on a Manhattan rooftop on April 25. CEO Aaron Levie shimmied in suit and sneakers while Elijah Wood (yes, that Elijah Wood) manned the turntable. If the Box chief was panicked, he hid it well.
Houston and Levie have earned the right to be confident. Their companies have lured Silicon Valley’s premier investors and tens of millions of customers. Sequoia Capital, Greylock Partners, and even Bono have contributed to a total of $257 million in funding for Dropbox, valuing the company at about $4 billion. Box has attracted $162 million from firms including Draper Fisher Jurvetson (DFJ) and Andreessen Horowitz. (Bloomberg LP, the parent of this magazine, is an investor in the latter.) “This is the kind of technology—à la the phone, Web browser, and e-mail—that everyone needs, and there just aren’t many products like that,” says Josh Stein, a DFJ managing director.
Box and Dropbox—along with about a dozen other startups as well as Microsoft, Amazon.com, and Apple—are engaged in a fight with huge ramifications for the future of computing. Every year people create more and more photos, videos, Word documents, and other files. Increasingly, those data are scattered across phones, tablets, computers, and other devices. The storage startups and their competitors are vying to be the central control panel for all this information. “All of these companies see this future where your devices are basically portals to all your stuff,” says Tom Kleinpeter, the former chief technology officer at FolderShare, a file-syncing service acquired by Microsoft in 2005. “And whoever holds on to all that stuff has a huge advantage.”
The story of FolderShare shows how hard it is to get a simple-seeming technology such as cloud storage to work properly. Founded in 2002, the company let people sync as many folders as they wanted between multiple computers—a freedom that was overwhelming to some. “One of our big mistakes was letting people do whatever they wanted,” says Kleinpeter. Many customers failed to even grasp the basic syncing concept: that their computers needed to be online at the same time to swap files.
Dropbox, founded in 2007, picked a simpler approach. When users install its desktop or mobile apps, the service creates a single folder—a dropbox—on each device. Anything saved in that file is available on every other device. While FolderShare required an Internet connection to work, Dropbox stores copies of each file on the computer or mobile device where it was created and on servers the company rents from Amazon. That means users can work offline and sync everything later. “Dropbox was brilliant picking that single folder thing,” says Kleinpeter. The startup now has more than 50 million users, though it doesn’t disclose how many people pay for storage above the 2 gigabytes given away.
Box’s Levie opted not to focus on the consumer market—rightly foreseeing that it would place him in a brutal cost war with giants such as Google and Microsoft—and has instead aimed to help office workers. Companies pay about $15 per worker per month so their employees can store such things as PowerPoint presentations, pictures for marketing campaigns, and legal documents. Box’s tools allow them to grant access to select co-workers, customers, and partners and collaboratively edit documents.
At the Manhattan party, Levie was hyping the Box Innovation Network—the universe of third-party software apps that rely on Box for storage or collaborative editing. Finished tweaking the font size on a memo using Quickoffice for iPad? The app connects with Box so you can send the final result to a co-worker or LinkedIn contact without resorting to bulky e-mails. Levie sermonizes about this post-PC functionality; the 27-year-old college dropout basically thinks he can replace decades of business software produced by industry veterans—Microsoft, IBM, and Oracle—with this new breed of nimbler software that tightly ties together mobile and desktop computers. The saying used to be that no one got fired for buying IBM products, Levie tells his troops. “We’re not quite there yet, but we’re moving to a world where you will get fired for buying IBM.”
Both startups have fended off acquisition bids—including Citrix Systems’ more than $500 million offer for Box—and say they want to remain independent in anticipation of initial public offerings. Such ambitions make it all the more important for the storage stars to outpace offerings from the tech giants. While Dropbox gives away 2GB of storage space today, Google and Microsoft give away 5GB and 7GB, respectively, and charge lower prices for expanded memory. The startups’ hope is that customers care about more than sheer storage capacity. Box offers security features prized by corporations in addition to its collaboration tools, for instance. Dropbox, so far, has focused on usability. “The general philosophy at Dropbox is that it’s OK to write lots of extra code if you can get rid of one choice the user has to make,” says Tom Meyer, a former senior software engineer at Dropbox. “You don’t want people to have to make any decisions at all.” Especially the decision to switch.