Egnyte, a company that sells a hybrid file storage product that employs both cloud and local storage, raised $29.5 million last December. The enterprise cloud storage market is among the best funded niches in technology, and it is also one of the most competitive.
With the recent entrance of Microsoft into the stand-alone business-facing cloud storage market, and the recent news that Dropbox has picked up an entire VC fund in new capital, I decided to catch up again with Egnyte’s CEO Vineet Jain to see how his company is faring, and pick his brain on his industry.
The company previously told TechCrunch that it expected to be cash flow break even by the end of 2014. It now expects to be profitable by the end of the fourth quarter. Revenue growth is still on target for $100 million in 2015. In short, the financial guidance that Egnyte provided TechCrunch in the fourth quarter of 2013 is still correct this year as we look to begin the second quarter.
More interesting is Jain’s take on a slew of recent industry events, given that he was willing to answer a set of questions with candor. So, without further chatter, let’s go. (Interview questions and responses have been lightly edited for clarity and condensed when reasonable):
TechCrunch: Your competition has raised far, far more money than your firm. Does that put you at a disadvantage?
Vineet Jain: The competition has been forced to raise a huge amount of money since the freemium model places a huge financial burden. Even though accounting tricks can be used to show a good gross margin by moving this expense below the line under “marketing expenses”, it still dents the cash flow. Indeed, a large amount of funding enables a big marketing budget and our approach to counter that is not to play the game on the same playing field. Change the level playing field by increasingly focusing on mid-market and enterprise customers where the “cloud only” solutions get exposed. Egnyte’s support for cloud and on-premise storage becomes a huge competitive advantage.
TechCrunch: Is growth in the enterprise cloud storage market accelerating?
Vineet Jain: Indeed, growth in cloud storage/online file sharing is accelerating as evinced by deals getting bigger and a major inflection point: Enterprises getting past the early adopter stage and just becoming mainstream. Interestingly, even though the SMB segment is highly contested (with the likes of Dropbox, Box etc), we [at Egnyte] are not ready to cede it to anyone since the total market opportunity is getting bigger and it is still a growth opportunity for at least another year. I do see file sharing and sync (FSS) becoming a commodity play sooner than we can envision, with players like Google and Microsoft causing a huge pricing pressure.
TechCrunch: The marginal cost per month for a gigabyte of cloud storage is trending to zero. How can companies in your industry replace that revenue?
Vineet Jain: Indeed, if the pricing attribute was based on storage, it will be race to the bottom. A situation increasingly being faced by backup solution providers. Pricing, instead should be based on per seat, and be reflected in value added capability that the customer is willing to play for. Even here, a horizontal approach will increasingly come under pricing pressure and will require an inexorable push to keep adding more value on the stack to maintain the price per seat. Better success will come by integration [and] enmeshing with [line of business] apps and their respective workflows where the customer is willing to pay more.
TechCrunch: Microsoft is moving into the cloud storage space, and with its on-premises software could post a material threat to traditional cloud storage companies like Box, and hybrid providers like Egnyte.
Vineet Jain: No one should take Microsoft lightly. In fact, I deeply admire the company (perhaps I am an anomaly in the valley in that regard) However, their continued focus on protecting their cash cows and being encumbered with solutions that were never really architected for the cloud, is a serious inhibitor from really embracing a true hybrid approach. Office 365 is an effort to provide the office apps in a hybrid fashion. But the other properties they have – Sharepoint, One Drive for Business etc. are stand alone products not integrated well.
One Drive fundamentally is a consumer class solution and does not have the semantics of a corporate file server. It has the same challenges as Google Drive – certainly easy to use, but inherently not scalable for the enterprise. Also, a cloud only approach in its case will be a inhibitor to pervasive adoption in the enterprise.
TechCrunch: What’s your take on Box’s impending IPO?
Vineet Jain: I really wish them well and hope that they do a good IPO and not mess it up. This will be good for the industry in general.
TechCrunch: Is Egnyte growing faster than market analogs, or slower?
Vineet Jain: To the best of my knowledge, we are growing as fast if not faster than others in this space and equally importantly, with better capital efficiency.
I’ll be checking in with Egnyte towards the end of the year to see if it still on track to meet its stated financial objectives. Until then, on burn both the platform, and cloud storage wars.