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Box CEO Aaron Levie: Microsoft Doesn't Have the DNA to Keep Up

At a recent meeting with journalists, Box CEO Aaron Levie and former Microsoft Windows Division president Steven Sinofsky offered their views on how cloud technology is fundamentally disrupting the IT space.
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It's hard to imagine a world without Microsoft. Or is it?

At a recent meeting with journalists, Box CEO Aaron Levie, and Steven Sinofsky, former president of the Windows Division at Microsoft and current Box advisor, talked about how the cloud will shake up the IT industry (hinting that old giants like Microsoft may crumble), and transform the way we share information. Box, a cloud-based file storage service that competes with the likes of Dropbox, recently raised $100 million at a valuation of $2 billion and is rumored to be going public this year.

The issue discussed -- tech incumbents struggling to adapt to a world that increasingly exists on a cloud -- is a classic example of the phenomena Clayton M. Christensen outlined in his book, , in which incumbents so adapt at sustaining existing technologies struggle to develop disruptive technologies.

Both Levie and Sinofsky are adamant that the cloud is the best candidate for the role of innovative disrupter, while many previously well-respected IT companies are playing the part of the stubborn incumbent to a tee.

Here's how they view the current tech landscape, as well as their predictions for how the cloud will continue to reshape it.

1. We’re in an age of profound disruption.

The PC didn’t fundamentally change the way work was done, argued Sinofsky. Enterprise and productivity software just made work more convenient. Processes were rendered much faster, but structurally, they remained the same. Instead of a marketing person having to go to the basement and dig up a report, for example, PCs enabled him to store it on his desktop.

The cloud, however, transforms the entire process. That same marketing person doesn’t need to analyze that report in the first place -- the cloud can do it for him.

Related: Aaron Levie on Box's $1 Billion Valuation and Solving the World's 'Unsexy' Problems

Outdated desktop tools and applications, Sinofsky said, aren’t just functions of a job: in many cases, they’ve become the job itself (he pointed to marketing managers at Nokia who have become simply “PowerPoint pushers.”) That’s why the cloud (along with all that is new and innovative) is met with such fierce pushback. “You’re no longer just disrupting a tool,” Sinofsky said. “You’re changing people’s jobs.” Old positions are rendered obsolete, which opens the door for employees to spend their time and energy on frontier problems, but such a transition is never seamless.

2. Disrupters’ DNA is fundamentally different than incumbents’ DNA.

Any company that makes a product that is downloaded and run on a desktop computer is in trouble, says Sinofsky (he’s looking at you, Microsoft). “Every one of those companies is seeing people spend more and more time making, collaborating and viewing on phones or tablets.”

The mindset required to build desktop products is as irrelevant for building applications for a tablet as “what was done in text interface was relevant to graphical interface,” Sinofsky said. Sinofsky compares the transition that is currently taking place in the IT world -- from network based to cloud based technology -- to what has already largely happened in the journalism industry. At first, many print publications doubled down. When they did tentatively approach the web, they treated it as an identical medium to paper: a PDF was slapped online, and that was that.

“At the other extreme, you see whole new businesses that seem to do the same thing, except they’re web native. The DNA is different.” Print based journalism is founded on rigid practices: 5 p.m. deadlines, daily deliveries. Web journalism, facilitated by its medium, is based on the fluid, constant flow of information. 

Sinofsky breaks down the stages in incumbent’s reaction to disruption thusly: first, it digs in its heels, clutching onto the old order for as long as possible. Next, insult the disrupter, questioning its very identity. And finally, try and buy some new DNA to inject into its own failing system.

Related: Microsoft's Safe Bet: Nadella Named CEO, Gates Appointed Tech Advisor

This isn’t usually a successful solution, said Levie, implying that incumbents like Microsoft are screwed (“More lists for Microsoft!” he joked, suggesting that the company adopt a Buzzfeed model). Why? Incumbents are typically gigantic, and often bloated: an infusion of fresh disrupter DNA isn’t going to stop the Titanic from sinking; it’s the equivalent of a few extra life rafts, not a large-scale solution.

“You can’t really acquire your way to the right DNA,” agreed Sinofsky, because as soon as that happens, the tendency is to view it as too small: companies immediately want to make it bigger, so they wrap it with existing technology. “They end up killing it at an unbelievable pace,” he said.

3. The way we share information is dramatically changing.

The traditional, formal hierarchy of how information is shared is being disrupted, Levie said. “Now anybody can share with anyone at any time. This will change how you make discoveries, how you decide things in large businesses; it’s very disruptive for large businesses and organizational designs.”

We’re moving from a structured industrial approach to managing the flow of information to a network based one. As our ability to connect becomes easier and more valuable, he continued, businesses are expected to maintain a flow of information both internally and externally.

4. Cloud companies will get ‘smarter,’ helping companies process data.

Companies are great at collecting data, but the most are far less effective at analyzing it, something Levie predicted will rapidly change over the next few years.

First, companies will be increasingly able to use nonstop data to improve products on a near constant basis. He claimed Box is already taking this approach. By observing how customers use products, the company is able to change elements almost in real-time. “One of the big differences from how we build our software today from what we would have done is that we ship new versions of our code every single day,” he said. At Box -- unlike Microsoft, IBM or Oracle -- teams are “constantly running A/B tests on servers and products are being optimized and updated with new features, tweaked to improve usability.”

Related: Dark 'Cloud' Forming: The Struggle to Balance Security and Employee Privacy

Secondly, over the next few years, the cloud services will grow IQs: at the moment, “most cloud solutions don’t do anything smart,” he said, i.e. they don’t provide an intelligent analysis for any of the data they store. “That’s probably the next wave: you’ll start to see and Workday learning on the backend.” In the very near future, then, you’ll be able to store data in the cloud, walk away, and it will be analyzed for you, ideally uncovering new insights and solutions for your business.

5. Best industry practices can, and will, be shared.

Industries share information differently. Health-care companies are, understandably, wary of over sharing – information is often only accessible to small, approved groups. On the other side of the spectrum are media companies, where sharing is constant, and business revolves around continual collaboration.

But businesses within the same industry also have different approaches to the transfer of information. And this is where working with cloud can help smaller businesses. Attuned to industry differences, Levie said Box will be able to provide its customers with best practices for sharing and using information in their field. “That’s probably the next few years for us,” he said. “How do we actually help change how companies work with information and how they share it?”

6. Companies who don’t collect and leverage data will be at a disadvantage.

Knowledge is power, as the saying goes. And companies who don’t have the data to truly know their customers will find themselves in a weak position. Why? One word: Netflix. The on-demand streaming company – disrupter to big name media incumbents – has been collecting data on its customers for years. It knows which movies you’ve watched, which movies you’ve started but never completed, the types of movies you say you like and the ones you actually replay over and over again: in other words, the company has an intimate portrait of your likes and dislikes, a huge advantage. “They are able to procure content with a higher predictability and probability of success than any other media business,” Levie said. Not only that, added Sinofsky, but they can use all their information to predict trends, and create content that directly caters to what users are already responding too. “It’s a whole new business model.”

Related: Head in the Clouds: Dropbox Reportedly Valued at $10 Billion