Box CEO Aaron Levie

A few months ago, Bill Gurley wrote a post about Benchmark’s investment in Dropbox, and why Dropbox’s cloud-based file synchronization is a major disruptor. Many disagreed, quoting Steve Jobs’ assertion that file sync is a feature, not a product. As a feature, the assumption was that it would be folded into the architecture of the bigger players, once they came to market with a comparable offering.

Enter the giants.

The bigger players have arrived. Microsoft recently gave SkyDrive a major overhaul, and Google brought out its long-awaited Drive. Apple had already launched the iCloud product. It’s no accident that three of the world’s most powerful technology companies have entered this market in tandem. It speaks to the importance of cloud storage, and means that the theoretical discussion about what might happen will quickly give way to the reality of what does happen.

ScaleVP is an early investor in Box, the leader in cloud-based enterprise file sharing. No surprise then that I agree with Bill Gurley, but I would frame the discussion more broadly. File synchronization and file sharing are both “just” features, but they are features of an emerging architecture for PCs, tablets, and smartphones, one where files are stored in the cloud, accessible across all devices and cached locally as needed.

This is a shift from the device computing architecture that has persisted since the Apple I, through the entire PC era and into the early years of smartphones. That this shift has now been endorsed and embraced by the three companies who collectively set the direction of the technology industry is huge validation. It means that this change is going to happen.

For startups like Box and Dropbox, this is a big deal. The typical risk early on in the life of a startup is, “will this change even happen?” That risk is behind us. Now, the issue is whether they ultimately become features, products or companies?

Feature, product and company

Drew Houston, Dropbox - GigaOM RoadMap 2011

Drew Houston CEO of Dropbox

I believe that the answer for the startups in this space is all three: they will become a feature, product and company. To get any traction in software today you have to start with a feature — an atomic unit of delight. You have to solve one problem superbly. From that point of view, being labeled a feature is actually a compliment, as it means you have made something drop dead simple to adopt.

Dropbox made it really easy for an individual user to sync files across multiple devices. Box made it incredibly simple for businesses to share files and collaborate in a structured manner. You can call these mere features, but they were features that people really wanted, and they were valuable enough to motivate tens of millions of users to change behavior and move their files to the cloud.

A startup with that traction has earned the right to parlay. Now, it can build a product around that feature. Dropbox and Box are doing that right now. The products they are building are next-generation file systems for the cloud, Dropbox coming from consumer roots, and Box from an enterprise perspective with a focus on collaboration. A file system is not a feature, it is a big deal product, and successful file systems have built successful multi-billion dollar companies in the past, such as Microsoft, Novell and Network Appliance.

The file system descriptor is not perfect, because traditional file systems have tended to be invisible to users, bundled in a device OS or a network OS. These new products thrive on visibility because ease-of-use and real application level functionality have been the drivers of mass adoption, but the technology that powers consumer sync or enterprise collaboration is ultimately based on managing the storage of, and access to, files in the cloud. So calling it a next generation cloud-based file system is a good enough description for now.

Competing with giants

Google, Microsoft and Apple won’t just roll over and die. They will compete hard, using tight technical integration with their existing products and financial bundling to drive adoption. If this is just another feature war, this strategy will work.

If it is an architecture shift, and the opportunity is indeed for an independent cloud-based file system, the old guard’s strategy, with the inevitable “installed base” driven trade-offs, will fail. The trade-offs will cripple the functionality of the offerings in a market where the best product will be the one that is file type agnostic and takes advantage of what a cloud based architecture can offer.

Two giant markets: Consumer and enterprise

Put your stuff in the cloud instead.

I have been talking about this as one market, but it is really two. And it will have two winners. A consumer file system based around sync is very different from an enterprise file system based around sharing. Some of the comments around “sync is a feature” are driven by people’s familiarity with the needs of end users, and lack of familiarity about what enterprise IT needs.

Consumers require platform integration to Facebook, Twitter and other consumer apps and even products (TV, Xbox) while enterprises require platform level integrations to directory systems, security systems and legacy applications. Both are hard problems and both require a platform play with huge scale. But they are very different.

In the next ten years, consumers and businesses will move much of their file storage to the cloud and in the process create multi-billion-dollar software markets for cloud-based file systems. Everyone has files. As a result, the cloud-based file system opportunity is a big prize, possibly the biggest prize in cloud computing.

For the business market alone, at an estimated $50 per user per year, with 200 million knowledge workers worldwide. This is a $10 billion annual market. My gut is that it will be won by those companies that solve the problem holistically, rather than simply bundle it in as a feature. The features are already becoming products, and these products will give rise to some pretty important companies in one of the most meaningful markets of this technology era.

Rory O’Driscoll (@rodriscoll) is a managing director with Scale Venture Partners, where he invests in mobile, Internet, and enterprise software companies. He is a board member and investor in Box. You can find more from Rory via his blog.

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