Box’s route to its IPO, ten years ago this month, was a difficult one: the company first released an S-1 in March 2014, and potential investors

AI’s Uneven Arrival

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2025-01-17 07:00:03

Box’s route to its IPO, ten years ago this month, was a difficult one: the company first released an S-1 in March 2014, and potential investors were aghast at the company’s mounting losses; the company took a down round and, eight months later, released an updated S-1 that created the template for money-losing SaaS businesses to explain themselves going forward:

Our business model focuses on maximizing the lifetime value of a customer relationship. We make significant investments in acquiring new customers and believe that we will be able to achieve a positive return on these investments by retaining customers and expanding the size of our deployments within our customer base over time…

We experience a range of profitability with our customers depending in large part upon what stage of the customer phase they are in. We generally incur higher sales and marketing expenses for new customers and existing customers who are still in an expanding stage…For typical customers who are renewing their Box subscriptions, our associated sales and marketing expenses are significantly less than the revenue we recognize from those customers.

That right there is the SaaS business model: you’re not so much selling a product as you are creating annuities with a lifetime value that far exceeds whatever you paid to acquire them. Moreover, if the model is working — and in retrospect, we know it has for that 2010 cohort — then I as an investor absolutely would want Box to spend even more on customer acquisition, which, of course, Box has done. The 2011 cohort is bigger than 2010, the 2012 cohort bigger than 2011, etc. This, though, has meant that the aggregate losses have been very large, which looks bad, but, counterintuitively, is a good thing.