Thinking Out of the Box: Egnyte Sees Profitability in File Sharing

December 2, 2014 Melanie Grano

Egnyte carves niche in enterprise file share and sync market; “Freemium doesn’t work”

File sharing and collaboration ought to be a big and lucrative market in the wake of the exponential growth of data and information sharing. Box and Dropbox have millions of users—and big losses. But Egnyte has chosen a different model, which seems to be delivering happy customers and impressive financial results. Egnyte’s enterprise file share and sync offering sits in the hybrid market which means that customers can choose where their files are stored – in the public cloud, on-premises or a combination of the two.

Rajesh Ram, Co-Founder and Vice President of Product Management told The Daily Cloud, “Companies want to be able to allow their employees access to highly sensitive information via mobile devices while on the road. Our software resides in an appliance behind the firewall. This way, access to those files can be controlled while less sensitive files can go in the cloud.” A software component in the premises speeds things up and keeps things running should the cloud portion fail.

Egnyte’s platform is agnostic as to storage hardware and is able to sit on top of existing hardware that companies operate in their own offices. Use of existing hardware means that companies do not have to worry about hackers getting to their sensitive information. The on-premise solution works for those customers in highly regulated industries who are legally required to store sensitive data locally.

Rajesh Ram_Egnyte Egnyte’s Rajesh Ram: “Freemium doesn’t work for the enterprise.”

Rajesh Ram_EgnyteFounded in 2007 and based in Mountain View, California, Egnyte is keeping investors interested with its hybrid enterprise-focused strategy. Last December, Egnyte raised $29.5 million in a Series D funding. Series D funding signals that the company has strong fundamentals but needs extra capital to accelerate expansion. So far, Egnyte has already attracted total investment to the tune of $62.5 million. Investors include blue-chip names Kleiner Perkins and Google Ventures, as well as Polaris Partners, hard drive manufacturer Seagate Technology and telecom company CenturyLink.

According to Ram, companies are coming round to the hybrid model. He explained, “Customers who have already invested heavily in storage equipment may be hesitant to move to the cloud. If they use our software, they can keep their equipment and move to the cloud.” For on-premise equipment, Egnyte partners with networking and storage equipment providers such as Netgear (NTGR), Synology and NetApp (NTAP).

R

am said that the hybrid approach is a win for its customers and its partners. “For a customer who has already put in a large investment in storage equipment, they can continue to get more use out of it, but when they sign on with us, they also get to expand into the cloud. At the same time, a hardware vendor such as Netgear, Synology or NetApp, gets to preserve its core business, which is selling storage boxes.”

Saving Thousands of Hours of Employee Time

One of Egnyte’s customers is FMC Technologies, a provider of technology solutions for the energy industry that designs, manufactures and services systems and products including subsea production and processing systems, surface wellhead systems and marine loading systems. Zachary Curry, Business Architect – Surface Technologies, Americas for FMC Technologies spoke to The Daily Cloud from Argentina. He said that Egnyte’s software has saved his company an estimated $300,000 to $500,000 in employee hours.

Curry explained, “When our staff from the Completion Services division are dispersed into the field, they bring back data of all types and formats (for example, pdf, zip, LAS, TIF) that range in file size from 100 MB to 2GB.” The Completion Services division provides a suite of flowback and wireline services.

There is a massive amount of data and each team had to upload the data with an FTP (file transfer protocol) connection. Prior to using the Egnyte platform in 2012, this was a challenge for the teams to manage because of the large amounts of data, unreliable Internet access (some locations are remote), client demands and issues around data uploads with an FTP connection.

“In addition to the countless man hours wasted on uploads, FMC Technologies was also spending thousands [of dollars] on DVDs and thumb drives to help save, organize and distribute the data”. Curry said, “After 10 to 12 hours in the field collecting data, our staff had to spend a few more (hours) watching that data upload.”

FMC needed a hybrid solution that would give it access to the cloud as well as on-premise storage, handle massive file uploads efficiently, and communicate with its offices in North America. “Egnyte’s platform is robust and efficient which means that our field employees are able to quickly upload their day’s work onto their respective local NAS (network attached storage) device,” Curry said. With Egnyte’s platform, the data is synced to the cloud and back down to the corporate offices in Denver, Colorado and Calgary, Alberta, Canada.

Zacharycurry_FMC FMC’s Zachary Curry: customized Egnyte uploader tool.

As Completion Services became more comfortable with the Egnyte platform, the division used Egnyte’s APIs (application programming interface) to create an HTML (hypertext markup language) -based application that allowed its teams to capture even more details about the work they are doing at the field level. This tool allows them to go a step further in monitoring their data collection and also helps them organize the data on their local NAS device.

Curry said, “Our customized Egnyte Uploader is also able to communicate with the electronic invoice system so that we are able to generate invoices automatically as soon as a ticket is complete. This has reduced our processes and freed up valuable time for our staff to focus on field research and data collection.”

Doubling Revenue, Two Years Running

Meanwhile, Egnyte has been chalking up impressive growth rates, doubling year on year for the last two years. It now has more than thousands of corporate customers and about 30PB of data stored and 20,000 on-premise appliances in operation.

Large companies pay an annual rate (compared to smaller ones) with Egnyte’s average revenue pegged at $15 to $40 per user. The average corporate customer has hundreds of users. These include well-known names such as Home Depot, Ikea and luxury fashion brand Coach.

Egnyte’s competitors are companies such as Box, Microsoft OneDrive and Google Drive. Its closest competitor, Box is going after the same markets — online file storage, sharing, collaboration and access from wireless devices. Its services are similar, though Egnyte’s market reaches beyond companies in the cloud to large customers who are using traditional storage.

However, Egnyte’s reach is small compared to Box which has a combined 27 million end users. But as of April 2014, only 39,000 companies are paying customers. In addition, Box is burdened by 25 million free users, 92% of the total, who incur a sizable cost. According to its latest SEC filing, Box lost $38.5 million in the quarter to April on revenue of $45.3 million. Box’s sales & marketing costs of $47.4 million were larger than its revenue, obviously not a sustainable long-term model. Box originally filed its S-1 in March 2014 but has yet to fix a date for its IPO.

Unlike Box, Egnyte does not have to support free users. Its free trial lasts only two weeks, meaning nearly all of its user base are paying customers. One reason why it will hit profitability faster is Egnyte’s hybrid cloud-plus customers connect it to a host of other customers. According to Ram, this approach is gaining traction and excitement in the market. He said, “The freemium model does not work for enterprises. We have a better model specifically targeted at enterprises.”

The company is on track to hit $40 million in revenue this year. Its revenue has been doubling year on year for the last two years and at the current rate of growth, Egnyte expects to be profitable by early next year.