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Dropbox, Box to Face Harsher Rival in Microsoft

Tickers in this article: MSFT

NEW YORK ( TheStreet) -- File sync and share specialists Dropbox and Box offer some of the slickest user and best customer-service experiences in their space.

But with deep-pocketed tech giants vying for the same marketplace, these two leading niche players may find themselves in muddier waters. Increasingly, they're at risk of seeing their high-margin, enterprise customers being pulled away to the larger competitors.

Microsoft is an example of these deep-pocketed behemoths.

Earlier this week, Microsoft made an announcement that should be making them nervous. The company said it will be increasing OneDrive for Business storage to 1 terabyte per user from 25 gigabytes and that furthermore, all Office 365 ProPlus customers will get 1TB of OneDrive for Business storage per user as part of their Office 365 ProPlus subscription.

The company is essentially offering a massive amount of OneDrive for Business storage for free.

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OneDrive for Business is being used by Microsoft to basically serve as a loss leader that can get the company stimulated in the space for the bigger product in mind, which in this case is the Office suite of solutions, Office365. Microsoft would really be making its money off of adding more business customers to Office 365 at what the tech giant considers to be a small cost. Dropbox and Box also have freemium models, but these file sync and share offerings are mainly targeted at personal accounts as part of the brand recognition enhancement process. Unlike their long-established peer, they cannot afford to offer their file sync and share services for free to enterprise customers at the extent that Microsoft can because that is their core business.

"Box and Dropbox tend to be pure-play enterprise cloud providers, so they've got their work cut out for them," says Jagdish Rebello, senior director of cloud and compute electronics at IHS. "Particularly when a big marquee name in the industry is basically using your core market as a loss leader for its other products." 

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"I think all those players will definitely feel threatened," he continued. "They will probably have their own play in terms of security. But I think long-term, this is definitely a challenge that they have to wake up to and have to try to get around."

Microsoft concluded its announcement with the stated goal to help organizations migrate data to OneDrive for Business from their existing solutions. On that final point, Microsoft implicitly is challenging Dropbox and Box, selling its services as the diverse one-stop shop for both software and file sync and share.

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Rebello says that Office 365 has not been a "runaway gangbuster success" but Microsoft is doing all the right things to make sure that it does go in that direction. While smaller enterprise customers may currently prefer a Dropbox or Box solution, the analyst says this could change over time as Microsoft evolves its business model to start including smaller enterprises in their customer base.