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Box And IBM Form Wide-Ranging New Partnership To Integrate Services, Build New Apps

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Box is getting in bed with Big Blue.

Five months after going public, Box has taken the next big step in its evolution through a wide-ranging partnership with IBM that will both integrate each company's existing offerings and work to build new products together.

"This is one of the most substantial partnerships in the history of cloud computing," says Box CEO Aaron Levie. "This is the first time we are doing anything like this collaboration at scale to go out there and serve joint customers."

In the partnership, Box will integrate IBM's Watson analytics and security offerings into its content collaboration platform and will allow users to store their data on IBM's cloud. IBM will gain access to Box within its own email and work solutions as well as apps built through IBM. Both companies will work together to build new apps for iOS.

The integration of Box and IBM has been in the works for nine months, Levie told Forbes, and combines Box's strength with end users with IBM's reach and strength in big data and analytics with customers who need highly secure platforms for their work like government, financial services and healthcare. Box has worked hard to establish itself as a viable option to those industries, first last year as a private company when it scored GE as a customer, then in early 2015 as it announced encryption improvements to woo clients in finance and governance tools that helped it land the U.S. Justice Department as a major customer. But IBM remains the "backbone of enterprise," Levie says, so Box hopes to reach those customers now at a faster and bigger scale. 15,000 IBM analytics consultants pushing Box's product alongside IBM's in sales can't hurt.

IBM, meanwhile, hopes to offer its customers a better user experience than its been able to build in-house after billions spent on new cloud offerings and collaboration improvements. Ease of use is one of Box's key strengths, says Bob Picciano, senior vice president of IBM Analytics. "We were sure from the beginning we had to focus on what we could do for the client," Picciano says. "Box has fulfilled an important need."

Like other legacy vendors, IBM has endured some bumpy earnings in recent quarters as it transitions its company focus to cloud offerings. IBM has divested itself of much of its hardware business and made major acquisitions like SoftLayer and Cloudant, while announcing several billion-dollar projects centered around its growing Watson analytics unit. Like Oracle , IBM has gotten credit from analysts for its commitment to the shift to the cloud; perhaps more so than Oracle, it's faced pressure that it could be doing so even faster. So IBM has partnered with companies like Twitter to bring in new sources of data and collaborate on business apps.

Box has had its bumps, too. After a drawn-out IPO process, the company trades at a market capitalization of a little more than $2 billion, down about 24% from where it closed its first day of trading in January (but above its list price). The company known in enterprise circles for its aggressive spending for growth in recent years has worked hard to build out major partnerships to open up new customers like its current partnership with Microsoft to integrate Box with Office 365. Its agreement to store data on IBM's cloud, however, could read as an admission by Box that its own security remains a work in progress as some major clients would trust IBM who didn't trust Box, even with its new hybrid on-premise encryption tools.

Both are looking to stake out wider claims in the fast-growing cloud computing sector that's transforming industry verticals from health systems to industrials and even gyms. Public cloud companies are expected to bring in more than $127 billion in revenue by 2018 and their combined market cap to exceed $500 billion by 2020, according to a recent study by Bessemer Venture Partners, a Box investor.

That will take Box and IBM together into new areas like retail, where they hope to work with ecommerce companies. In-house teams at each company will work together on new mobile-first apps to help such businesses from marketing to workflow. The companies overlap on other partners, like Apple, opening up potential further joint products down the road. On a Box-IBM-Apple collaboration, Levie had this to say: "You could envision a scenario where all three companies would want to work on something together."

Even with IBM grabbing a seat, there's plenty of room left on Box's cloud.

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