Today Box announced that Steven Sinofsky has joined its operations as an adviser. The relationship was kicked off via Facebook message, consummated over pho, and gives Box key talent and experience that it needs to grow its enterprise-facing document storage solution.

And to build its next set of products. The race to store your files online is not a mere struggle for dominance of low-margin cloud document management. Price pressure via increasing competition from wealthy technology companies is already leading to, in some cases, the elimination of consumer storage costs. For example, Flickr will give you a terabyte of space for your pictures, and Outlook.com has essentially unlimited storage.

However, on the enterprise side of things, Microsoft and Box are currently locked in a mini arms race, with Microsoft boosting its SkyDrive Pro business offering to 25GB of storage per seat. Box recently doubled its consumer offering to 10GB, and added a new, $5 per month per seat plan that gives small businesses 100GB per employee.

So the marginal price of storage is rapidly declining, and those savings are being passed to consumers and customers in the form of price cuts that lead to constant pressure for storage companies. Thus, Box will want to expand beyond its current key offering — file storage and syncing — and into something harder to commoditize.

We stated earlier that the struggle to store your files is about more than their mere storage. It works out like this in practice: The company that stores your files is the firm with the best shot at helping you edit them due to sheer proximity and convenience. Therefore, he who holds the files, gets to generate software income from their ownership.

The analog to this situation is a hard drive and a new set of Office apps. The files were on your hard drive, and Office lived in the same environment, making their existence harmonious. Now, cloud storage has moved that content away from Office, leaving Microsoft to scramble to build a suite of web apps to handle the editing work that had begun to slip out of its control.

Box has done a terrific job at signing up corporate clients to its service. Clients that, I presume, are Office users. Eventually, those customers will have the choice of upgrading their Office software, or snagging Office 365 subscriptions for their employees. But if their files are stored with Box, how palatable is that? At best a connection would have to be built between their productivity software, and their files that Box holds. This is not a perfect solution.

What if there were another option? What if Box built a set of editing tools on top of its cloud storage service, moving its business up the value stack, while defending its margins in the face of slipping data-retention fees. To do something like that, it would want to have on board someone with intimate knowledge of Microsoft and its Office products and how to sell productivity software to enterprise customers.

That’s Steven Sinofsky.

Box claims to have 180,000 business customers and expects 100 percent revenue growth in 2013. Those figures indicate that Box could scale a productivity solution to a meaningful size in short order. It would need to be damn good code, of course. I am not saying that this would be easy, more that it is now possible.

Box has hinted that it is working on some internal software that could be construed as indicative that it is working on the above. In an interview with TechCrunch, CEO Levie stated that the company is testing “some of [its] own applications.”

There are ample reasons for the success of Office, and Office 365 has shown rapid growth in its early stages. The cloud productivity suite is at a $1.5 billion yearly run rate, up 50 percent in a single quarter. If Box generates $8,333 in yearly income from each of its 180,000 business clients, the two are the same size (this calculation is more for fun than any other reason).

I am not saying in any way that Box is an Office “killer” or any such baiting nonesense. The gist of this is that Box has an enviable enterprise install base, a key strategic advantage as being The Holder of the Files, and now the exec that called the Office shots at Microsoft for years. That sums together into an enterprise-facing productivity solution, in my view.

Box is going public sometime soon — I’m trying to get more on that, but haven’t heard much lately — and when it does it will want to tell investors how it will increase its per-seat revenue to ease fears of margin pressure. We know at least one way they could do that.

Top Image Credit: Robert Scoble

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