Taking on the Big Boys - How ZOHO is finding ways to thrive against Microsoft, Oracle & SalesForce. Read the complete story in Business India

1. u 102 u
August 5-18, 2013
Business India u the maga zine of the cor por ate wor ldStart-up
H
e is accountable to no one.
He is a man with lots of
chutzpah. He has shunned
venture capital. He entertains no
plans to take his company public
and couldn’t care less about the Wall
Street. He dares to take on big players
like Microsoft, Google and Salesforce.
com – and he does this with products
built in India. Meet the inimitable
Sridhar Vembu, ceo, Zoho Corpora-
tion, a man few have heard of, and
one who has kept everyone warned.
With many start-ups that die and
get buried in the blazing competi-
tion of Silicon Valley, Vembu was
determined not to be among them.
Thanks to his determination to suc-
ceed, Zoho is fast becoming known
for its business, productivity and
collaboration applications at prices
that show his nerve to take on com-
petitors. Customers use Zoho appli-
cations online to run their business
processes, manage their information
and be more productive without
having to worry about expensive or
outdated hardware or software.
Zoho is emerging as a top player
in the crm (customer relationship
management) market, dominated
by the likes of Salesforce, Oracle
and Google for enterprise comput-
ing. According to the recent Gart-
ner report, Market Share Analysis:
Customer Relationship Management
Software, Worldwide, 2012 the crm
market experienced 12 per cent
growth in 2012, which is three
times the average of all enterprise
software categories.
Being a privately-held company,
Vembu shuns any talk about revenue
or evaluations, but market sources
estimate Zoho’s business to touch
$200 million this year, while it has
been unofficially evaluated at over
$1 billion in worth. The company
has around 1,800 employees (about
1,700 in India; 100 in USA, China
and Japan) and it is growing rapidly.
Spurred about
entrepreneurship
Vembu was always passionate about
building products that would make a
difference. After obtaining his B.Tech
in Electrical Engineering from iit,
Madras, and a PhD in Electrical Engi-
neering in 1994, he served as sys-
tems design engineer in Qualcomm
in wireless communications from
1994-96. Spurred by a passion to play
a role in the emerging technology
industry in India, he reinvented him-
self as a software entrepreneur. With
the support from his brother, who
was also employed with Qualcomm,
and who wanted to return home to
India, Vembu stayed in Silicon Valley
to set up the foundation of what
was to be AdventNet. The com-
pany specialised in Network
Management.
In 2001-02, even though
the network business had a
huge meltdown during the
downturn, and many compa-
nies took significant hits, Advent-
Net managed to keep itself afloat.
The company really exploded in the
open when it set up Zoho.com, at
a time when Cloud computing was
gaining momentum and offered B2B
apps directly to end-users.
In2009,thecompanywasrenamed
as Zoho Corporation, and it created
three business divisions: Zoho.com,
a broad suite of online productivity,
collaboration and business applica-
tions for businesses, which currently
has 8 million users; ManageEngine,
which provides it management soft-
ware, has over 70,000 customers;
and WebNMS, a network manage-
ment suite has 25,000 Tier I carrier
deployments.
In taking on the $4.7 billion crm
sales market dominated by giants
like Oracle, Salesforce, Microsoft
and sap, Zoho already has 8 million
users across the world who rely on its
comprehensive suite of applications
and a growing number of small and
medium sized businesses are opening
up to it.
On a growth trajectory, Zoho has
more engineers than any other cate-
gory of employees, whereas its clos-
est competitor, Salesforce has a larger
sales team vis-à-vis number of engi-
neers. The company’s flagship prod-
uct, Zoho.com is providing stiff
competition to Microsoft Office
on demand, which means for its
online services.
Building and integrating
The first product launched on Zoho.
com was an online office application,
Zoho Writer. Seeing early success of
its online offerings, it increased focus
on Cloud-based applications, which
are becoming an alternative for many
today as they drive away the burden
Taking on the big boys
How a plucky startup is finding ways to thrive against much
larger competitors like Microsoft, Oracle and Salesforce.com
Vembu:
believing in
a bottom-up
approach

2. u 103 u
August 5-18, 2013
Business India u the maga zine of the cor por ate wor ld Start-up
of hosting, managing, maintaining
applications. Other products that fol-
lowed include Sheet, Show and Mail,
as well as a host of business appli-
cations ranging from crm to Proj-
ects, Invoice and Meeting. Currently,
Zoho portfolio consists of more than
25 different online services.
Vembu emphasises that customers
benefit most when products are inte-
grated and it does this by offering
first level of integration across all its
services with a single sign-on facil-
ity. Since then, it has quickly moved
to provide what it calls, “Contex-
tual Integration,” which means that
Zoho products try to anticipate all
the possible touch points/overlaps
that exist among products. Zoho has
integrated over 15 business applica-
tions within the Google Apps Mar-
ketplace; an online one-stop store
for tools to integrate business apps
jointly. In this online shop, Zoho
is the largest vendor in the Google
Apps marketplace.
Zoho succeeds because of its
affordable subscription-based pric-
ing model. Consider the price of its
flagship crm service, which is free
for startups and individuals, starts
its paid services from $12-35 per
user. Comparatively its closest com-
petitor Salesforce offers the same
services starting from $25 to $250
per user, even though it has a $5
plan that is limited to Contacts
Manager application.
Zoho’s growing might indicates
it is helping its customers generate
more value with its products. Affirm-
ing the savings of using Zoho crm,
Craig Donnelly, ceo & founder, Vir-
tual Assistant Technologies says,
“We just migrated our crm system
Salesforce to Zoho crm. Annual cost
for Salesforce was $1,600, but cost for
Zoho is $300.”
Focused on thrift
Vembu’s strategy for success is not
hard to decode. Since early days,
Zoho has been operating on a boot-
strapping budget. Take the strategy
of Salesforce that recently acquired
ExactTarget, a Zoho competitor, for
awe-inspiring $2.5 billion. Sales-
force, which has nearly 10,000
employees, will add another 1,600
employees of ExactTarget after the
acquisition, while all of Zoho Corp
has about 1,800 employees. The
comparison couldn’t get starker
when Zoho is already beating Sales-
force on Internet reach, on the sheer
number of new organisations sign-
ing up for their platform month
after month.
Being cost conscious and frugal in
running their development centre is
part of its vision of ‘hiring locally to
design global products’ says Vembu.
The company has set up Zoho Uni-
versity, a unique education-based
employment model that does not
focus on college degrees, but recruits
bright students from neighbourhood
schools in Tamil Nadu into their
learning program.
Students are provided with a
laptop, unlimited Internet access,
free meals and a small monthly sti-
pend. Those who undergo the rigor-
ous 18-month training are absorbed
into Zoho, and given salaries that are
at par with degree holders from the
iits and other engineering institutes.
Over 200 employees out of Zoho Uni-
versity constitute its total strength of
1,700 skilled professionals in India.
Vembu confirms that his unique
engineering-centric model will be
the road ahead for the company.
Vembu’s frugal tactics have helped
him avoid venture capital, which he
sees as interference and a constraint.
“If a company can do without vc
money, it certainly should,” he
reflects. “If we had taken vc funding
initially, I don’t think Zoho.com
would have been born.” He has been
so successful in rebuffing attempts to
invest or buy out his company that
he unhesitatingly averted Salesforce
ceo Marc Benioff’s offer to buyout
Zoho for an undisclosed amount.
With no plans to sell his com-
pany, Vembu’s only focus is to build
extraordinary products at costs that
would make his competitors quiver.
Also, the company has been smart
in investing profits from the sales of
one product to build another, a pro-
cess it has repeated to its advantage
and stayed sustainable.
India offers growth potential
Zoho is viewing the India market
with enormous interest. It is much
more than Zoho’s development
centre. Already there are two mar-
ket trends emerging – one is that
Cloud applications are penetrating
the Indian market and second is an
interesting combination of Cloud
and mobile apps tendency taking
off. Considering that a mobile phone
has limited capability to process a lot
of information, it becomes dynamic
when combined with cloud apps and
this holds great potential for Zoho.
Doubtless, this could be Zoho’s firing
salvo in the battle for dominance in
the Cloud apps arena.
Zoho is trying to tap the small
and medium businesses (smbs) mar-
ket through various channels. “At
Zoho, we believe in the bottom-up
approach. We serve small businesses
first and eventually bubble up ser-
vicing larger companies,” empha-
sises Vembu. Zoho applications are
offered directly via Zoho.com as well
as through its chain of partners in
the Zoho Alliance Partner Program.
The company aims for 10 per cent of
its revenue to come from India.
Looking ahead, Vembu says
growth will be fuelled by the breadth,
depth and affordability of its pre-in-
tegrated applications. Rivals have
learnt not to take his threats lightly.
Perhaps, Zoho’s tactics can be an apt
lesson for entrepreneurs who can’t
afford to go up against established
brands and could learn what it takes
to be a winner.
u S h a s h i B h a g n a r i
Others
39.7%
SAS
2.2%
Nice Systems
2.5%
Oracle
11.1%
IBM
3.6%
Microsoft
6.3%
SAP
2.2%
Market size in 2012: $18 billion
(12.5% growth over 20111)
Worldwide CRM software
spending by vendor
Adobe
3.1%
Sales
force.com
Verint
Systems
2.4%
Amdocs
2.3%
14%