Zoho Promises Back To The Cloud Future

Zoho is not a household name in the US enterprise applications market, but that’s about to change if the privately-held vendor has its way.

Founded in 1996, Zoho is closely held by its founders including CEO Sridhar Vembu, who practices a mix of Eastern philosophy of austerity and moderation, all the while adhering to a hands-off management approach Silicon Valley-style.

Ranked No. 29 in our annual Cloud Top 500 market report, Zoho saw a 39% jump in enterprise applications revenues to reach $520 million in 2018, according to our estimates. About 45% of its product revenues comes from a growing portfolio of CRM applications. It also sells BI, Collaboration, ERP, and IT Help Desk products.

Over the past five years, Zoho has been growing consistently at 30%+ annually both in terms of the number of registered users and paid customers. If its momentum continues, Zoho could be fetching more than $1 billion in product revenues over the next few years.

With some 8,000 employees and more than 435,000 paying customers around the world, Zoho now poses a serious threat to CRM incumbents like Salesforce, HubSpot, Zendesk as well as other Wall Street darlings or unicorns that need to ingratiate themselves with institutional investors, private equity firms or VCs by promising unsustainable growth at all costs. The 51-year-old Vembu said he prioritizes profitability over a singular focus on growth, which could be addictive and sometimes detrimental to a company’s culture.

In fact, Zoho does not need to sell itself to these outsiders. New hires are told in advance that it has zero intention to go public. “If you are looking for stock options or an exit, you’ll be disappointed,’’ according to a recent Zoho job post.

So what’s the attraction? The job post trumpets the fact that Zoho is a low-ego company that prefers long-term employees who are comfortable with ambiguity and complexity.

At a recent two-day event in Austin, Texas, its new home in the United States, Zoho executives, partners and customers paint a picture of simplicity over complexity by following the vision of technology leaders like Apple. What Apple does to iPhone, Zoho is doing the same to its apps and the full stack that spans from its own database to unified file storage, as well as single sign-on and natural language processing capabilities.

24,000 Customers Embrace Zoho One

All of these features are packaged as Zoho One for a simple $30 per employee per month pricing to access 45 applications, which soon will grow to 55 including Cloud essentials like Sheet, Mail, Meeting, Survey, and Sign, as opposed to using Excel, Gmail, Zoom, SurveyMonkey and DocuSign, respectively.

The simple pricing encourages Zoho One customers to run a few applications first, then gradually standardize on the suite for the same price. Meanwhile, Zoho One will be able to sell licenses to more users along the way, resulting in not just a bigger wallet share for Zoho but across-the-board utilization of its products.

In a little over a year, Medspa Marketing Solutions in Omaha, one of Zoho’s partners and customers, grew from using a single product Zoho CRM to a handy set of 27 apps under the Zoho One umbrella covering more than 200 internal and external users. By replacing all those best of breed Cloud apps with Zoho One, Medspa now connects Zoho apps to Facebook Ads, Pages and Google Ads for a full array of marketing functions and campaigns.

Using Zoho Analytics, Medspa has been able to track more than $250,000 of client tickets from the average cost per lead to actual revenues being booked by combining CRM and internal data over a 12-month period. The upshot, better client reporting and business intelligence for its affiliates.

Medspa is hardly unique as an average customer of Zoho One now runs 18.6 apps with some key accounts like IIFl, a financial services company in India, standardizing on 44 Zoho apps across its 30,000 employees after ditching tens of vendors from Google to Zoom. Altogether, more than 24,000 customers have adopted Zoho One.

Another customer Arctic Spa, a hot tub manufacturer in Canada, said it first replaced SugarCRM, Salesforce and Highrise CRM with Zoho CRM Plus and then Zoho One. After an unsuccessful deployment of Zendesk, Arctic Spa now runs 10 Zoho apps like SalesIQ for live chat and customer support, which has become instrumental in helping it generate hundreds of thousands of dollars in incremental revenues.

This is a typical profile of a Zoho customer and loyalist – A self-starter, a go-getter and an entrepreneur that wants to better their business with easy to use apps, an integrated stack as well as freedom to choose as true passion in life. #ZohoDay2020

— Albert Pang (@APPSRUNTHEWORLD) January 29, 2020

In our Buyer Insight Master Database, a Zoho customer in Brazil is running Zoho SalesIQ as Live Chat customer support tool on its website registering leads through the telephone, chat, WhatsApp and other social networks from anyone interested in buying real estate. The Zoho user then runs SalesIQ to do the follow-up and records the interactions in the Zoho CRM system for its brokers to contact. Using Zoho SalesIQ has resulted in better customer responses and sell-through.

What these customers have in common is that Zoho is winning followers at a time when technology complexity runs rampant. Our vendor database covers more than 5,000 Cloud applications vendors and there are thousands more that focus on newfangled technologies like artificial intelligence in its narrowest sense – scanning millions of invoices at no less to spot anomalies for example. Most customers would rather use a few simple tools to handle their online tasks to get through the day than wasting time as they toggle from one screen to another.

Full Stack Ahead

Raju Vegesna, the chief evangelist of Zoho, said it is in firm control of its full-stack and user experience including the 10 data centers that it owns to process such tasks as video conference calls and online search of its entire product catalog. The former task delivers 4x performance in upload and download speeds when it runs on Zoho’s own data centers, not on somebody else’s.

Every day Zoho users run 16 million search requests, amounting to 150 million indexing jobs on billions of files or artifacts that they keep in the Zoho cloud. For Zoho to map that work graph effectively for use cases like natural language processing or object detection and recognition, it would have cost Zoho $10 million a year if it were to rely on an infrastructure provider like AWS.

As heavyweights like Amazon, Google, Microsoft, and Oracle are spending billions on world-class network infrastructure as the prerequisite to dominate the Cloud, Zoho can do it for a lot less since it only needs to cater to its 50 million registered users, specifically half a million or so paying customers. As more of these registered users are converted to paying customers, it can scale out to meet their future needs. RealPage, a $900 million ERP vendor in the real-estate vertical, does the same with its two data centers in the US in addition to leasing space from other cloud providers in Europe, running a total of 9,500 virtual servers around the world.

Unlike RealPage, which only has some 12,000 clients, there are a few things Zoho needs to do in order to drive better economy of scale and support a lot more customers in return.

First, Zoho is gearing up to chase a bigger market – namely ERP by going after Intuit QuickBooks Online, which has about 10 times the installed base of Zoho. Last year Intuit introduced QBO Advanced by dangling steep introductory discounts and Live Help, essentially an online assistant to help with accounting issues. However, channel conflicts could render such Live Help ahead of its time. Still, Zoho, in its quest to become a full-stack provider from CRM to ERP, must come up with a coherent strategy to compete with Intuit, Sage and others.

The second thing that Zoho needs to consider is to identify key verticals that it can penetrate either on its own or through specialized partners. Currently, 37% of its business comes from technology products and services verticals. The rest is scattered over a dozen or so primarily services verticals like marketing and advertising, real estate and retail. As Salesforce is ramping up its push into asset-intensive industries from manufacturing to health sciences, Zoho is well advised to do the same – not necessarily going after the same vertical, but with greater precision. Rather than chasing the insurance vertical where Salesforce reigns, Zoho may be better off focusing on sub-verticals like insurance adjusters.

Enterprise Growth Is Next

Raj Sahblok, president of Zoho, is now in charge of taking Zoho upmarket by hiring a team of solution consultants who can identify pain points and implementation challenges of large enterprises – mostly entities with hundreds or a few thousand employees and up to $1 billion in revenues. In 2019, Zoho has displaced Microsoft, Oracle, Salesforce, and SAP systems at midmarket organizations searching for a viable, simple to run and less costly alternative to these familiar brands.

In order to make its upmarket strategy successful, 2020 will be a turning point for Zoho to commit not just professional services and support resources, but also branding and distinctive ecosystem to nurture, capture and showcase lighthouse enterprise deals. Similar to Salesforce, Zoho has been positioning itself both as a platform and an applications provider.

What works to Zoho’s advantage is its full-stack approach, something that has become increasingly foreign to Salesforce’s customers following its buying spree. Like death and taxes, some long-time Salesforce customers may have to endure the growing burden of adding Lightning, Einstein, Mulesoft and now Tableau to a bloated platform that could entail skyrocketing subscription fees. Zoho One’s $30 per user per month pricing does appear more palatable to many. Still, nobody gets fired for choosing Salesforce. Thusly it’s incumbent upon Zoho to prove that it is a safe and smart choice.

Back To The Future

After building Zoho into one of the top technology companies in India, Vembu is reflective. In recent months, Vembu, who was born in the rural Thanjavur in southern India, has moved back to a village close to where he was raised half a century earlier. Instead of pollution and traffic congestion, Vembu gets fresh air riding his bike.

His new home is a six-hour drive from the bustling Zoho headquarters in Chennai that serve catered lunches to its employees. Vembu now telecommutes along with a handful of Zoho employees not just to relive his youth, but also to give back to the land that anchored his life. Vembu said he is happier enriching, coaching and sharing farming, software and business skills with his employees as well as villagers who have seen a generation of young Indians leaving for big cities like Chennai.

Today, Vembu said it’s time to give back and retrace one’s roots by taking the full-stack approach again – growing, replanting and rebuilding everything from the ground up for the next generation.

List of Zoho Customers

Source: Apps Run The World, February 2020