End of January Zoho held its 2020 Zoho Days, an analyst summit, which I was happy to attend, along with more than 60 colleagues, as the only analyst from Germany, as it seems.
Sadly, it took me quite a while to complete this – Zoho deserves a faster commentare. But hey, let’s look forward and get rolling.
Zoho is a privately owned enterprise software company that has quietly evolved from a small software company in 1996 to an ambitious global player that serves the SMB- and enterprise CRM market with cloud applications. The company has a set of 45+ business apps with more than 50 million users, 10 data centres and counting, and is available in 180 countries. The company is profitable and maintained a CAGR of more than 30 percent over the past five years.
But why quietly?
Because Zoho managed its growth pretty unusually (almost) fully organically with only very minor acquisitions. Crunchbase lists one. Following this unique approach, which defies the traditional law of going big fast, the company managed to build a solid platform with a unified data model that allows it to crank out amazing software at an incredible speed, and with a track record of growth that is well in the double digits.
Zoho offers a suite of business, collaboration, and productivity applications, supported by development environments, services and infrastructure. Besides CRM, the applications cover a good part of the value chain, including some ERP type of applications, like order management, warehouse management, or billing and project management, HR and accounting. These apps are built upon a services oriented soft- and hardware stack that is purpose-built by Zoho towards enabling a good user- and customer experience and that allows for extensibility from a no-code up to a full coding level.
These apps are bundled into the current flagship product named Zoho One, which has a price point that other vendors do not consider profitable.
Zoho, a long time ago, has decided that ‘our customers should not find us to be a costly input’. This business code is key to understanding Zoho and it has a number of implications that the company relentlessly pursues:
- There is no costly sales organization. The own sales happens purely inbound. Channel partners may have an active sales force, but Zoho itself works inbound (at least for the SMB market, more about this topic later).
- Zoho is relying entirely(!) on its own infrastructure. Not only is the company running own data centres with custom built servers – instead of following the rush to use a hyper scaler – but it also owns the complete software stack, including all services such as machine learning and database, to name but two. Historically, the company also can do monitoring of services, which comes in quite handy following this (at the outset not so intuitive) strategy.
A word about culture
Zoho co-founder and CEO Sridhar Vembu is not the one who seems to be fond of current neo-liberal thinking. Instead, he conveys – and lives – an outside-in thinking of ‘doing right as being the best for a business’s success. This was also the main theme of his keynote that followed the very positive ‘State of Business address of Chief Strategy Officer Vijay Sundaram.
The main key words are ‘values’, ‘humility’ and ‘frugality’, followed by ‘efficiency’ and ‘independency’. And do not forget: Zoho is a fast-growing, profitable business.
Vembu started his keynote off with the (real life) example of a rural economy of farmers, where suppliers as well as customers demand a price. The farmers are supplying a commodity and are sandwiched between these more powerful entities. They are in a dilemma.
Cloud business software is such a commodity, too. It has some costly suppliers like electricity, hyper scalers, real estate, healthcare, etc., which need to be tightly controlled.
Part of Sridhar Vembu’s answer to this dilemma is to give back to the communities. As a consequence he himself moved into a rural area of southern India and grows Zoho teams in rural areas.
Why does he do this, as it contradicts common ‘wisdom’?
Because the cost structure for businesses as well as for people grows too high in the centres. He uses the allegory of ‘top soil erosion’ for the movement of people into areas where they think they can build a fortune for themselves. Currently this is abroad, outside India; a poor practice for an economy – Vembu is convinced that Zoho’s goals are better achieved in rural areas, therefore supporting the local environment and economy. For the individual, there is more actual income in rural areas than in towns, and this income serves to grow the local economy as it is often spent locally, too.
From a company point of view it also supports the company objective of not becoming a cost factor for customers but offer value at a low price.
He is not about individual greed but about growing together.
Another striking point was made by Raju Vegesna during day two. He talked about how privacy and ads do not really fit together and how Zoho refuses to sell its users data to the ad industry (he names this industry ‘surveillance industry’). Apparently Zoho has gone to great lengths to remove 3rd party data capturing code from its sites.
And a word about strategy
There are some key aspects to Zoho’s strategy:
- Zoho has developed its whole soft- and hardware stack. The software is not running on a public cloud but in own data centres. Except of a few open source libraries that it uses, the company develops all its code itself and builds the necessary skills (e.g. when it comes to data science and machine learning).
- Zoho does not position itself as a software company but as a platform company
- Zoho wants to provide value at low cost and ‘not become a cost factor’ for its customers
One could say that these aspects are all consequences of the overarching strategy of being in control of the own destiny.
To achieve this, the company provides an integrated suite of applications that base upon the same data model, architecture and base services. This suite of applications is currently marketed as Zoho One and covers most parts of CRM plus some ERP functionality, like accounting or HR, or operations.
Similar to Microsoft’s goal of being ‘the fabric that ties businesses to their customers’ Zoho wants to provide the ‘operating system for businesses’.
Having an SMB legacy, Zoho has a very strong inbound sales channel and also, which prepares it for enterprise business, a growing channel sales. One can say that Zoho really mastered inbound marketing and sales. This makes sure that investments can be made where they matter: to the products and solutions. Zoho, first of all, is a technology company and therefore strives to keep the cost of sales low.
Being on a growth trajectory, Zoho tackles the double challenge of addressing new regional markets and larger enterprises by relying on own experienced personnel to build and lead these markets and to hire local talent. Zoho starts to see wins against the top tier players in the CRM arena, which proves this strategy. The strategy of challenging own personnel to build and grow a market is in contrast to the usual strategy of hiring local leadership and support this new staff with own personnel. Being able to do this also shows how the company is able to retain and grow talented personnel. Establishing and growing a new regional market is not easily done, especially not for an engineer. Still, it works well for Zoho.
Finally, a word about people
The people I have met share a number of common traits.
They are passionate about what they do, and they give their all. This rings through every conversation that I had with Zoho representatives. For me the first contact is analyst relations, where this trait shows particularly strong (after all you are normally not too much an introvert in this role). The analyst days have been organized and run admirably by Sandra Lo and her team. One does not see this passion too often, and it is good to see.
They are interested in the outcome for the customer, not in positioning themselves. They want to do the right things, and do them right. This shows right from the CEO level. The Zoho founders are totally unassuming persons who do not put themselves upfront but what the company does. They are part of the team, instead of having a team. This is in stark contrast to the usual image of a CEO.
The people are proud of what they achieve. And they should be, because they do it the right way, by looking outside-in.
They know their stuff. While this doesn’t seem particularly surprising, it is combined with an eagerness to learn. Throughout the event there was a desire to learn more, look at things from another angle and to find out how to possibly blend the learnings into the Zoho strategy. There was as much roll-out of valuable information to us as there was the wish to get information and opinions.
My Analysis and Point of View
Everything I have described above, and probably a lot more, is only possible because Zoho is a privately owned business that follows a strong ethics. This strong ethics also serves as a moral compass that helps the company stay on course.
And following a moral compass is building trust. Strong trust.
In my eyes, this trust is the biggest asset that Zoho can build upon on its way forward.
While this statement is true for every company, maintaining and increasing customer trust is even more important in the cloud applications industry that gets increasingly commoditized.
With its approach of owning the full stack, providing a strong technology platform to support a strong suite of relevant and easy-to-use apps at a compelling price point, Zoho has strong answers to this commoditization challenge.
Being in the position of addressing the enterprise market from the SMB side helps as well, as success in the SMB market is only possible by offering the right solutions while being able to scale efficiently and keeping the price point low. This way it is possible to disrupt the incumbents from below, which are geared to operate at a much higher price point.
In brief, Zoho is an admirable company that cannot really be measured with the tools businesses are usually measured with. Yes, the company strives for growth and needs to be profitable, but both seem to be rather a consequence than the main objective.
Zoho has a very competitive set of integrated apps that reside on a common software platform and architecture. The apps predominantly cover the wider CRM arena. These apps get enhanced and augmented by additional apps at a very fast rate. To be able to do this, the company must have a strong systems architecture and a highly efficient development process.
Being on a completely own hard- as well as software stack makes the company pretty unique. Focusing on business apps on their own infrastructure makes Zoho a kind of hybrid between Oracle and Microsoft, and I say this with the best of all meanings – both, Oracle and Microsoft, are great companies in their own rights.
However, running an own IaaS stack and offering infrastructure services also places the company in competition with the likes of Microsoft, Amazon AWS, and Google. To maintain the trust that the company established, it is crucial that these services are available, reliable and performant.
Regardless whether this was a choice right from the beginning or whether this strategy emerged, owning the full stack sets Zoho apart from the other vendors. This, additionally, is in complete alignment with the desire of being the master of the own destiny. Further, it enables a strong software- and data architecture that allows for tight integration as well as for extensibility. It also limits growth to organic growth, as all software needs to follow the same architectural rules to not break the object model. The exception here are partners who develop software utilizing this object model.
Not having one set of architectural rules is a challenge that all other software vendors do face. it makes integrating acquired software into a consistent and holistic business process hard work. Vendors who grow by acquisition need to build an abstract object layer on top of the various software components and then make sure that all software is properly interfacing with this layer, instead of architecting the software around a given set of principles right from the outset.
That Zoho is right with this approach is evidenced by the fact that the company makes inroads into the enterprise market from having been an SMB player before. But then the enterprise market is where a threefold challenge lies that the company is already addressing and needs to continue to address.
1. From an organizational point of view the strong focus on inbound sales needs to be augmented by an outbound sales channel that focuses on selling to enterprises.
2. Functionally the company needs to improve upon its end-to-end support by increasing its ERP footprint in order to stay credible as a platform player
3. Already having an ecosystem of partners, this might get even strengthened to support overcoming the above challenges
The organizational challenge
Currently, Zoho is rightfully proud of its mastery of the inbound marketing and sales processes. At the same time the company has realized that the enterprise market needs to be addressed differently, while staying true to ‘the Zoho way’. This involves more active marketing and an outbound sales organization. Part of this way is a focus on PR/AR work, to increase reach and get out of ‘stealth’ – Zoho is still a little-known entity in the enterprise market. Events like the Zoho Days and Zoholics events are addressing this. An increased attendance of trade shows is testament to a push into strong visibility, which also will result in at least departmental purchases of Zoho solutions, which can act as a beach head.
Zoho has a strong story to tell; and it needs to boldly tell it across channels – or even better have industry influencers, analysts and customers tell it – especially when standing up against the tier one vendors. These are currently owning the industry narratives.
The establishment of solution consulting and enterprise business solutions groups provides the ability to showcase and then implement solutions, and therefore demonstrate the credibility that larger enterprises desire. Extending on these groups and capitalizing on their achievements is important for a successful organic growth into enterprises – which is something that Zoho has acknowledged and is actively working upon.
A challenge is enterprise sales. The enterprise customer sales journey is different from the SMB journey. While it shares some touch points with the SMB journey, it has some different ones – like the regular requirement to contact an empowered and knowledgeable sales person. Sales cycles also tend to be longer (means more expensive and less scalable) than in the SMB market. This directly contradicts the current model.
From a lead generation point of view there seems to be a focus on CIOs, which is important and should get augmented by addressing business unit heads. While CIOs of progressive enterprises assume a role of internal consultants, business unit heads are the key players who ultimately need to be convinced.
At this time with Zoho One, Zoho has a strong suite of 45 apps that mainly support CRM type of processes, plus operations, productivity, HR and some finance. This solution also has a highly attractive price point. Extending the footprint of these apps, plus adding additional solutions to Zoho One, complementing it to support more ERP type of users will vastly improve Zoho’s credibility as a business software vendor that supports the complete business – a vendor that provides a complete operating system for the business.
Doing this, a challenge that needs to be overcome is the combination of the brand promise that Zoho One makes (operating system of the business) with its very attractive price point. Adding functionality to Zoho One likely does not scale the business enough. To avoid ending up with the unwieldy pricing of other vendors, this to me seems to require a careful change of the existing messaging during the addition of additional solutions or a similarly careful rebranding of the existing solution.
The concept of an operating system of the business itself is convincing and a theme that really catches; maybe it can get extended by using CRM as a kernel to emphasize upon Zoho’s strong outside-in approach to delivering value.
Zoho is on a good way to become a leading platform player, combining a technology platform that enables AI supported insights and productivity with a growing ecosystem. With the availability of Catalyst, Zoho offers an environment that helps ISVs, developers, and customers with a strong IT department to rapidly build and deploy applications at scale. This can become part of the solution for the first two challenges by providing partners with the ability to build own applications within the Zoho stack. These, in turn, help to increase channel sales, without harassing the overarching objective of being self-sufficient.
But then, a strong ecosystem of ISVs, consulting partners, and customers is key to having the breadth and width of solutions, expertise, and services that are necessary to successfully compete the incumbents in the enterprise market.
Famous last words
Maybe an own, dedicated enterprise sales force that is augmented by partner solutions and channel sales, is the way to solve the dilemma of attracting enterprise customers while maintaining both, the ability to scale, as well as staying in control of the own destiny. After all, serious and fair partnership is one of the Zoho core values.
Looking at potential customers, including enterprise customers: I encourage you to have a closer look at Zoho. Although the company’s upmarket move is not yet completely in place, companies of all sizes that are serious about their digital transformation will find value in Zoho’s offerings. Zoho might not yet be able to run the enterprise back end but if the company wants to get there, it will get there. And this will be followed through with an utter commitment to the customer. I think, this quote sums it up: ‘When you choose Zoho, you get more than just a product or a tightly integrated suite. You get our commitment to continuous refinement and to improving your experience. And you get our relentless devotion to your satisfaction.’
Disclosure. Zoho paid for my travel and accommodation to attend Zoho Days 2020