We were 99 analysts and 24 customers and plenty of knowledgeable Zoho personnel. The incredible Sandra Lo and her team organized the event around open and transparent communication. So, there was plenty of access for us to customers and the Zoho team.
Which was very important, as already the keynote session by founder and CEO Sridhar Vembu was quite hardcore. Vembu talked about how strategy and culture need to be one, how culture needs to be the root of strategy, and how Zoho implements this. The Zoho strategy lies on three main pillars
· Transnational localism, a unique concept that in its essence is about embedding a company into a local community by not only selling into it but also by investing into it. This investment is e.g., by offering high paying jobs in areas where these are scarce, by fostering local education, but also by own local sourcing including local materials and using sustainable practices when building. That way, these communities become self-reliant. Zoho first introduced this concept in 2020. In essence, Zoho sets up shop outside of centers, in rural areas, in a hub and spoke model.
· Tightly integrated products that together form a powerful platform to run a complete business. This is counterintuitive to the thought of apps using a common platform to deliver their services.
· Privacy as a core part of all applications and services, born out of the idea that the need for free flow of data needs to be governed by privacy.
This is a great strategy, and it is important that a CEO articulates it and that the executive team and the business fully support it, live it. Especially, since at least two of its parts are far from mainstream with transnational localism being the 800-pound gorilla. The cynic bunch that analysts are, it is even better if one can talk to customers and see some evidence.
Zoho delivered on both accounts; but let me start with the simpler parts of the strategy.
Tightly integrated business applications
Since its origin, Zoho is building applications using one single own stack; no acquisitions. This way, Zoho is able to build applications on a stable infrastructure and to reuse a lot of parts. A result is a pretty consistent user interface and then the ability to have a strong data integration. What this also allows for, is the ability to blur the boundaries between apps, or using a contemporary term, making them composable. This works with the help of the strong no code and low code abilities that Zoho offers.
The idea of removing the boundaries between apps is similar to Microsoft’s strategy of exposing all apps from within MS Teams, therefore bringing them into one frame. As Raju Vegesna maintains, the “market is littered with features masquerading as products, and products masquerading as companies. Disappearing boundaries between apps is something we will increasingly see within our offerings”.
More short-term, and in line with the mantra of not being a costly input oneself, Zoho increasingly offers industry solutions, either built by Zoho, or built by Zoho partners.
Privacy at the core
Being a German, privacy is something that I value very much.
So does Zoho. The company regards privacy as the foundation for integration and bases this on the realization that the need for privacy is a consequence of the need for data to flow across applications. True collaboration can only happen when privacy is upheld. Zoho is committed to its prospects’, customers’, employees’, and users’ privacy. All its applications and the complete corporate infrastructure, including an increasing number of own data centers are built having this in mind. And there is even better news in the pipeline.
This does not mean that the software is unbreakable, still what sets Zoho apart is the commitment to privacy that is followed up by action.
Transnational localism
These are the times of businesses touting their corporate purpose, which is often not more than greenwashing or lip service.
Not in this case!
Zoho’s new US HQ is outside Austin, on a farm. And there is not only IT business going on there, but also actual farming by Zoho’s employees. As far as offices go, it is small, following the corporate concept of being distributed, but considering that it has 350 acres of land, there is some scope for becoming bigger without harassing the farm itself, as the farm continues to serve its purpose as a farm.
Zoho US relocated there from Pleasonton, CA. And, similarly, Zoho opened 59 of these hub-and-spoke offices in rural areas and smaller cities over the past two years. The company clearly walks the talk.
Part of the idea behind this concept is also that it reduces inequalities, which increases the community’s ability to grow, and with it, Zoho’s ability to grow. Another part is the extension of the thought that SaaS companies rely on costly inputs – data centers, education, real estate, energy, etc. – while their output – SaaS applications – is more and more commoditized.
So far, the theory.
What do the customers say?
Now, in events like this, customers are selected. Which is fine. They, however, did not wear a muzzle or were elsewise prohibited from giving honest answers or asking executives tough questions in the plenum.
Still, they are a very happy bunch. They are getting what they need. The degree of happiness is immense, and the data proves it. Zoho has an attrition rate that is extremely low (we were presented with the numbers but cannot relay them – so you need to trust me). This attrition rate is compounded by a year-over-year growth of 38 percent with now more than 80 million global users (unpaid and paid).
All of them were staggered by the breadth of the offering with them being offered solutions for challenges that they encountered running Zoho – out of the existing solution stack, oftentimes already licensed by them.
What all of them consistently said is that there is a lot of value for their money, that pricing is very reasonable and that they were able to cut cost by moving other services to Zoho.
Now, there has been criticism, too, which started from some applications not being equal to the category leaders or it sometimes being difficult to get support, if one isn’t networked in the organization, the latter being something that I have also heard from other customers. Surprisingly, given the breadth and width of Zoho’s offerings, there was the occasional word of missing functionality.
However, according to Chief Strategy Officer Vijay Sundaram, and Raju Vegesna, these are addressed and will improve.
But, does it pay out?
As Zoho co-founder Tony Thomas explained me, CEO Sridhar Vembu is a man who has many grand ideas but is also a “very hard-nosed business guy, very conservative about running the business and, you know, preparing for a rainy day as well. So the company has always been run very conservatively”. He continues “So at some level taking care of business, making sure we are profitable and, you know, live to fight another day has been the ethos from the start and so that continues. Even now we run the company very conservatively, despite doing too many things, as I often say. But the, you know, making sure that the Tony: The macroeconomics for the company works has been his obsession for the being. So, he always looks long term. What is the strategic business advantage we can bring in any market, we go into?”.
And Zoho has been profitable every single year since the company was founded, and the company is growing strongly.
My Point of View
With being in place for about two years now, it may be a little early to judge the success of the transnational localism strategy, but what is for sure is that Zoho is about as far away from the currently dominant variety of predatory capitalism as one can be – being a capitalist.
Instead, Zoho successfully runs a stakeholder capitalism that bases on the ideas of not being part of the costly input and that the community is stronger than the individuum. In a business sense this means that it is better to not squeeze out the customers and that, if every part of the ecosystem contributes to the ecosystem, success will be the natural consequence.
Privacy is the third point that supports this. If there is no need to gather data, don’t gather it. And don’t sell it. This builds trust, and trust is one of the biggest assets that a software vendor can have.
Last, but not least, I am a suite guy. I am convinced that a family of apps that works seamlessly, is vastly superior to a pureplay best-of-breed strategy. The cost of implementing and maintaining a family of applications – a suite – is significantly smaller than the cost of running best-of-breed. There is a reason that not only Zoho follows this strategy.
The proof for this lies in the numbers: More than 80 million users, 26 years of profitability since inception, a year-over-year growth of 38 percent in a challenging environment.
This, as well as the loyalty that the company showed to customers and employees alike, is mainly possible because the company is not buying growth on cost of profitability and not depending on the financial markets. It, therefore, is in control of its own fate.
I embrace this strategy, fully support it and hope that more businesses achieve this level of wisdom.
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