Big time kudos to Sandy Lo with her amazing team for organizing this and of course also to all the Zoho execs, including the newly minted Chief Scientist Sridhar Vembu, Zoho’s new CEO Mani Vembu, Tony Thomas, Raju Vegesna, Vijay Sundaram and many more, who all were more than willing to share information and, even more importantly, get feedback. The latter is not something that we analysts take for granted.
Besides the usual – and important – state of the business update by Vijay Sundaram, the event revolved around three main topics
· AI
· Enterprise and partner strategy
· Industry strategy
As Zoho is privately held, we are not given details, nor at liberty to divulge as much as we learned. So, suffice it to say, that Zoho grows healthily in the value chain from unpaid users to customers, to revenue to retention. The company announced having hit the milestone of $1bn US in revenue already in 2022 and is growing healthily in all of these categories while being healthily profitable.
With this out of the way, let’s have a look at the main topics.
Artificial Intelligence
Artificial Intelligence is one of the main reasons for Sridhar Vembu focusing on technology. He was very hands-on before and can do so even more now, especially on the backdrop of DeepSeek showing that after all reasoning is a commodity, combined with the fact that it is hard to discern what LLMs learn or unlearn. This creates unstructured output and therefore the need for humans verifying the output, which drastically reduces the productivity gains ones hopes to see. His solution approach is to look at prompt engineering and RAG as input engineering and to make AI create “machine checkable inferences” on business data, which has a couple of distinct advantages. Business data resides in databases, so it is known how to change or delete it. Second, it can be validated automatically, as it is structured. The validation of structured output is generally a solved problem, too – known as a compiler. Open problems are the question how to generate this structured output in non-programming cases and the then necessary output engineering which returns the appropriate answer outside the scope of programming. I am looking forward to some creative solutions by Zoho. With its contextual intelligence, Zoho already seems on this way.
Having said this, Zoho can’t stay out of the agent game. One of the core differences to most other companies is that Zoho comes from a use case angle and looks at AI something that gets invoked in context and is a helper in the background, instead of being pushed to the front where it almost becomes an end instead of a means. A great example for this is Zoho’s own agent Ask Zia, which is imbedded in many, if not most of Zoho’s apps. In combination with Zoho’s already available and steadily growing number of hundreds of contextual AI use cases, this becomes both, a very powerful agent as well as a foundation for the creation for more agents, if they are provided as skills. These skills can only be as good as the underlying data and, going forward, the models that are available to work with. And here, Zoho is in a quite comfortable position. The company owns the complete software stack of its applications and hence can evolve its underlying “database” into a data lakehouse that holds data from structured to unstructured data and has the ability to ingest data from connected apps. Together with its already existing data cleaning technology, the ability to create new agents and the ability to connect to self-hosted as well as externally hosted LLMs, this is a strong value proposition. This is especially true as security and privacy are an integral part of Zoho’s DNA.
Enterprise and Partner Strategy
Zoho has a firm foothold in the SMB market and for some years now is setting up the structures, processes, and messaging that are needed to better address the enterprise market. The company has already won a good number of enterprise accounts worldwide and across various industries. From a scaling angle, the user numbers in these accounts go into the six digits. Which tells that Zoho’s software scales.
Some learnings include that while many requirements are similar, there are differences by industry and region, and this is where the platform and partner strategies come into play.
Zoho is a platform vendor and starts to position itself as such, as opposed to the current messaging that positions the company as a multi-application vendor. On top of this, and as a realization of not every large business being created equal, Zoho places a domain architecture that is roughly taken from enterprise architecture frameworks on top of this. While this is an interesting positioning that caters to different use cases, it is also a difficult one, as it easily becomes quite technical and complicated. As the platform architecture is described right now, it places many elements that one would expect as part of a platform inside domain platforms that sit on top of a more generic platform. While this makes sense in an overall architecture that offers different customizing and enhancement tools for different applications, It might be easier to understand for customers to only place applications in domains and keep the development tools as part of the general platform. The general platform is needed, anyways. As a consequence, it might be easier to digest to speak of domain specific application families that integrate into each other and with the ones of other families.
Industry Strategy
Zoho regards verticals as a key driver for growth, for both Zoho itself but also for partners. This is based on the realization that there are plenty of underserved verticals and micro verticals that all need tightly integrated applications to build solutions. While the creation of industry solutions requires the creation of industry-specific apps as part of the suite, it also requires the integration with vertical-specific apps. No single vendor can deliver it all. Instead, this requires the ability to extend a horizontal platform to support vertical platforms, or rather solutions. As you could read in the enterprise strategy section above, Zoho has this horizontal platform.
On top of this technological issue, it requires the ability to build an industry solution that actually solves a problem – instead of one that is in search of its problem. A very good approach for this is to co-create solutions with a meaningfully large customer. This ensures two things, first that the solution actually becomes meaningful and not something that is specific to this customer, and second it gives credentials. The challenge is obvious: it is necessary to first convince this charter customer that one is able to create the solution at reasonable cost in a reasonable timeframe.
This is exactly, what Zoho is doing. Having a reasonable size itself, a strong collaborative culture and, what is more, the technology to do this.
To scale this concept across industries, this ability needs to be made available to partners as well. This is what Zoho is doing as well. By enabling partners to build vertical solutions for smaller or micro verticals, Zoho will be able to scale the own business faster by offering them a sustainable business niche. Part of this is, of course, that partners can be reasonably sure that Zoho will not invade this niche. This is something that other vendors do; and is something that makes the investment decision for partners hard. They simply cannot compete with the ecosystem owner.
What Zoho does instead, is offer partners the tools to build integrated industry solutions and to make them available to a global audience via the Zoho ecosystem. This way Zoho becomes more successful by making partners successful by making their customers successful. To achieve this, Zoho will make a Vertical Studio available to partners in March. The Vertical Studio will enable partners to build vertical-specific scalable multi-tenant apps that seamlessly integrate with other Zoho apps. Together, these deliver an industry solution.
Outside-in thinking at its best, and a true win-for-all.
Bringing it all together
Zoho and Zoho customers have told a strong and coherent story during the ZohoDay 2025 event. It is one of the best and credible AI and digital agent story around, especially when combining current execution including the upcoming own LLM, own hosting and strong privacy focus.
Zoho has learned some very interesting lessons from its own endeavor into enterprise and industry territory. The best one being in my mind to “open source” its learning and to make process and tools available to partners, so that they can build industry solutions fast. This way, micro verticals can get developed and partners get what I would call a safe harbor with the promise to carve themselves a niche and owning a specialized domain. This message can only become stronger if Zoho decides to explicitly tell partners which domains Zoho will not actively engage. This increases trust further and makes it easier for partners, ISVs or SIs, to invest into creating IP.
A topic that is of importance in this regard is the one of regional partners. These fit better into the strategy of transnational localism as the global SIs and they bring relevant industry expertise. In addition, they are often more trusted than the global SIs while being able to offer near- and offshoring services that allow them to compete on price if necessary.
What I would call the “weakest link” in this good story is the messaging towards enterprise architecture and enterprise readiness. Not to be taken wrong: Zoho is enterprise ready. However, it is incredibly difficult to put the dimensions ‘SMB vs. enterprise’, ‘business domains’, and ‘industry’ into a short and succinct narrative, let alone an easy-to-consume slide. Do I have the perfect answer? No, I don’t. But I strongly believe that Zoho has the smarts and the arts to create this slide.
It was a good event, with helpful information, and I am glad to see Zoho on a continued trajectory of success. Functionally, there are only few companies that can deliver on a similar or bigger scope, culturally, there is none.
Disclosure: Zoho covered all cost for me attending ZohoDay 2025. Still, all points of view expressed in this post are mine and not influenced by Zoho personnel in any way.
Good write up. The SMB to Enterprise perception is definitely a journey.
ReplyDelete