Chennai: A year ago, Ian Wenig wouldn’t have expected to be in Germany this time of the year. But the director of strategic alliances at Zoho Corp., a provider of online software services that is preparing to compete with Internet behemoth Google Inc. and software firm Microsoft Corp., is not cribbing about this unexpected turn of events that calls for more travel.
Huge ambitions: Zoho vice-president Shailesh Kumar Davey says the firm wants to be a one-stop shop. Sharp Image
He is in Europe to partner with mobile phone and computer makers who are eager to provide a broad suite of Web-based software applications to their consumers through the “cloud”.
Cloud computing refers to a scalable set of information technology (IT) services a user can access over the Internet. The tie-ups are crucial for a discounter such as Zoho which doesn’t stand a chance when it comes to competing with the huge marketing budgets of a Microsoft or a Google.
Zoho’s focus is on providing software as a service (SaaS) where applications used, for example, to create and edit documents or to manage a customer database can be accessed via the Web. This translates into lower capital costs for subscribers as they do not have to buy Web servers or install expensive software on their computers.
“Our business was validated by the entry of our big brother, Google, into the marketplace,” says Wenig over the phone from Germany. “Even in a Google- or Microsoft-dominated world, Zoho can thrive. We will still have a small percentage of a huge market. That’s the worst-case scenario. If either of the two fail to execute well, then we will have a bigger share of a very big market.”
Zoho entered the SaaS space in 2003 after sensing an opportunity in cloud computing that counted US-based Salesforce.com Inc., an online provider of customer relationship management (CRM) software, among the first movers.
Through its India development centre in founder and chief executive Sridhar Vembu’s hometown, Chennai, the California, US-based Zoho started snipping through Microsoft’s turf with a slew of online software applications for an average monthly fee of around $12 (around Rs560) per application. It also offered a limited-features, free version. Salesforce.com’s similar CRM application comes at $65 a month. Zoho didn’t go for an advertising model as it expected ads to be an irritant to business users.
“We kept launching one product after another and people generally wrote us off. They laughed at us, they ridiculed us, but finally, they believed us,” says Shailesh Kumar Davey, Zoho’s vice-president, based in India. “We want to be a one-stop shop—the Wal-Mart (Stores Inc., a US discount retailer) of the software world.”
The stamp of approval for cloud computing came when Google, touted to be a technology visionary, acquired a Web-based word processor, Writerly, in 2006. Both Google and Zoho price their office suites at $50 a year. More recently, in July, Microsoft offered basic online Office programmes, free and supported by ads, along with the next version of its productivity suite, Office 2010.
Several start-ups that entered the space in the early years were hoping to create a niche online application that would be attractive enough for a bigger player to acquire. Zoho’s founders, on the other hand, spurned an overture from Salesforce.com and steered clear of taking any venture capital that may have come with its own set of dos and don’ts.
Today, with 19 software products in its basket, nearly four times as many as Google’s offerings, and increasingly integrated with Google where users can log in using their Gmail (Google mail) account ID, Zoho has doubled to two million users from one million in 2008. Still, that’s a drop in the bucket when compared with the 20 million people using Google applications to create presentations or documents.
“In information technology, usually the bigger players provide breadth (or a whole host of services); the smaller players providing breadth may find it difficult as marketing is very essential,” says Diptarup Chakraborti, an analyst at technology research firm Gartner Inc. “If you become everything for everyone, it might be difficult to manage.”
Gartner expects global SaaS revenues to jump 22% to $8 billion this year and sees it doubling to $16 billion in 2013.
The Economist, in a late 2008 article, said Zoho’s revenues stood at $60 million. Zoho’s Vembu refused to confirm the number but said the business has always been profitable.
A data centre in a crowded south-east Chennai locality with around 350 people dedicated to Zoho applications keeps research and development expenses minimal and free versions of applications act as relatively low-cost promotional tools to bring in and lock in users.
“We believed from the beginning that the space will consolidate and so we decided to build all these applications and integrate them to offer an advantage to our customers,” says Vembu, an avid blogger who often comments on competitors such as Microsoft and Salesforce.com.
Wenig, who briefly quit Zoho only to rejoin the team in 2006, says revenues have grown on an average at 35% a year and expects stronger expansion in 2010, spurring a targeted $1 billion revenue in another 5 years.
For that, the company will have to tackle its Achilles’ heel: marketing. The sales team is likely to grow by 50% in another year, according to Wenig. Its intended advertising blitz in the US and India will include billboard, Web and radio advertising. But Vembu says marketing expenses as a percentage of revenues will not change.
Still, Zoho has to work hard to avoid being a meek follow-up act in the marketing stakes. For example, the company swung into action in India with a nine-member sales team only after Salesforce.com rolled out a 30-member team in India.
To garner more business, an assurance on the security of data is key, an issue that Zoho tackles by offering a private-cloud service that emulates its online services on a private network. And then there’s the issue of data outages, which Zoho is still grappling with.
Last year, Balaji Sowmyanarayanan, a freelance IT consultant in Chennai, subscribed to a $5-a-month service to use Zoho Wiki, a website-creation application, as he found it feature-rich in comparison with other applications. But he is bogged down by service outages at crucial moments when he wants to showcase his site to a prospective client. “Exiting it (Zoho) will have some pain points as the other players’ features may not be all that attractive,” says Sowmyanarayanan. “It could be another beast like this and so you might as well continue with the known devil.”