Bangalore/Chennai: In the plush, open-plan office of Zoho Corp. Pvt. Ltd in the south-west part of Chennai, nearly 2,100 employees, including some casually-dressed 18-year-old fresh-out-of-college programmers, write lines of software code daily while working on software solutions.

The office, styled after Internet search leader Google Inc., serves as the headquarters of the relatively small, privately-owned firm that offers a suite of online business, productivity and collaboration applications, including customer relationship management (CRM) software, word processors, spreadsheets and email tools.

The idea of starting Zoho was born when one of its co-founders Tony Thomas, who was working in the network department of US-based AT&T Inc., happened to create an application programming interface (API, that specifies how software components should interact with each other) for the telecom network market.

The API was a success, and Zoho was launched in 1996 to cater to the telecom network market. In early 2000s, the promoters decided to focus attention on the potentially more lucrative and bigger CRM market, traditionally served by companies such as Oracle Corp., Salesforce.com Inc. and SAP AG, who primarily offer large enterprises with online and offline CRM solutions that can cost up to $250 ( 15,325 today) per employee a month.

Over the last decade, though, the focus has shifted to servicing small- and medium-size businesses through software-as-a-service (SaaS) or cloud computing—where users can track sales from anywhere on any device using the Internet or an internal network—who demand low-cost software solutions.

Global firms such as Salesforce.com, Oracle, Microsoft Corp. and SAP currently account for more than 50% of the CRM market. At the end of 2012, global CRM software revenue totalled $18.1 billion, according to Gartner Inc. The market is pegged to grow to at least $36 billion by 2017.

Salesforce.com, the first to offer such an online suite, is the leader. It overtook SAP to become the top global vendor, raking in CRM revenues of about $2.5 billion.

Zoho does not disclose its revenue, but one of its senior executives pegged the company’s current sales numbers at less than $500 million with double-digit growth rates.

“We too used to be a Salesforce customer. But on looking at it, we thought we could develop it (CRM) better and sell it cheaper," said Sridhar Vembu, chief executive officer (CEO) of Zoho, which quickly jumped onto the SaaS bandwagon in 2004.

Over the last five years, Zoho has grown from one million to eight million users, and CRM is its fastest growing product, with which the company hopes to cross 10 million users this year.

Zoho’s CRM costing of $12-35 per employee per month as opposed to Salesforce.com’s $65-250 for a comparable product, is what is making its competitors sit up and take notice.

According to Vembu, other CRM products cost much more because of their skew towards sales and marketing spend, which is six-eight times greater than their R&D (research and development) spend. “10-15% of our CRM user base is coming from Salesforce," said Vembu, who is also an avid blogger.

In an email response, a Salesforce.com spokesperson did not specifically comment on Zoho, but insisted on its leadership in the market.

“Today, with the next generation social and mobile cloud technologies, Salesforce.com customers are connecting with their customers in entirely new ways to become customer companies. We’re seeing incredible demand from companies that want to leverage today’s incredible new shifts in technology," the Salesforce.com spokesperson said.

“CRM is core to managing customer relationships, and Zoho’s CRM is nimble and easy to use, as its features are easy to configure, and its price makes it very attractive," said Somenath Nag, director of business development and marketing at ALTEN Calsoft Labs.

His Bangalore-based company, part of the €1.07 billion (around 9,030 crore today) European ALTEN group, has been a user of Zoho CRM for nearly a year now. Nag added, though, that Zoho CRM could do with some improvement such as making the workflow configuration and customization feature more user friendly and integration of Outlook mail with CRM better.

Sharad Sharma, a co-founder and governing council member of software products firms’ think tank, the Indian Software Industry Products Roundtable, said, “They (Zoho) have opened up a whole new market. They’re the Maruti Alto of this market, Salesforce.com is the Honda City and (Oracle) Siebel is the Toyota Corolla of this market."

Virender Aggarwal, CEO of India-based enterprise software firm Ramco Systems, in an email response, conceded that “in spite of being much smaller in revenue, Zoho is already giving the established players good competition".

He added, though, that Zoho needs to continue to closely read market trends and build products that will address user needs. “They are in a volume business and need to continue to invest towards marketing and expanding into emerging markets to help them continue their growth momentum," said Aggarwal.

Zoho, on its part, is trying to sustain its growth momentum.

Last month, the company added new features to its current CRM suite that offers the ability to forecast sales according to a specific location and territory management, said Raju Vegesna, chief evangelist from Zoho’s Pleasanton, California, office. The new features were launched for large enterprise users.

Some experts, meanwhile, believe that while Zoho has had an impressive run, it will be a while before any CRM company manages to stop Salesforce.com’s growth story.

“Zoho is a fast follower. Their SaaS model is really helping them. But I don’t see Salesforce losing market share to Zoho because they’re really dominant now. They’re becoming the next Oracle," said Peter Bendor-Samuel, CEO of outsourcing advisory firm Everest Group.

Zoho also lacks large implementation and support partners in the ecosystem which can be a challenge for the company, according to Praveen Sengar, principal research analyst at Gartner.

“Salesforce caters to a higher end of the market and has a lot of big global implementation partners such as Accenture and Deloitte offering solution around its sales opportunity management solution," Sengar said.

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