So what’s in it for Zoho?

My last post on why we compete with Google attracted a bit of attention, and quite a few questions. Ignoring the questions on my IQ or my competence in English (isn’t the internet great?), let me come to the most central one of all: if business software is so much less lucrative than consumer internet offerings, why does Zoho want to be in it? To rephrase it, if the argument is that it won’t prove to be lucrative enough for Google, why does Zoho want to do it?

The pat answer, of course, is “Zoho is not Google”. The long answer is “AdventNet is not Google”, and what that means is you should understand our history. In a nutshell, for AdventNet, this market means moving up in the value chain, while for Google, it represents going down that value chain. Here are a couple of quick examples to illustrate this process: why does McDonalds want to compete with Starbucks while Starbucks clearly isn’t going to enter the fast food business? Why does Wal-mart want to offer organic foods, while Whole Foods is never going to offer clothing or toys? Coffee has better margins than hamburgers, organic food has better margins than clothing.

AdventNet, the parent of Zoho, is an unusual company: we have never ever raised any outside investment in our 12+ years in business, and we still remain private. We are over 850 employees now, and the company has multiple divisions, Zoho being the most recent and the most glamorous. But we haven’t forgotten our roots. We are still the leaders in the market we started to serve 12 years ago. That is the business of selling software to network equipment vendors (the so-called OEMs). It has been a good business for us, but it is also a famously low margin business. We cut our teeth in that tough business.

So why would we enter a low margin business? Leaving aside the IQ question of the CEO, a low margin business let us get a toehold with relatively little marketing/sales/branding investment, relying purely on our engineering skills.

By 2004, we had gained sufficient scale to enter the next higher level in the food chain, with our ManageEngine suite of products, sold directly to business customers. It offered us the opportunity add more value than we could in the OEM business, but it also required higher investment in marketing and branding. We have been quite successful in that business.

In 2005/2006, we took the next step, with Zoho. Clearly, Zoho addresses a far bigger market than what our OEM or ManageEngine product lines address. To address that larger market, much larger investment in infrastructure, marketing and branding would be required. Fortunately, AdventNet is at a size now to be able to afford that investment. Of course, Zoho also offers us more opportunity to differentiate our offerings, which is the key to creating higher value.

None of this is particularly original. Most bootstrapped companies go through these phases. Microsoft started as an OEM software company. Oracle was originally a consulting company. 37Signals started out as a design consulting company, before evolving to be a strong player in software-as-a-service. Atlassian started out offering issue tracking software, before branching out into Wikis and enterprise collaboration, which is a much higher margin product. Let’s not forget that Google got its start OEMing its search engine to AOL and Yahoo – a much lower margin business than the one it is currently in.

The reason this model looks odd to most people is the relative rarity of bootstrapped companies in recent times. The venture capital model enables companies to leapfrog these evolutionary stages, directly going higher in the food chain, in their quest for rapid value creation. That comes at a price, which we have not been willing to pay at AdventNet – more on that topic later.

So to answer the question on Google vs Zoho: the business software market makes perfect sense for us, as a move up the value chain. I am not sure it makes all that much sense for Google.

18 Replies to “So what’s in it for Zoho?”

  1. I am reasonably new to Zoho but want to see it get better. A couple of comments:1. Don’t go public.
    2. Continue to value your customers.
    3. Make Zoho products load equally as good on FireFox, Safari, IE.
    4. I like to see Zoho intergrate with Linux. Zimbra is offering theirs for intergration with Ubuntu Linux.Keep up the good work and keep improving.

  2. I am reasonably new to Zoho but want to see it get better. A couple of comments:1. Don’t go public.
    2. Continue to value your customers.
    3. Make Zoho products load equally as good on FireFox, Safari, IE.
    4. I like to see Zoho intergrate with Linux. Zimbra is offering theirs for intergration with Ubuntu Linux.Keep up the good work and keep improving.

  3. What’s in it for Zoho?… Last month I put up a post regarding the economics of the B2B SaaS market, responding primarily to an interesting post on Zoho&#39s blog regarding the matter. I have been entirely remiss in posting a link to CEO Sridhar……

  4. What’s in it for Zoho?… Last month I put up a post regarding the economics of the B2B SaaS market, responding primarily to an interesting post on Zoho&#39s blog regarding the matter. I have been entirely remiss in posting a link to CEO Sridhar……

  5. Quote:”That (VC funded companies) comes at a price, which we have not been willing to pay at AdventNet – more on that topic later.”Will look forward to your post on it.Regards,
    Jeevan

  6. Quote:”That (VC funded companies) comes at a price, which we have not been willing to pay at AdventNet – more on that topic later.”Will look forward to your post on it.Regards,
    Jeevan

  7. […] space, Google has little incentive to move into this space forcefully. (He then followed up with a What&#8217s in it for Zoho? […]

  8. […] space, Google has little incentive to move into this space forcefully. (He then followed up with a What&#8217s in it for Zoho? […]

  9. Well said, not much more to add other than where is Zoho going from here? I’d say the position for the #1 SaaS spot is still open even though Salesforce is staking their claim for it. But this will probably mean an IPO, in which case don’t forget us loyal fans with some friends and family stock. :p) Seriously though, I think you guys have chosen the perfect trajectory and have all the right ingredients in technology, people, products and maturity (much better than Microsoft did at the time they went public) – time to go for the kill!

  10. Well said, not much more to add other than where is Zoho going from here? I’d say the position for the #1 SaaS spot is still open even though Salesforce is staking their claim for it. But this will probably mean an IPO, in which case don’t forget us loyal fans with some friends and family stock. :p) Seriously though, I think you guys have chosen the perfect trajectory and have all the right ingredients in technology, people, products and maturity (much better than Microsoft did at the time they went public) – time to go for the kill!

  11. Great post, it really underscores the difference between VC funded companies and bootstrap companies like AdventNet (and my company D-Tools I might add). With VC funding the mantra is get big quick and then get liquid in one way or another. This usually meas burning through massive amounts of cash and partnering for any perceived gaps in the product line and a mad dash to the finish to pay back the investors.I am not qualified to argue all of the pro’s and con’s of this approach but sometimes this is not the best deal for the customer. Look at Salesforce.com. They relied so heavily on partnering in the start that now they can not make a move in any direction without stepping on a partners toes. The same could be said about Microsoft.From a customer standpoint this means that I now need to deal with multiple vendors with various levels of software development and QA skills to get a workable solution and different UI’s to learn. All because they had to get to market first. I am sure Salesforce makes a strong chain but some of the partners could be considered weak links. Insert metaphor here.However the AdventNet way seems to be get big slow, build products people want and need on top of a solid, scalable platform, sell for a reasonable price and add functionality over time. AdventNet is like the Ikea of cloud computing. With this approach the customer gets the technology they need from a single vendor on a consistent platform that evolves over time.It works for me.

  12. Great post, it really underscores the difference between VC funded companies and bootstrap companies like AdventNet (and my company D-Tools I might add). With VC funding the mantra is get big quick and then get liquid in one way or another. This usually meas burning through massive amounts of cash and partnering for any perceived gaps in the product line and a mad dash to the finish to pay back the investors.I am not qualified to argue all of the pro’s and con’s of this approach but sometimes this is not the best deal for the customer. Look at Salesforce.com. They relied so heavily on partnering in the start that now they can not make a move in any direction without stepping on a partners toes. The same could be said about Microsoft.From a customer standpoint this means that I now need to deal with multiple vendors with various levels of software development and QA skills to get a workable solution and different UI’s to learn. All because they had to get to market first. I am sure Salesforce makes a strong chain but some of the partners could be considered weak links. Insert metaphor here.However the AdventNet way seems to be get big slow, build products people want and need on top of a solid, scalable platform, sell for a reasonable price and add functionality over time. AdventNet is like the Ikea of cloud computing. With this approach the customer gets the technology they need from a single vendor on a consistent platform that evolves over time.It works for me.

  13. Hi SridharThanks for this excellent post – you raise some points that many of us have probably not considered before (and you do so with impeccable nglis 🙂 )

  14. Hi SridharThanks for this excellent post – you raise some points that many of us have probably not considered before (and you do so with impeccable nglis 🙂 )

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