Today, Salesforce announced their biggest acquisition to date: ExactTarget – revenue under $300 million, accumulated losses of over $60 million over 3 years – for $2.5 billion. Here is the interesting part: ExactTarget, which competes with our Zoho Campaigns product, has about 1600 employees, while all of Zoho Corp has about 1600 employees. By way of comparison, Salesforce has nearly 10,000 employees, and they are adding those additional 1600 employees today. With all that headcount, they still don’t have the breadth and depth of Zoho. At our annual Zoholics event last week we launched 3 new products (Zoho Pulse, Zoho Vault and the very handy Zoho Leads mobile app), and also announced numerous enhancements to the entire Zoho suite of offerings.

Are we very efficient or are they very inefficient? Well, you be the judge: we fund our extensive R&D investment out of profits, while ExactTarget has lost money for years and Salesforce is not exactly a profit-machine either – they spend over 65% of their revenue on sales, marketing and administration and only 12% on R&D. I don’t know a more unbalanced structure in all of technology. Most acquisitions fail, but in this case, maybe the two companies do have a deep cultural fit, because they both know how to spend loads and loads of money to “acquire” customers while never turning a profit.

We happen to know ExactTarget well. We started development on our competing Zoho Campaigns product 3 years ago. We put in a lot of hard work, and today it is enjoying rapid growth and market acceptance, thanks to its nice feature set and the integration we offer with Zoho CRM. To get that same level of integration, Salesforce is shelling out $2.5 billion. The contrast between what we do and what they do cannot be starker.

So how does it all matter to you, the customer? First, if you are a Salesforce customer, you are going to have to pay for this acquisition – and not just monetarily. I am a software engineer, I review code, I design frameworks, so I know a thing or two about software. I will say with confidence that integration projects on the scale needed to integrate ExactTarget into Salesforce are extremely difficult to pull off in any reasonable time frame. Just the technological challenge of integrating totally separate code bases is immense, and then you add culture clashes, political rivalries, geographic separation, large teams – I wouldn’t ever want to be the project manager who has to integrate this acquisition. It is a thankless job, and at the end of the integration, all you accomplish is that the combined product falls way behind nimbler companies like Zoho. Salesforce has done these deals before, without ever integrating them. Let me enumerate.

About 3 years ago, Salesforce acquired Heroku, shelling out $212 million for the company. Just last week, the Heroku founder announced he was leaving. Visit Heroku.com and see if you can detect any sign of Salesforce anywhere. How is that for deep integration? From a business point of view, can anyone claim that Salesforce is on track to recoup the substantial investment it made in acquiring Heroku? Now, visit Do.com and Desk.com – both of which Salesforce acquired a while ago – yeah, there is nice logo level integration, I will give them points for that. Try to sign in with your Salesforce account in any of these sites.

The Salesforce playbook is simple. Benioff feels restless, he sees stagnation, sees companies like Zoho continuing to innovate, he just goes out and does a blockbuster deal to feel good, more money the better. Who cares if the acquisition actually pays off long term? This playbook can only work as long as the stock price keeps levitating – and for that, let’s give credit where it is due: it is not Benioff, it is Bernanke. How companies with continuing losses year after year could reach a valuation of nearly 10x annual revenue is a topic by itself, but that would take me on a major tangent on our broken bubble-blowing monetary policy, and the wanton stupidity of policy makers like Bernanke.

I am putting my conviction to the test. We are expanding our investment in R&D in Zoho. We see a massive opportunity to seize leadership in the cloud because we believe the Salesforce strategy is going to fail long term. They already face engineering stagnation – their core SFA product hasn’t improved in years. Second, they have to try to stick it to customers to make the money back on these blockbuster deals. The end result is that customers will revolt and seek alternatives. While our strategy of investing in R&D is slower in the short run, as we gain speed over time, our breadth and depth increases. Here is our promise to customers: we will continue to out-innovate Salesforce, while offering incredible value.

How can we make that promise? Simply because we don’t throw around money like them. We owe it to you, the customer, to be efficient, and pass on the results of efficiency in terms of lower prices. We don’t do ego-boosting acquisitions to create hype in the short term, only to be forgotten a couple of years later. Instead, we hire engineers and write code, because we believe that serves our customers better.

Zoho is already beating Salesforce on Internet reach, on the sheer number of new organizations signing up for our platform month after month. We will continue our relentless execution.

  1. Ganesh Rajendran

    Sir,I have huge respect for you and have always admired Zoho’s product/s. I was selling Salesforce.com for couple of years in the Indian market 4 years back and faced stiff competition from Zoho! Having said that, I strongly differ from your PoV. I guess you have taken into account only the Engineering part of the deal.. Isn’t this acquisition also about winning new customer (base) instantly + cross selling product (s) + acquiring talent + catching up on years work on New Product Development + testing the product in the market and making it robust + IP + branding exercise + increased top line + strengthening your product portfolio (Marketing Cloud as they tout it now).. so on and so forth.. http://techcrunch.com/2013/07/… – i did find this article which provides the cash reserve status as well.. but I guess SF is being the aggressive company.. which is what they have always been.. and continue to be as well.. to each his/her own! 🙂

  2. Himanshu Khanna

    @Sridhar: love your fair talk here. Like mentioned in previous comments, it’s a sheer difference of strategy here. What wins in longterm is not known to either. I’d suggest both companies to rather focus on present and make it easier and simpler for us, the customers.On that note, we’d (Sparklin) love to pitch in as UI/UX experts to help Zoho, that is if you guys would like that.

  3. Sandeep Todi

    Your spirit makes me want to sign up for Zoho ! Large cos do need to acquire smaller ones to get good IP. It’s good for both. But cos in Zoho’s league are in a class apart !

  4. Lucy

    Sridhar – despite being a self confessed Zoholic I cant help admiring your fighting talk. I’d be the first to say Zoho product integration is not perfect – but with every week new stuff comes out and as a result the whole platform moves forward. If you accept and work with the way kits is designed to work – its cost effectoive and more than enough for 80+ of most companies requirememnts.
    I am whole heartedly behind the continued success of Zoho, as well as being in admiration of your personal ethics around supporting your staff.
    What many of the nay slayers who have taken the time to comment on here forget is that Zoho CRM is years younger than SalesForce so of course the add-on community is not as mature but we at i-Dynamics intend to do our bit to correct this.
    The other piece in the jigsaw puzzle is that as Zoho learns to bring the two disparate parts of the business – ManageEngine and Zoho platforms together thus further enhancing the management of BYOD and mobile access to corporate info – you will be unbeatable – for a while anyway. Keep at it – Gates of Microsoft need a serious bashing !!

  5. Sridhar

    @rv, I agree acquisition is a valid business strategy. I am pointing out that their massively-overpay-to-acquire strategy has built-in costs for customers, who eventually have to foot the bill. I am also pointing out that their strategy isn’t even possible to execute without a huge assist from our broken bubble-blowing monetary policy.

  6. rv

    This is a very disingenuous article. There is nothing wrong with SFDC acquiring and not choosing/being able to build .That is their strategy. You acquire some and build some.you argue on one hand that integration costs will be high. Then you argue that they have not integrated Do, Desk etc . Atleast customers are assured that SFDC will be a going concern and their investments in implementing/using Exacttarget are not going waste.Innovation is just a means to an end ( customer satisfaction). Just because you choose to invest in innovation ,doesnt mean you are better than those who embrace innovation.

  7. Sridhar

    @David Hall,
    Thanks for your detailed feedback. You will see progress on each of the areas in Recruit, particularly the parser engine and calendar.

  8. Sridhar

    @C Bennet
    Have you looked at the UI recently? I invite you to try it now …

  9. NicksChick

    No you won’t …. promise… saw and heard some truly impressive stuff at Zoholics last week. What all you folks forget is a) Zoho CRM is some 10 years younger than salesforce, b) they really get big IT !! Take a look at all the ManageEngine stuff and understand behind every great mobile friendly app is the need to manage BYOD – thats (bring your own device – to work for novices) few cloud offerings offer both the user application and the big IT need mobile device management from one stable (think what happens to that locally stored contact info when the employee leaves ?) – Zoho does and as the 2 come together their Enterprise offering will move to the top of the league (until the next great thing comes along of course) but they will be hard to knock off the top spot 🙂

  10. NicksChick

    You should have been at Zoholics – man it was awesome – reminded me of another San Fran Bay are company I love 🙂

  11. NicksChick

    Shridhar – hope you listening to this !! There comes a point where we would rather pay more than suffer poor integration between your products!
    And I’m a Zoholics fan !!!

  12. Lucy

    Many of us Zoholics have tried Salesforce and found it frustratingly complex and overpriced – probaly because they employ 10 people for every 1 employed by Zoho. If its so long since you last looked at Zoho maybe you should give it another go ? Salesforce gets more expensive and over heavy – Zoho simply gets better 🙂

  13. C Bennett

    We tried making Zoho CRM work for our needs a couple of years ago and couldn’t get things to work the way we expected. Lots of bugs and a 10 year old UI. Please use your expansion in R&D to fix the old UI. Make us enjoy looking at zoho products.

  14. david hall

    I like the fighting talk too. I use Zoho Recruit and on a strictly good value basis I’d give it a cautious recommendation. But man is it getting old. It seriously needs some of the polish you applied to your CRM product. And decent as the product is, and it is decent, there persists a couple of really annoying roadblocks in terms of productivity sucks. I’ve spoken to your support guys, and even as far back as about 16 months ago was told they were evaluating alternatives, but the CV parser is terrible, really really bad. Also, and this really is a case of 2013 calling you, why can’t I get a subscribe link to my ZoHo Recruit calendar? I mean honestly? I have every sort of service imaginable able to funnel, either via subscribe or sync, to my Google Calendar except perhaps my most mission critical one. After insisting that it was possible it took and endless amount of time for your support guys to fess up and admit that this wasn’t possible. I think being lean is great but in some cases, and certainly in the case of ZoHo Recruit, it means that decent, but only three quarters of the way to being very good, products end up rotting on the vine, along with their users, for what seems like forever. I’ve no doubt that manpower is the issue and I’ve no doubt that your guys deliver you top productivity and can go head to head with the best anywhere, but from an end user perspective we can’t admire your leanness while running into huge time sinks created by missing features or less than complete implementations. Despite the above for someone on a budget I’d still recommend ZoHo Recruit. However if there wasn’t a huge penalty in terms of time lost transitioning to a new platform I’d probably have moved away to another product by now. At this stage money is not a differentiator, yes ZoHo is very competitively priced but paying double or even treble that amount per seat would be a pill I’d be prepared to follow for the headaches to disappear and for a richer feature set. I hope you’ll take these comments in the spirt they were written. Zoho’s competitive offering allowed me to get up and running before we had a single client but don’t trumpet your leanness too loudly because at least some of us are sitting at our desks saying when the hell are Zoho going to do something about x..y..z… issue(s). All the best though.

  15. Vamsi

    only if your products had the quality..

  16. Sumon Sadhu

    This is great fighting talk, but are there any features or products that Zoho uniquely builds versus emulating other companies? If you have the same customer relationships you should be capable of bottom up innovation which may lead to topline growth. Oh wait, that may eat into your margin. If you are truly original you won’t be running fat for long.

  17. yoho

    1. Successful Go To Market != Product Build. There is a lot more to it than that.
    2. Deep integration is not an requirement in all cases, in fact in the case of cloud companies, you can pretty easily achieve API level integration. Focusing on single sign on seems like a weird place to discuss integration differences.I like this post, but need to take a contrarian view 😉

  18. Nitin Chowdhary

    Sorry – but there is another perspective as well. That if customers that move on from your products. After trying to scale Zoho CRM to an enterprise situation for about a year, I gave up and moved on to a better CRM. This after trying like h*** to work with your product teams to get bugs (that didn’t exist in Salesforce or Dynamics) fixed. On the flip side, I hear that Salesforce adopters are fanatical about wanting to continue using SF.

  19. Sharad Sharma

    Rooting for you!

  20. RajeshK

    I recall shifting to Zoho Assist for these reasons of yours 2 years ago. The result of it, we are still facing the music. I do agree, building own products is good. But not always. It does make sense to acquire a tested product if it could be integrated well in the buying companies product-line. Its far better then making existing customers (like us) suffer by making them testers.Rajesh

  21. Vivek

    Awesome Sridhar! you are a rockstar!

  22. Subramanyam Kasibhat

    I admire you and zoho for what/how it has created solutions. However, am not a fan of Zoho quality 😉 Late 2010 & 2011, we tried Zoho recruit & Zoho Online assessments. Unfortunately it was poor in terms of its quality, so we moved on and invested to build our own. We at g2g.co spent 1.5 years to engineer and build something that is robust and solves few of the key challenges in the online assessments space. As an admirer of Zoho, my only request and wish is to see Zoho also focus on quality of their products/solutions. If you can do the “Samsung Fire @ Factory” kind of act, then am sure very soon the world would wake-up to the Zoho revolution.

  23. Sabapathy Narayanan

    Sridhar, Nice marketing pitch you have here for Zoho. I believe that Zoho has some history with Salesforce, for years now. This ‘David Vs. Goliath’ approach has always worked in positioning and just might well work for Zoho. I really liked the way, you have structured the post and the arguments sound way too logical. I am not really surprised to see that most acquisitions don’t work. I don’t expect this integration to work as well. I am not saying this much from the engineering point of view, I am saying it more from the business point of view. Is it intended to work in the first place? I believe that Salesforce still is the poster boy of ‘Software as a Service’. and Zoho would do well to do posts like these to catch up, on top of being nimbler and innovating. I certainly liked the attitude in the post and thanks for it.

  24. Mike Park

    Refreshingly clear, direct and to my mind sensible. I like your focus on building from within.

  25. Ronaldo Terra

    Hello Sridhar!I don’t usually waste my time commenting in blog posts, but I’ve gotta say this one worth commenting! :)I am a marketing guy and I am passionate about it! I really liked the way you defend your brand / company. It’s a great approach, direct, passionate and sincere! It makes me happy that people do get involved with their companies for real! I wish you guys all the best, I I will probably follow your blog closely now. :)Cheers

  26. Sridhar

    @rppp
    Thanks for your comment. I agree on the third party developer ecosystem. We are focused on building that out. Stay tuned!

  27. rppp

    Additionally, Salesforce has a much more robust *external* developer community than Zoho. Let me be clear: I’m a Zoho user, and I’m glad I made that decision. But sometimes Salesforce does look incredibly attractive. Often times I’m looking for a solution to some particular problem in Zoho, and find exactly that solution as a third-party solution already available to Salesforce users. But it’s not available to Zoho users. In fact, not much is. Creator is great for building your own apps for certain solutions, but for needs that go beyond that – well, I look at Salesforce users with some jealousy. I stick with Zoho because my actual *needs* are fairly thin; if I continue to grow, I suspect I will have to move over to Salesforce. Zoho needs to make it impossible for me to think that’s the right move.

  28. rppp

    With due respect, a more interesting competitor with Zoho Campaigns is Topspin (topspinmedia.com). Much lower subscriptions for quantity of recipients, incredible targeting options, plus digital sales and delivery options.I’d rather use Zoho Campaigns, but Campaigns doesn’t come close to competing with Topspin.Only thing Topspin lacks is integration with Zoho (and Salesforce, too, I suppose).Make Zoho Campaigns more like Topspin and I’ll add it to my CRM, Books, and Creator subscriptions.