How to play the long game Zoho style

0
69

Share on LinkedIn

The news

On February 7 and 8 2024, Zoho held its annual ZohoDay conference, along with a pre-conference get together and an optional visit to SpacX’s not-too-far-away Starbase. Our guide, who went by Chief, and is probably best described as a SpaceX-paparazzi was full of facts and anecdotes, which made the visit very interesting although we couldn’t enter Starbase itself.

The event was jam-packed with 125 analysts, 17 customer speakers, and of course Zoho staff for us analysts to talk to. This was a chance we took up eagerly.

This time, the event took place in MacAllen, TX, instead of Austin, TX. The reason behind this is once more Zoho’s ruralization strategy, transnational localism.

Which gives also one of the main themes of the event. It was more about understanding Zoho than about individual products, although Zoho disclosed some roadmaps. More about understanding Zoho in a second.

The second main theme was customer success and testimonials. Instead of bombarding us with presentations ad infinitum, Sandy Lo and her team did an amazing job of organizing a series of panels with customers talking about – and being questioned about – their use of Zoho products. And questioned they were. In what cannot be taken for granted, they gave very candid answers, making a learning opportunity out of the event.

The third main theme was the “state of the business” session, as usual presented by Zoho’s Chief Strategy Officer Vijay Sundaram. As Zoho is a privately held business, this information is largely under NDA. So, suffice it to say that Zoho is continuously growing across a variety of metrics including users, paying customers, and revenue. You may remember, that Zoho reported annual revenues exceeding $1 billion back in September 2022. The company is profitable; it is highly diversified across products, industries, regions and customer size. Zoho attributes this to living three core values: financial prudence, customer focus, and social conscience.

Which brings me back to the first core theme: Transnational localism and CEO Sridhar Vembu’s keynote. In summary, he starts off with explaining why Zoho owns its complete tech stack and why the offering is that wide: it is financial prudence, which gives the long breath that is needed to survive in the competition with the established mega vendors. He showcases this with Zoho Mail, Zoho’s financial software and Zoho’s productivity/office suite. All of these succeed in mature markets because Zoho is also playing what Vembu calls “the long game”, which includes owning the IP of the whole stack. He maintains that the average SaaS company doesn’t have the “differentiated tech that the giants covet” and therefore are dependent on the mega vendors.

In essence, he explains that most software vendors extract capital, resources, and people from where they “reside”. In consequence, they concentrate and accumulate in few pockets. This causes harm.

Based on this insight, he presents the distinctly different Zoho model with its economics. Instead of pulling people and capital from regions, Zoho invests into regions by moving there and leveraging the services of regional businesses and, more importantly, working with the people where they live – instead of forcing them to go somewhere else. Zoho calls this “rural revival”, which started in South India and gets progressively applied and adapted in other regions – like MacAllen. Rural revival has four focus areas:

  • supporting education,
  • providing jobs, directly or indirectly by sourcing locally,
  • fostering health via organic farms, clinics, yoga camps, health awareness
  • improving the environment via e.g., water supply, trees, renewable energy.

This is not altruistic but helps lowering Zoho’s cost while increasing the own ability to tap into a pool of educated people. Case in point: More than 90 percent of Zoho Schools of Learning graduates have turned into Zoho employees – hitting the ground running with competitive salaries after graduation. During education, students receive a stipend. There is no tuition.

The bigger picture

In this time and age, we see an increasing concentration on platforms, driven by the cloud and fast-evolving technology. Many business application vendors have realized this and are using the term platform to increase their perceived relevance. Most of these vendors, however, are highly depending on platform services that are provided by only a few IaaS and PaaS players. Applications become more and more a thin logic layer set on top of these services. Combined with a “grow fast” mentality, this leads to a vicious circle – or rather a virtuous one, if you are one of these IaaS- and PaaS players.

My analysis and point of view

I have already written about how Zoho combines capitalism and doing right to society coincide. During ZohoDay 2024, Sridhar Vembu presented an evolved version of transnational localism, or at least dug deeper into his vision. In the course of his speech, he actually sketched a new economic model that is not based on scarcity, but on what I want to call abundance, lacking a better term. It bases on the recognition that an economic imbalance has arisen that concentrates the income of production in the hand of a few instead of those who actually consume the product. His way is using technology to be where people are, creating opportunities for them, instead of providing opportunities at centralized places only. This way, companies can operate at lower cost while tapping into more talent. Company and people, in turn spend parts of their income regionally, which benefits the whole regional ecosystem, probably even creates one. This reduces economic imbalances, revives the regions or second and third tier cities, for that matter, and benefits the company. Zoho is a very profitable business.

In essence, what Sridhar Vembu describes is a kind of a circular economy.

This economic model works. Zoho is the living proof. And Zoho is the business that Sridhar Vembu essentially uses to test some of the ideas behind this vision. And to be able to test this vision, the company must stay profitable. And it does. It does so by leveraging its own technology to increase its own productivity and gives back some of the gains via great products at a very reasonable price point. This includes the addition of new non-trivial capabilities like AI at no additional cost. Why? Because these capabilities are part of the product.

There aren’t many vendors to state it that way, as it cuts off a potential additional revenue stream.

Now, the big question for me is whether – or how far – this economic model scales, or rather, what its inhibitors are, and how these inhibitors can be contained. One inhibitor is obvious: greed. “Greed is good is the (simplification of the) mantra that we all heard Gordon Gekko utter in the drama Wall Street. And there are people who live this.

It surely works out for Zoho, as evidenced by the company’s success. As for a scale-out, only time will tell.

Till then, I am very convinced that Zoho will continue to provide high value to its customers through its strong outside-in approach to success. Customers have a combination of choice and flexibility. Case in point: Zoho One, which is Zoho’s premier bundle subscription covering around 55 apps across sales, marketing, HR, finance, productivity, collaboration. A significant number of Zoho customers opted for this solution. And of these, a whopping 60 percent are using more than 20 of the apps that it covers.

I am convinced that Zoho will continue to build and sell a very relevant, competitive, and ever-improving set of solutions with a smart bundling strategy, and at a highly attractive price point.

Zoho is truly playing the long game.

Republished with author's permission from original post.

Thomas Wieberneit

Thomas helps organisations of different industries and sizes to unlock their potential through digital transformation initiatives using a Think Big - Act Small approach. He is a long standing CRM practitioner, covering sales, marketing, service, collaboration, customer engagement and -experience. Coming from the technology side Thomas has the ability to translate business needs into technology solutions that add value. In his successful leadership positions and consulting engagements he has initiated, designed and implemented transformational change and delivered mission critical systems.

ADD YOUR COMMENT

Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here