ZohoDay 2020 - Zoho’s uphill growth (as told in the Texas hill country)

Profile picture for user brianssommer By Brian Sommer February 6, 2020
Summary:
Lots of growth, lots of slides and lots of updates - my take on the recent Zoho Analyst Summit.

Zoho
Zoho CEO Sridhar Vembu

Zoho recently held its annual analyst event in Austin, Texas. It was a big deal as the 64 analysts from around the world mirrored the global growth the company has experienced. It was an upbeat event with the leadership feeling quite good about their market success and the high moral ground they’ve taken on several matters.  

Watching the Zoho executives describing their growth over the last decade is impressive. Their revenues, customer counts, etc. all appear to move upward with around a 30+% CAGR (combined annual growth rate) on almost every metric.  Their product line continues to grow as Zoho grows (now at 45+ apps). That’s impressive as most firms see the efficiency of their R&D rapidly decline with increased growth. 

Zoho started as mostly a cloud CRM, small business solution. It added a number of office productivity tools and has developed a fairly full front & back office integrated solution set. Product functionality has continued to grow in breadth and depth over the years. As a result, Zoho’s solutions are now viable for some mid-market customers (with more to come).

We learned about other growth metrics like:

  • The company is continuing to open more data centers around the world.
  • Zoho’s channel partners now account for about one third of revenue.
  • Vertical applications and application extensions are a big focus area now.

The other growth statistic that really got my attention was the growth in presentation content. We were treated to hundreds and hundreds of slides over the two days of briefings. It is not possible to cover all of this content in an article (or even several of them). Instead, let’s focus on the macro-level observations.

Doing the right things product-wise

Zoho’s got clarity around its stack. It has only one stack and doesn’t want to grow via acquisitions as those would introduce non-Zoho or expensive proprietary stack components (This policy is akin to Workday’s Power of One strategy.). That’s critical if the company is to maintain its rock-bottom, industry leading price advantage.  Acquisitions could also introduce different clouds, data redundancy across clouds, different data definitions, etc. All of this would have an adverse impact on customers’ experiences and potentially drive up costs.

Zoho is working on all levels of the stack simultaneously. Developers are working on new/improved applications. AI teams are pushing AI-tool Zia and other technologies to reimagine numerous business processes. We had one very detailed presentation that showed several examples of multiple new technologies being brought to bear to change how business transactions, inquiries, etc. will be handled.

Doing the right things via social responsibility

Zoho CEO Sridhar Vembu spoke about his goal of repopulating rural India (and other parts of the world).  Because of high-speed, ubiquitous Internet access today, there’s no reason people have to work in congested cities. Instead, high-wage earning developers, support personnel, etc. can live, cost-effectively in rural areas. Their presence in these locations would spur economic spending locally and possibly resurrect some of the family farm business that has waned in recent decades.

That’s just the most recent inspiration of Sridhar. He’s also pioneered Zoho University as a way of creating new developers straight out of high school. Every year, it seems, Zoho’s adding another social responsibility activity to its goals.

Building more data centers?

When Zoho executives mentioned this on Day One, I was ready to pounce. Why? Most every other ERP vendor has started to move away from having their own data centers and move to those of large hyperscalers (eg: Amazon AWS, Google or Microsoft Azure). ERP firms know that:

  • Running large-scale data centers is not their core-competency.
  • Data centers are capital-intensive assets that require periodic equipment refreshment.
  • They can’t match the capital investment or technical (and telecommunications) infrastructure that firms like Amazon have already built.
  • They may never approach the scale, reliability and/or redundancy that hyperscalers possess.

Oracle clearly has its own cloud environment that its cloud application customers can leverage but most every other ERP vendor doesn’t.

Why would Zoho continue building their own cloud data centers? I found out on Day Two. Zoho executives had been quietly removing many advertising services, user-tracking and other code that many hyperscalers utilize to track a person’s shopping or browsing activity. Zoho believes that these tools are invasive with the data often resold and used by unknown/undisclosed third parties. If Zoho customers used Zoho apps (e.g., Zoho CRM) that contained these tools, then Zoho’s customers would be inadvertently sharing their customers habits and data.

Zoho is removing these ‘services’ to better protect its customers and its customers’ customers. Amen.

So, if a hyperscaler has ad-tracking, ad-services, search tools or other tools that can exploit a third party’s privacy, Zoho is cutting it out. Zoho competitors that rely on these computing tools and don’t protect their data (and the data of their customers) are not being good stewards of their cloud customers.  Zoho believes a customer’s data is their own and not something that can exploited by unseen others. As a result, Zoho may miss some opportunities to aggregate data or power some big data utilities but that’s the price of being a good corporate citizen.

Up, up and away

Zoho continues to have upmarket designs. While many of the product details were under non-disclosure, these moving upmarket challenges are up for discussion:

  • Going upmarket will trigger a number of conversations about product pricing. The mid-market is full of companies that have champagne tastes but beer budgets. Mid-market firms love a bargain but they also bring more complex implementations, more challenging support requirements, etc.  How will Zoho price its solutions if these customers become a costly, demanding bunch?
  • Will Zoho’s partners all make the shift? Some implementation partners can’t help a customer with operations in multiple countries. Some ISV’s won’t be able to serve the more complex functional needs of a bigger Zoho customer. Can Zoho upgrade its channel as easily and as quickly as it upgrades its products?
  • Implementation partners will need more/deeper competencies on their bench. Bigger customers will require implementation partners possess change management, process reimagination/design, platform extension, AI and other expertise. The most critical expertise need will not be in horizontal application knowledge but super-deep vertical industry knowledge.
  • Will the single Zoho brand of today still work with both mid and small business solutions? Will the Zoho brand become more of an umbrella brand that serves two distinct markets? Moreover, Zoho must decide what the Zoho brand will represent to these two distinct buyer groups. Also, will Zoho’s (current and future) partners reinforce/exemplify/support the brand Zoho will want in the mid-market?
  • Is Zoho ready to take on a new group of competitors? This bunch of mid-market players are well-heeled competitors that have a take-no-prisoners attitude.

My take

While I only started covering Zoho a couple of years ago, I have written a lot about them. And, it’s been mostly favorable coverage. This piece in 2016 is pretty descriptive of the company and product line then.

I re-read it this week and was struck by this line I penned:

Of their 150 or so managers, 146 have never worked anywhere else. People seemed to genuinely like their work, their cohorts and the company.

That comment was more a statement on the company’s culture then but now it may be a bit of a liability.Liability? While I am amazed at what Zoho has become and the scale they’ve achieved, I’m also concerned that the company may be too naïve. We’ve all known people that go through life blissfully unaware of what’s often going on around them. While naiveté works for young children, it can get adults in a lot of trouble (e.g., “Honestly officer, I didn’t know that was against the law”). I wonder if Zoho’s team really understands its competitors.

Now, I don’t want Zoho to emulate the (often bad and anti-customer) practices of their competitors, but I did notice a couple of times at this summit how unaware they can be of competitors. That innocence is cute in a start-up, but Zoho’s certainly moved way beyond start-up status now. Zoho may want to hire a couple of old hands from ERP firms and/or launch a competitive intel group. Who should be their Machiavelli? Those perspectives could help them understand, anticipate and counter their competition.

Where Zoho doesn’t have a blind spot is in its understanding and attention to customers. They really seem to know them well. We got lots of unrestricted access to them at this event and will likely run into piles more at the Zoholics show in a couple of months. Each one I met at this event said they like the products and their decision to go with Zoho.

All in all, a great set of briefings, lots to digest and a solid lead up to the firm's Zoholics show in the Spring.

Other diginomica pieces to peruse include: