Zoho’s Competitive Edge Lies In Investing In R&D, Not Just Competing On Price: Sridhar Vembu

Chennai-based SaaS unicorn Zoho marked a significant milestone last year when it surpassed 100 Mn users across its suite of business applications. With this, it became the first Indian bootstrapped SaaS company to achieve this milestone. 

In an industry where startups often chase valuations over sustainable growth, Zoho has been focussed on prioritising operational and revenue growth over fancy valuations. The company’s operating revenue for the fiscal ending March 31, 2023, INR 8,703.6 Cr, up 30% YoY. 

Although North America was a key pillar of this growth, contributing nearly half of its total revenue, the company is now keenly focussed on boosting its presence in the Indian market.

For this, the company recently ventured into the payments space with the launch of Zoho Payments. 

Recently, Zoho also unveiled two new offerings:

• Vikra, an app aimed at simplifying the onboarding process for businesses participating in the Open Network for Digital Commerce, and
• Zoho IoT, a low-code platform empowering companies to develop custom IoT solutions. 

Besides, the founder expressed his vision to leverage India’s potential in the global supply chain, especially in power electronics.

Speaking with Inc42 on the sidelines of its annual event Zoholics, Vembu shared insights into the company’s vision for the future.

Here are the edited excerpts…

Inc42: Zoho recently made two announcements about entering new domains. Could you explain the reasoning behind these moves and how they fit into your overall strategy?

Sridhar Vembu: First is Vikra App, our solution for sellers on the ONDC (Open Network for Digital Commerce). The goal of ONDC is to reduce the cost of ecommerce transactions for both sellers and buyers, unlike other proprietary platforms that charge high commissions.

Through Vikra App, we are integrating Zoho Inventory, Books, Payments, and more into the ONDC ecosystem. We are starting with sellers, many of whom are already Zoho customers using our software for GST filing, so it’s a natural fit.

In addition, we are expanding our focus to include IoT. Zoho traditionally empowers people, organisations, processes, and collaboration. Now, we are focussing on physical assets like buildings, air conditioning systems, generators, factory machines, and moving vehicles. 

Our IoT is capable of integrating with our CRM, allowing vendors to monitor customer premises as part of their services. This push into IoT complements the Zoho ecosystem.

Inc42: Zoho’s portfolio now offers over 50 products, covering a wide range of business functions, from ecommerce to semiconductors. What key areas will you prioritise for future growth, especially in R&D?

Sridhar Vembu: Our goal is to bring critical technologies to India and create jobs for youth. We are investing in critical technology access for national interest, not just company interest. Our unique approach is fostering rural development through research and development. It’s a very mission-driven initiative.

Inc42: With AI becoming a key focus across industries, how is Zoho incorporating AI into its product suite? 

Sridhar Vembu: We are doing two things. First, we are developing smaller, context-specific models — like an AI writing assistant for document creation, tools for summarisation, customer churn prediction in CRM, or anomaly detection in IoT. These models are efficient, often running on CPUs without needing expensive GPUs. 

Then we have large language models (LLMs), where we are conducting R&D and also collaborating with major AI providers, integrating their APIs into our systems.

Lastly, we are focussing on AI for software development, aiming to make it more productive, though accuracy is still a challenge that we are working on.

Inc42: With the rise of AI, there’s been increased emphasis on data privacy. Zoho has always been vocal about keeping user data within the country of origin. How are you balancing the growing need for privacy and compliance with global data regulations while continuing to innovate? Are there any new measures or products you’re planning to introduce to address these concerns?

Sridhar Vembu: We are heavily investing in privacy, security, and compliance, especially given that governments are adopting stricter regulations like GDPR in Europe, privacy laws in India, Saudi Arabia, South Africa, and other countries. We are focussed not only on protecting our customer data but also on providing security software for our customers’ systems.

Additionally, we are exploring AI’s potential to detect threats early on, which ties into the concept of zero trust — a security model where no one, not even employees, is trusted by default. It’s an added layer of security, and we are investing in that.

Inc42: The SaaS segment is becoming more competitive, especially with the rise of AI. What are the key differentiators Zoho is focussing on to stay competitive? 

Sridhar Vembu: Our balance comes from deep investments in R&D, which is higher in percentage of revenue compared to companies like Salesforce, where a lot is spent on sales and marketing. This gives us a long-term edge. Take Slack, for example. They were acquired for $27 Bn, but now that ecosystem is losing momentum.

Meanwhile, our Zoho Cliq is growing strong because of continued R&D investment. That’s the edge — investing in R&D, not just competing on price.

Inc42: Last year, we saw Zoho decentralising its operations. Could you elaborate on the strategy behind this move, particularly establishing offices in rural India and beyond? What impact has this had on talent acquisition and innovation?

Sridhar Vembu: We are focussing on rural areas for two main reasons. First, there’s untapped talent in these regions. Second, it’s about rural development. I believe in fostering rural development through R&D. The skills and capabilities we create and nurture through these jobs are critical for rural growth.

This is also about decentralising development. We cannot afford to bring more people into our already crowded cities. For instance, we are here in Bengaluru, and we all know how bad the traffic situation is. From a national priority standpoint, it’s crucial to move these jobs to smaller towns and even villages.

Inc42: What kind of growth did you see in FY24? 

Sridhar Vembu: In FY24, we saw over 30% growth in customer count and 21% in revenue. As long as we remain profitable, we are not too concerned about profit growth in the short term. We are making necessary long-term investments in R&D, which will secure our future growth.