Zoho Values Freedom Over IPO, Wants To Become A Global Leader Through Innovation

“We are not the SAP of the east, SAP is the Zoho of the west,” says Sridhar Vembu, founder, Zoho.

Pompous as this claim may sound, it is not.

Sridhar Vembu is the man who built Zoho, the leading SaaS unicorn based in Chennai, which employs more than 6,000 people, generates hundreds of millions of dollars in annual revenue — its FY17 revenue was $310 Mn — and has contributed majorly in the transformation of Chennai into India’s SaaS hub, which added another unicorn recently, Freshworks, founded by a former Zoho employee.

Zoho, which enables enterprises to run their businesses smoothly with its suite of online productivity tools and SaaS applications, claims to have more than 35 Mn users worldwide.

Even as Indian startups are going the IPO way, Vembu loves his freedom and has no plans to take Zoho public. This, despite the fact that in H1 18, India recorded the highest IPO activity in terms of the number of deals across the globe, accounting for 16% of the total issues, according to EY India’s IPO Readiness Survey Report.

Vembu must know what he’s talking about. He has been successfully running the bootstrapped unicorn for the last 22 years. Yes, we know that sounds like an oxymoron. But that’s exactly what Zoho is. The company’s valuation is said to comfortably be in multi-billion dollars (no exact figure was available) but it is hasn’t ever raised external funding.

The company recently added Zoho Backstage to its flagship product suite Zoho One. Backstage is an end-to-end event management tool that allows organisers to plan, promote, and run enterprise events.

The company claims that Zoho One, which includes more than 40 integrated online applications, has garnered 12,000 users within a year. It comes with a single sign-on, centralised administration, and a reasonable price of $30 or INR 1,000 per employee per month. All applications offer enterprise features ranging from sales, marketing business, accounting, communication between teams and customers, and more.

At the launch, Inc42 had the chance to have a candid conversation with Zoho founder Sridhar Vembu about the SaaS ecosystem, data privacy, his company’s continuous strife to be innovative, and a lot more.

 

Zoho: Plans To Scale In India And To Lead With Innovation

Zoho Backstage is just one in a series of additions the company is making to the Zoho portfolio. Vembu shared with Inc42 his plans to scale Zoho in India and become a market leader globally.

He said the company wants to achieve this by bringing innovation along with introducing several new products. “We already have a broad and deep product portfolio, we are investing to stay ahead of this. We are investing in a lot of areas of software development, security, etc,” says Vembu.

However, he didn’t share any target numbers or growth speed for Zoho in India.

With interest in new-age technologies such as artificial intelligence (AI), machine learning, IoT, etc, reaching a fever pitch globally, Zoho has already got its AI act in place with Zia AI, a chatbot that enables AI-powered predictions and analytics for better customer service and CRM usage.

Talking about the next big thing the company is looking at, Vembu says it’s not a new technology but deepening that AI is working on. “There’s a lot more data fed into AI systems these days so that they can be taught to be more intelligent; that’s something that’s happening,” he says.

The company is also exploring potential use cases of blockchain — the hottest technology off the block — for its existing, signature products.

However, while experimenting with new tech, Zoho continues to do “base-level innovation” to improve the speed and efficiency of the Zoho One suite.

“Right now, we are solving the software problem, running the business, and we are staying on that mission. As we see the industry broaden, we will branch out into all these technologies. But right now, we are staying focused,” explains Vembu.

As one of the biggest SaaS players in the Indian startup ecosystem, Zoho has also been making some investments in complementary businesses but doesn’t plan to do this on a very large scale. “We are not a VC. We are making substantial investments, we are doing business, we are establishing data centres but I don’t foresee a large-scale investment programme. Practically (speaking), in some special cases, we might do something,” says Vembu.

Even though Zoho wants to explore being an incubator/accelerator for other SaaS-based startups, the company has a lot going on in terms of growth, which, according to Vembu, puts a lot of pressure on the team.

Like all new-age companies looking to expanding the portfolio 360-degree, Zoho too looks at all the functions of a business — from recruitment to sales, collecting payments to managing inventory — holistically, since it’s all happening within the context of a single business.

Vembu explains that while an overarching operating system is required to manage all aspects of the business, all of the components too must interact with each other. A classic example of this is the Zoho One suite, in which several products servicing different company functions work together to provide a seamless one-stop experience; the suite is cross-functional with Zoho Analytics as well.

“The software needs to talk to each other, that’s why we’ve taken a 360-degree approach and are staying focused on it. For example, we are not venturing into movie making or other things — that’s how I define focus here,” adds Vembu.

Zoho: A Privacy Conscious Company That’s GDPR-Compliant

Zoho claims to be a “privacy conscious company” and says one of the reasons it has stayed in the software business and stayed away from the consumer side is that it isn’t comfortable with ad-based business models.

“That’s why, for example, I don’t use Facebook — because those business models bother me.

Five years ago, people didn’t care about this, but today more and more people are aware (of it). In India, nobody talked about this two years ago, but now, it’s becoming a topic of concern with the Data Protection Bill being introduced,” says Vembu.

Vembu expects data privacy concerns and awareness to grow. He compares it with banking: “In the initial days of banking, you had ‘wild cap banking’, which meant that banks would spring up, collect money and, three years later, they would disappear. The entire regulation, banking, protection, password protection, etc came after such episodes.”

Vembu believes that we might even see privacy enshrined as a fundamental right in the digital era.

At the launch of Zoho Backstage, Vembu announced that the company has complied with the European Union’s General Data Protection Regulation (GDPR) for all its customers across the world, irrespective of the jurisdiction of the GDPR.

He believes that the wildest phase of cloud computing is over, and we are now going to have a responsible cloud that ensures data privacy, enforced by legislation. Those who can’t or won’t comply with these norms will have to quit the game.

“With that in mind, we have expanded the GDPR-style rights to our users globally. Whether or not the EU regulation is applicable where they are, our users across the world can request us to remove their personal data or know what data is there in our systems about them,” says Vembu.

Identifying Data Privacy Concerns Before It Became A Concern

The world — and India — woke up to data privacy concerns in the aftermath of the Facebook-Cambridge Analytica debacle in which the data of 87 Mn (8.7 Cr) global citizens and 5.62 Lakh Indians was compromised.

However, Zoho’s founder says he’s been worried about data privacy from long before that. As an Internet user, he started noticing how companies abuse user data many years ago, says Vembu.

“Clearly, Facebook is an example and even Google is not above board on this. I mean, the amount of data used and how it is used… for example, on Gmail, you get an email and then they will show an advertisement related to that ad and then based on your gmail, ads will show up on other websites,” Vembu says.

He adds that people are annoyed with unwanted ads and are increasingly resorting to ad blocking. “All this means that there is something wrong and, as a company, we have to take action. This is how I came to realise data privacy concerns and it’s clear now that it’s a global trend,” he says.

We also spoke about the Draft Data Protection Bill, which was tabled by the Srikrishna Committee recently. One of the highlights of the bill is: “A penalty of higher than INR 15 Cr or 4% of the annual global turnover of the company in question is prescribed for violations such as processing of personal data in contravention of the Bill.”

Vembu feels that this is a very tough regulation. While he believes that the Indian Data Bill will be reworked a fair bit before it is implemented as legislation, he adds that companies need to keep in mind that there is a huge consumer push for data privacy and there really is no way out.

He adds, “European regulations are very tough, with stringent penalties. So, companies like us have invested heavily to comply with them. I see this as inevitable — you have no option but to comply with the rules.”

Vembu is also of the opinion that the Indian government must practice what it is preaching — basically work on securing the huge amounts of data it handles. “Today in India, the private sector has to comply with a lot of regulations that government doesn’t have to comply with. The government should look at creating a level playing field where, if we’re forced to comply with the law, they comply with it too,” he adds.

Zoho, on its part, plans to launch two new data centres in India in Chennai and Mumbai to be able to address data privacy concerns even better.

The SaaS Ecosystem In India And The World

Coming back to the SaaS industry, Vembu says that consolidation is the flavour of the season and it is being driven by two factors primarily — the rate of financing is slowing down and customer acquisition costs are rising.

Also, on the customer side, there are too many apps to integrate. These factors are driving the need for and the pace of consolidation in the SaaS market as companies can gain momentum faster from mergers and acquisitions.

Vembu gives the example of team collaboration platform Slack acquiring Atlassian’s chat tools HipChat and Stride. “They used to be competing and now they are cooperating; so, this is an example of the consolidation am talking about. This will spread,” he says.

Talking about competition, it’s worth noting that SaaS startup Freshworks, founded by Zoho’s ex-employee Girish Mathrubootham, is also part of the unicorn club, based in Chennai, and has a product suite called Freshworks 360 very similar to Zoho One. Freshworks, launched in 2010, has already recorded $100 Mn in annual recurring revenue.

Recently, during an Inc42 Ask Me Anything, Mathrubootham said about competing against Zoho that the industry is big enough for the duo to co-exist.

The industry, as rightly pointed out by Girish, is huge. Expected to reach $1 Bn by 2020, the Indian SaaS/enterprise software market currently accounts for 9% of all software sales.

According to a Gartner report, the public cloud services market in India was projected to grow 38% in 2017 to a total of $1.81 Bn. “The highest growth will continue to be driven by infrastructure as a service (IaaS) which is projected to grow at 49.2% in 2017, followed by 33% in software as a service (SaaS) and 32.1% in the platform as a service (PaaS),” the Gartner report said.

Apart from Freshworks in India, Zoho’s main rivals are US companies SAP, Zendesk, and Salesforce, among others. Other players in the Indian SaaS industry include Wingify, Five Second Test and Convert.

Competition is good they say, it drives you to do newer, better, bigger things. Maybe that’s what’s driving all this innovation at Zoho. Things are looking good for the company.

Vembu shared with Inc42 that in 2018, the company will see its fastest growth in almost a decade. A lot of it is because of accelerated adoption of its products and better awareness of what Zoho does.

The company wants to lead this growth through innovation and emerge as a global leader in the industry, says Vembu.

Zoho is striving to be a leader in the Indian SaaS market in more ways than one — while its numbers are strong and it’s growing, innovating, and looking to scale at a fast pace, it’s also taking on the role of a real leader by nurturing the SaaS industry in Chennai and honing the skills and talent of resources.

With a foresighted, iconoclastic leader such as Vembu, Zoho can only going from strength to strength, even as it continues to do things differently.