Zoho Analyst Day – More Than Meets the Eye

My first industry event of 2024 was with a company fairly new to me, and one that is outside the norm for the communications technology vendors we analysts typically see. I mean this in a good way, but not for the reasons you might expect. The company is Zoho, and while they’ve been around a long time – 28 years – we’re new to each other, and this was my first time attending one of their events.

I’ve got two basic takeaways to share; one about the company itself, and one about their culture and values – the Zoho Way – and together, it’s a refreshing change from what we usually see and hear from tech companies. Zoho is based in India, and while not a household name in the West, they are a successful global player, and are holding their own quite well against the Big Tech vendors who are becoming increasingly dominant.

Not only is Zoho a bona fide growth story, but they have a business ethos that runs counter to the Silicon Valley model that most Western tech companies are built around. To better understand their story, I’m going to summarize key messages from their CSO, Vijay Sundaram, and their CEO, Sridhar Vembu. If Zoho is new to you, you’ll need both perspectives to determine if this company should be on your radar, either for UCaaS or CCaaS.

Zoho – the Business and Core Offerings

The main reason this company is not well-understood is the nature of their offerings. As analysts, we like things in neat and tidy boxes, but that doesn’t apply here. While Zoho does have UCaaS and CCaaS capabilities, they’re really a horizontal provider that has something for every line of business. This may be a hard way to compete against the many pure-plays and best-of-breeds in these spaces, but clearly their value proposition resonates with many buyers.

A better way to view Zoho is as a SaaS platform provider, offering a modular suite of highly integrated applications that can easily mix-and-match for just about any scenario. CSO Vijay Sundaram explained that their flagship offering – Zoho One – supports over 50 applications, covering the gamut of business needs, including Customer Service, collaboration, email, Sales, Marketing, HR, Finance, Legal and Business Intelligence. Most customers deploy Zoho as a suite of solutions, with 60% using over 20 applications, and only 1% of these customers are using less than 3.

In this regard, Zoho broadly views its main competitors as Microsoft and Google, as well as Salesforce, given how they generally best-known in the CRM space. While Zoho is not aiming to fully displace Microsoft or Google, they do offer just about anything these vendors have, and you’d be correct to assume there’s an appetite out there for Big Tech alternatives. Rather than view Zoho as a UCaaS, CCaaS or CRM player, buyers will realize far more value taking a suite approach, where they typically start with just a few applications, and add others over time.

Vijay explained that this approach provides value for customers, mainly from the value that comes with having many apps in one suite that work consistently well together. Their sweet spot seems to be SMB and mid-market, where the economics of using Zoho this way are better than the likes of Microsoft and Google. There’s also the flexibility of letting customers choose which Zoho apps to use, and not locking them in the way that larger vendors tend to do.

Being a private company, they can pick and choose which metrics to share with us. Revenues were not disclosed, but the gist from what they shared with NDA content was that their revenue growth rate and margins are on par or better than all the big-name players. In terms of what we can share, their customer base spans over 150 countries so there’s definitely a critical mass of business on a global scale.

Vijay also shared some NDA data showing the success rate they’ve having converting free users to paid users. Whether that’s due to savvy marketing or true business value, this is a good success metric in lieu of few other tangible indicators. Those numbers continue trending in the right direction, and the same can be said for customer churn, which validates a sustainable value proposition.

Aside from talking about financial performance and customer focus, Vijay also addressed the third pillar of Zoho’s corporate values – social conscience. He cited some great examples for how they support disadvantaged people, especially those in rural settings – something we hear little about at other vendor events. They align well with the broader, noble stance articulated so well by their CEO, which I’ll flesh out in the next section. In short, one of their slogans says it nicely - Privately Held, Publicly Responsible.

The Zoho Way – Playing the Long Game

Whereas Vijay’s focus was largely about the customers and state of the business, CEO Sridhar Vembu was more about the company’s higher aspirations to make the world a better place. This was clearly a scenario where the CEO has a personal vision, and is the heart and soul of the company. His keynote was not the normal fare we hear from CEOs – aside from being thought-provoking, he provided a distinct perspective to help us understand where Zoho fits on the tech landscape.

The first big idea to frame this is the “long game” concept, meaning that some companies are guided by long-term timelines rather than managing quarter by quarter. He noted that the two biggest tech players – Microsoft and Apple – have been operating this way for 30 years, and how it’s worked very well for them. Zoho has been around almost as long, and despite not being nearly as well-known, he stated “we play the long game too.” While not to the same scale, that’s been their business strategy, and it seems to be paying off.

One of the “long game” characteristics is that once you’ve achieved scale and some degree of market dominance, these companies generate unprecedented levels of revenues, and profits as well. Their success also comes from establishing sustainable forms of competitive differentiation, and once leadership positions have been set, the rest of the market becomes relegated to being followers, with little way to differentiate.

This Darwinian view may not be absolute, but it largely explains the growing divide between digital haves and have nots in the tech world. Not only have these players accumulated massive cash balances, but they are generating obscene amounts of daily cash flow – both of which can be deployed to fortify their dominance. Being private, Zoho doesn’t share much financial data, but Sridhar did say they generate about $1 million per day in cash. That’s light years removed from these players, but his point is that the long game model can work on a smaller scale too, and financially, they’re in a better place than most tech companies, many of whom are far larger.

The second big idea from his talk is an extension of the above. Making a profit is a fundamental operating principle – especially in the West - but for Sridhar, the bigger question is what do you do with all that profit? The easy answer is to re-invest in the business, spend for growth, and reward shareholders, but given the state of today’s global economy, that approach on its own is now much harder to defend. No doubt these Big Tech players do all kinds of giving back, but most would view that as token forms of corporate citizenship relative to what’s at their disposal.

Zoho’s resources here are comparatively meager, but their actions reflect an ethos based on values rather than the clout that comes with outsized finances. This is part of the “Zoho Way,” which Sridhar calls “socially inclusive development.” Whatever profit they are actually making, Zoho is choosing to prioritize initiatives to support localized economic activity. This is completely opposite to globalization- the dominant force shaping modern economies - which rewards efficiencies that both reduce prices for buyers and raise profits for sellers.

That may seem like a total win-win scenario, but such a combination is outside the realm of natural economic laws, where the hidden, much larger cost comes at the expense of local economies. That said, these are precisely the conditions that give rise to the likes of Big Tech and put Marxists on high alert, and it’s very unusual today to see companies like Zoho so purposefully swimming upstream.

For Zoho, money is more of a means to an end, and Sridhar’s humble roots from rural India give this approach an authentic ring that makes you want to see them succeed. His view is that by supporting small cities, towns and rural villages, local jobs will be created, which in turn will drive local consumption. This, of course, is how all economies functioned before globalization, but with that has since come growing economic disparities that are all but impossible now to correct.

In that regard, Sridhar is bringing a Gandhian sensibility of thinking globally and acting locally. He provided several inspiring examples of what Zoho has done across rural India, bringing education and technology training to “create and nurture talent by creating opportunity in places that have not had them.” While some might view this as a vast untapped market for cheap labor, the thinking here is to enable local economies to thrive and bring more diversity to the global economy.

With Zoho growing rapidly everywhere – including the West – it’s worth noting this was the same reason they chose to locate a regional operation in McAllen, Texas. Dallas, Houston, or Austin would all have been easy choices, but under-the-radar small cities like McAllen represent the same opportunities Zoho sees in rural Indian villages.

Sridhar could easily have chosen to talk about UCaaS, CCaaS, collaboration, hybrid work, etc. After all, this is a tech conference, and those are the solutions that drive Zoho’s business. He wisely left that for others – which they did very effectively – and I think we’re all better off taking inspiration from the Zoho Way, and how they’re playing the long game for global good.