Is Zoho the Future of Enterprise Software?

The problems of the top tier of the enterprise software market are many, starting with the fact that the industry is now being bifurcated into two warring camps. There’s the born in the cloud vendors like Salesforce.com and Workday, and the moved to the cloud vendors like SAP, Microsoft, Infor, Oracle, and others. There’s also the split between profitable (cf. moved to the cloud) and not-for-profit (as in born in the cloud, with the rare exception). There’s private and public (Infor vs. everyone else), customer hostile and customer friendly (Oracle vs. everyone else) and there’s the gotcha pricing and licensing vendors, and those that are trying to stop the price gouging and the hidden fees (everyone vs. SAP). Perhaps the only thing they all have in common is the problem of acquiring and retaining talent – the one ring that rules them all.

And then there’s Zoho. Born in the cloud, profitable, private, customer-friendly, offering a single price for using all its products, and solving the talent problem in one of the most creatively interesting and thoughtful ways I’ve seen yet. Like all small companies yearning for the big time, Zoho has its teething problems. But they pale in comparison to the potential this unlikely upstart has to make a dent in the enterprise software market and shift the entire industry in the process.

Let’s starting with pricing. For $30/user/month, customers can get the Zoho One Suite, which is made up of basically every product Zoho makes: the enterprisey stuff like CRM, HR and talent, automation, inventory management, finance, and sales, plus a full productivity suite that is intended to be a downscale but highly functional competitor to Microsoft’s Office 365 suite. Zoho One also supports surveys, security management collaboration, custom apps development, analytics, event management, project management, integration with other enterprise software, and on and one. And all that for $30/user/month if you agree to make everyone on your payroll a Zoho One user. If you’d like to pick and choose who uses Zoho, it’s $75/user/month.

And that’s pricing. Done. If the pricing looks more like Office 365 to you, which is priced at $12.50/user/month, you’ve gotten the point. Which is not that you get more or less for your dollar with Zoho vs. another vendors. The point is that pricing and contracting complexity are off the table, along with pricing opacity. The feature/functionality comparison isn’t relevant – I think it’s definitely correct to assume that top tier enterprise software companies could never sell their software this inexpensively. (This is very different than most born in the cloud vendors, which pretend there is a single per user price and then soak the customer for add-on fees, transaction volume fees, interface fees, and other gotchas.)

But the rest of the industry could change their pricing to align more with what Zoho has done, and I think one day this pricing model will dominate the industry, at least at the “fit to standard” cloud level of functionality. Whenever a vendor asks me these days what to do about pricing, I tell them to look at Zoho. They’re definitely on to something.

Is Zoho One enough for every business on the planet? There are some significant gaps – core ERP for manufacturing being one of them. Industry-specific functionality is also lacking. But on the whole, if you’re a small or medium-sized business, Zoho definitely has something for you. It’s safe to say that combining Office 365 and Dynamics 365 would probably unleash more functionality than Zoho One, but at a much greater price. But not every SME needs all that Dynamics and Office can offer – heck, most Office users, myself included, actually use an increasingly small percent of the total functionality on a day to day basis. That’s in part because Office 365 keeps upgrade itself and adding new features (like Teams, the Skype killer, and we can all agree that will be a much needed mercy killing) and because I honestly don’t have the time or the inclination to try to learn how to unlock all those bells and whistles. Likewise many enterprise software users – just give them the tools to do the job, and leave the bells and whistles for the nerds and the specialists.

What else is different about these guys? They run their own data centers, no third party hyperscalers here. The logic is simple. Sridhar Vembu, founder, resident deep thinker, and the spiritual north star of the company, explained that if Amazon can make its company-wide profits solely on the margins AWS brings to the table, there must be a lot of room for Zoho to undercut AWS and still turn its own profit. I like the freshness of this thinking, though I’m reserving judgement to see if this model sustains or not. As I watch the race to the bottom that is the main strategy of AWS and Google Cloud Platform, at present, anyway, it makes sense to at least pull the tiger’s tail and see if you get a reaction. And having its own cloud play adds another dimension to Zoho’s direct frontal assault on Microsoft and its Azure cloud, however relatively small Zoho is today.

Selling a single product set, organically developed in-house, that runs on their own cloud means that Zoho can offer a level of integration that bedevils most of the enterprise software industry. In the move to the cloud camp the problem of integrating and orchestrating myriad cloud acquisitions with a significant legacy base is a huge issue that defies quick and easy solutions. And in the pure cloud world, the customers’ need to integrate and orchestrate across a significant legacy and multi-cloud base is a huge issue that defies quick and easy solutions. While not all is perfectly integrated in the Zoho world, this single platform, home grown – not acquired, run-your-own-cloud strategy goes a long way towards solving a major headache for vendor and customer alike.

The other thing that really stands out, really really stands out, is how Zoho recruits back in India. There’s a lot of competition for the top tech schools in the home country, and with every large American and multi-national vendor competing there for talent, the competition for well-qualified graduates, much less the salaries needed to keep them from jumping ship every few months, is fierce.

So the company that is shaking the tree regarding pricing and running its own cloud decided to start its own university. Needless to say they have a unique take on how to run the show. Zoho U looks for young people who are missing a credential or two, or maybe have a blemish in their record, that would disqualify them from the Indian Ivies. They look for competency in math, English, and somewhat ineffable characteristics like “common sense” and “passion to perform.” Many of these young people are recruited from poor families where formal education is relatively rare.

Students at ZU get a stipend from the get-go, and effectively get paid to become qualified to work for Zoho. If they’re good they get an internship in nine months, and within two years they’re making a full salary. I don’t have to explain the kind of loyalty and dedication that brings to the workforce, many of whom have quickly become the top wage earners in their family.

It’s pretty remarkable, and while I am a firm believer that modern enterprise software companies need people who have backgrounds in the humanities and the arts as much as in technology – software, after all, is mostly intended to be used by humans to accomplish human tasks – filling the employment gap by recruiting from populations who have had trouble taking a more “elite” route is a singularly brilliant way to fix a problem that only gets worse over time. The company has plans to use a version of this model in the US, I’ll be anxious to see how that pans out. I’m pretty sure it could work: the job training that Salesforce.com does via its Trailhead initiative proves that opening up tech opportunities to people who can’t get in to the top schools is a great way to bolster recruitment and does a helluva lot of good for the company’s brand as well.

So far so good, but there’s still some work to be done. Zoho aspires to break into the large(r) enterprise market, and it’s going to be an uphill battle. Name recognition is definitely an issue – there are plenty of much better known brands, Microsoft being only one of many vendors that play in the SME and LE space successfully. The Zoho One price can almost be seen as a liability in this corner of the market – you’d be suspicious too if a gas station opened up in your neighborhood selling 87 octane for a buck a gallon. Then there’s the channel problem – larger enterprises tend to work with the larger SIs, who aren’t really lining up to work with Zoho. That may turn out to be good in the long run – the bigger the SI the bigger the mess they can leave behind, and Zoho would do well not to emulate the “culture of mediocrity” that has dominated enterprise software for the last few decades.

The LE challenge underscores the need for more marketing and attention to the details. The Zoholics user conference last spring had some moments of brilliance and some cringey moments of sheer amateur action that simply can’t ever be repeated. The need for top tier marketing and support is growing, and Zoho will need to rise to the challenge or cut back its aspirations, one can’t happen without the other.

What else do these guys need to work on? Unfortunately, the company is pretty much all guys, at least at the top (and at Zoho U, where 70% of the graduates today are men.)  That’s not okay these days, and while the bro-culture still dominates every one of the companies that have foresworn it in the name of diversity, Zoho could stand to branch out a little when it comes to top leadership. I’m guessing with a little focus they could promote from within and start to quickly solve this problem.

So, to the matter of the question posed by the title of this post, the answer is a qualified yes. The future definitely belongs to the mavericks that can solve age-old problems like the complexity of pricing and licensing, the problems of integration, and the vexations of recruiting in an insanely competitive job market. While I think it’s fair to say that much of what Zoho offers would not compete feature by feature with leading best of breed vendors, the sum of what they bring to the table more than compensates. Zoho may not be for everyone – not yet anyway. But there’s plenty of room for Zoho in the enterprise software market, not just for what they offer customers, but for what they can offer other vendors in terms of new ways of doing business. Current and future competitors would do well to take notice. Don’t say you weren’t warned.