Zoho scores big with India-made software, but shuns IPO and venture capital

  • N Madhavan, Hindustan Times, Chennai
  • Updated: Nov 15, 2014 01:41 IST

It has more than 100,000 customers in over 100 countries and counts Microsoft as its leading competitor. It is possibly India's most untold software success story, perched at the cutting edge of cloud computing.

Zoho Corporation, functioning from a trendy IT park surrounded by coconut trees in the Chennai suburb of Porur, is also breaking a popular myth that Indians are good for cheap-labour based services and not high-value products.

If many still have not heard of the company, it must be because it shuns the things that ambitious software companies are often in the news for: raising venture capital, going public with a share issue, borrowing from banks to expand or getting acquired.

"On those fundamental principles, we are not budging," says Raju Vegesna, 37, Zoho's chief evangelist . "We keep getting calls from venture capitalists but Sridhar (CEO) has even blogged asking them not to bug us."

If growth-based valuations are an indication, Zoho would easily surpass the storied Flipkart among current startups, but the company wants to stay private. It also matches up to India-made iflex solutions, acquired by Oracle and surpasses Finacle, the banking products division of Infosys.

Zoho breaks many rules. The company does not hold job interviews but tests people on the job. It has set up an informal "Zoho University" that picks up college dropouts or underprivileged teenagers who have not looked beyond high school to train them in coding.

"We are here to run the company, not run away from it," says its goateed founder and CEO Sridhar Vembu, who walks around the company premises in denim shorts and sandals. "What to me is good business is something that takes care of customers and employees as well. In Germany, privately held companies are more respected."

The 46-year-old, a former Qualcomm engineer educated at IIT, Chennai, founded AdventNet, a maker of telecom and network management products, in 1996 after he found himself unhappy at seeing Taiwanese products on California shelves but found his own nation missing.

"I am huge fan of (Narendra) Modi," says Vembu, who sees Zoho as a "Make In India" venture that should make his prime minister and the country proud. On November 20 and 21, the company will host its user conference for the first time in India at Bangalore - with its executives symbolically sporting kurtas.

Both Vegesna, who comes from a farming family, and Vembu, son of a high court stenographer and the eldest of four siblings, play on their earthy origins to build a pragmatic business which they believe is sustainable and sturdy.

Zoho began as a humble maker of niche products but an industry crash around 2000 threatened prospects for the telecom products. This led to the formation of a new flagship division around 2003 called Zoho Corporation, which has since subsumed AdventNet's products as smaller units.

Zoho is a "born-on-the-cloud" company that offers software as a service (SaaS) - much like Google Apps or Microsoft's Office 365 suite. Its range includes everything from word processing, spreadsheets, accounting and email to project management, recruitment, customer relations management (CRM) and a host of other applications used by individuals and small businesses.

While the basic apps - available in 13 languages - are free, companies pay anything between $1 to $35 per product per user, depending on the combination they buy. Some years ago, leading industry researcher Gartner described Zoho as a "cool vendor".

Both Vegesna and Vembu are based in Pleasanton, California. Zoho has about 120 data centre and marketing staff in the US, Australia, Japan, China and the UK to help local customers but the bulk of its work is done out of India.

The company makes its end-user applications over a common "framework" - which acts like a foundation product over which its engineers quickly roll out various corporate applications - and they cost only a fraction of what rivals like Salesforce.com charge, Vegesna says.

Zoho does not disclose revenues but Vegesna says it is a "few hundred million dollars" and growing 70% year on year. On a conservative estimate of $400 million, 2,500-employee-strong Zoho is earning a revenue per employee of around $160,000 - which is more than three times that of Indian IT leader Infosys. Giants like Microsoft earn as much as $700,000 per employee.

"It was an early decision: products are the way to go," says Vegesna, a computer engineer educated at Davangere, Karnataka, who joined Vembu in 2000 as a systems administrator. "Even moderately successful product companies have more revenue per employee."

The employees include the likes of Durga Devi, who is not yet 18 and is now a part of the "Zoho University" founded a decade ago to rope in students and dropouts from underprivileged backgrounds. Durga, daughter of a single mother who could not attend college for want of money, now attends classroom lectures in the morning and learns coding in the afternoon. She earns a monthly stipend of Rs 8,000.

"I touched a computer for the first time after coming here," she says. "It felt like a foreign country when I came in. I now want to become a team manager. Somehow."

Sridhar says he does not like student loans and one way to solve this problem is to start projects like the Zoho University, which has turned out 300 students in 26 batches, most of them now happy company employees.

Rajendran Balasubramaniam, a retired engineering professor, now handholds and grooms Zoho University students, and says it is a fresh change from the days when students would sleep at his lectures as he scribbled symbols on a blackboard.

"Young brains are faster at learning. We underestimate them," he says of his unconventional students.


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