Is Zoho an exemplar for a new breed of 21st century technology company?

Attending an analyst relations event for Zoho recently was thought-provoking, and not just because of its technology. Zoho One, its flagship product, is interesting because it is almost every app you could ever want, in a box – Zoho calls it “an operating system for the business” – and very reasonably priced. I’ll touch on the technology later, but readers can go to the Zoho website for themselves – what it promises seems pretty reasonable to me. It all depends, I guess, on whether you want best of breed for everything, and can live with consequent integration issues, or whether “fit for purpose” from one supplier is good enough – and I like Herbert Simon’s “satisficing” strategies myself.

What really interested me at this Zoho event was what the Zoho model might mean for “future of work”. Being a private company, it can afford to take a long-term and customer-centric, value-based, view (unhampered by Wall Street analysts and their short-term preoccupation with the bottom line).

That said, Zoho’s bottom line is pretty good: it says it is “bootstrapped” (i.e., with no external investors and venture capital) and that it has been profitable from day one; and that this is a central part of its strategy. Some figures were shared with us that support this, but (being a private company), Zoho doesn’t want them published. It rather likes being underestimated by its opposition…

Sridhar Vembu (CEO and founder) seems to be very focused on his company’s Indian roots and culture.

For instance, he identifies with the farming crisis in India (farming exhibits wild profitability swings with currently low margins leading to farmer suicides), resulting from “costly inputs and commodity outputs”. He sees a Cloud opportunity:  Cloud connectivity facilitates the creation of rural jobs and augments income and stability (4G connectivity is good enough to support a techie job). Zoho has put its HQ where its mouth is, in rural India (Chennai, Tamil Nadu), and Sridhar can work from home on his farm. Talking to him afterwards, I think this is very genuine – classic finance-based capitalist economics are no longer enough, and he believes in secular Buddhist-based ethics – I mentioned modern secular Confucian ethics in our conversation, which, unsurprisingly (given the Buddhist and Daoist influences in Confucianism), offer something similar.

Sridhar makes a strong critique of the venture capital (VC) funding model, which he says is now running out of steam. As a metaphor for VC-powered business, think of the way a flash flood actually reduces the water supply post-flood, because flash floods destroy water-holding lakes, so more water goes to waste.

Looking at his vision in more detail, he envisages 5-10 person clusters in rural farms, leavened with Zoho employees – a sort of “topsoil renewal”, which will work in the USA as much as it does in India. He values a grass-roots culture of frugality and humility – and the avoidance of “competitive functionitis”. He sees this as “low footprint living” – climate change is real and such a culture confers the resilience needed to face adversity. Zoho employees have good salaries, which fertilise the rural economy. So, what is good for employees is good for Zoho and the Zoho strategic vision is focused on cloud-enabled rural revival.

But, Sridhar is no other-worldly hippy. He is also a dollar billionaire with a Princeton PhD, living in California, although he is still an Indian citizen, according to his Forbes profile. So, he can probably make his vision come true.

For me, this is a “future of work” story. As the world faces climate change and over-population in cities, I believe that company ethics and societal goals will become as important to a company’s reputation and value as its bottom line. Moving technology jobs to rural areas reduces talent erosion and allows local cultures to flourish. Just one person in a family with a well-paid techie job is enough to allow the family to ride farming’s economic roller-coaster. So, Zoho’s vision is ethical, based on cloud-enabled rural revival. However, it also enables greater resilience in the face of, say, the loss of coastal urban centres to sea-level rise. Rural locations are cost-effective to acquire and expand, and infrastructure issues are easier to fix in rural areas than in cities (which are often locked into out-of-date infrastructure) – although this all does rather depend on access to 4G, it seems to me.

The ethical story extends into Zoho’s Developer story. Zoho runs on its own microservices-based infrastructure, which it is now opening up to customers, called Catalyst. It owns the full stack and believes in feeding people, not bots, so tracking cookies and the like on Zoho premises are eliminated, where Zoho is in control. Zoho is subverting conventional wisdom: an infrastructure based on public cloud and Google-style advertisement income is not cheaper overall (although this is probably true at Zoho’s scale, and with its particular decisions, not necessarily for all businesses).

Ragu Vegesna, Senior Evangelist, expounded on the place of Privacy in the Zoho vision. There is a hidden market in browsing and surveillance info, operating without user permission, he says, and this must stop. Zoho is strong on Security (because it owns the whole stack) and I was told that its key issue for AI is making it “explainable” (reducing issues around “mindless acceptance” of biased answers etc.), so Zoho is well placed to manage the big picture around privacy, personal data and subject permissions which are becoming associated with advanced data processing.

We must distinguish what is legally acceptable from what is morally acceptable, Vegesna says. Zoho is making a stand: no ads on Zoho, no tracking, no Facebook, trackers etc. on Zoho properties. No trojan horses in Zoho. There is a cost for this (less focused ad campaigns etc.) but Zoho thinks it is worth it. And, as I’ve said, Zoho can do this because it controls the stack.

It hopes other B2B companies will join in, along with its own customers. It can’t control the way in which its customers themselves behave, but it can encourage good behaviour. And its customers are responding well to Zoho’s privacy stance.

Zoho’s ethical model is also exemplified by Zoho university (and Zoho is also starting up a Zoho healthcare system for employees). Potential employees (eventually making up around 20% of its workforce) are educated from scratch, paid during their education, and don’t need a degree to start with. This sounds very positive and cost-effective from the employee’s point of view, although I’d want to explore the breadth of cultural experience compared to a degree, myself. It is actually very similar to the way I was trained in IT at the Australian Dept. of Health back in the last century – non-IT graduates were paid to train in IT from scratch in an academic institution and paid to work in the Dept. of Health in the holidays – which was very effective both as technical training and in inculcating organisational culture. I’ve always wondered why this wasn’t more widely adopted as an approach.

A brief aside on Zoho’s technical story. The Zoho platform doesn’t run on public cloud – at this scale, it’s too expensive Zoho says. It runs data centres worldwide and is developing its own solar-powered data centres. At the software layer, it offers a unified database with a unified data model. Get the data model right and it all falls into place, it says (as an ex-DBA, I can really relate to this).

The Zoho platform relies on “data pillars” – a single source of truth, with the right interconnections. The Unified Data Model is key – and this needs:

• Custom database
• Unified file system
• Custom appservers and firewalls

As Zoho controls the whole stack, it can deliver certainty – it controls costly inputs. It has deep R&D know-how in-house, especially in the AI area, and Catalyst opens up the stack to customers with a microservices-based serverless approach – and this includes access to its custom database. The key to its success, it says, is “get the plumbing right”.

As must be obvious, I was impressed by Zoho. In fact, I struggled quite hard to find issues to report – it’s my job – and it wasn’t easy. Being a private company addresses many of the risks (such as short-termism) associated with public companies, but brings new risks: a company can lose touch with the real world, and its culture can die if key founders leave or die. The Zoho university addresses much of that and Zoho preserves its culture as it grows by always forming a new offshoot around a key employee with long Zoho experience.

It is also possible that some potential customers don’t like Zoho’s style and approach or want to select what they consider to be “best of breed” apps beyond what is in Zoho One. That will always be the case, but Zoho seems to be managing its customer “churn” well.

Perhaps Zoho’s current position is summed up well by Mike Sigvaldason, a Zoho user at Arctic Spas: “the good thing about Zoho is that it makes stuff we didn’t know we needed yet” but its biggest issue is that Mike can’t describe himself as a Zoho admin at parties, because “no-one has heard of Zoho” – except those who use and love it. Zoho isn’t very visible to the big players such as Microsoft and Oracle yet, but when it is, competition might get tougher.

Nevertheless, given all that, I think that Zoho is a company to watch as the 21^st Century unfolds before us. Its ideas on customer-driven transformation and overall ethical positions fit well with Bloor’s idea of the 21st century Mutable Business.