Zoho, Where Engineers Reign, Rewrites the Rules of Office Software

10/21/10Follow @wroush

It would be easy to say that Zoho, whose online office productivity software has attracted 3 million users, is the worst nightmare for desktop software makers like Microsoft and even for a newer generation of Software-as-a-Service companies like Salesforce.com. But Zoho is more complicated than that.

To figure in its competitor’s nightmares, Zoho would have to be an entity that other companies understood and therefore feared. In fact, the Pleasanton, CA-based company is something new and almost completely alien to the established software culture: a tech-savvy company that got tired of paying high prices for the software it needed to run its own business, and simply assigned its engineers to build something cheaper and better.

There are plenty of startups in the San Francisco Bay Area where the engineers “think they can build a better word processor than Microsoft can,” says Sridhar Vembu, Zoho’s founder and CEO. “But if you apply business thinking to it, it’s not strategic for them. But [at Zoho] the engineers rule. From the beginning I have kept the company in that mode.”

The first application Zoho’s engineers built, a primitive online word processor called Zoho Writer, came in 2005. It was a side project at the time—the company’s real revenue was (and still is) generated by its network management software for enterprises. Zoho Writer didn’t really take off until Google bought a competing program called Writely, turned it into Google Docs, and proved to the world that browser-based software could handle tasks like word processing.

But five years down the road, Zoho has created online alternatives to nearly every piece of software required to run a small or medium-sized business. Business customers pay a single bill each month and get access to e-mail, word processing, calendars, Web conferencing, spreadsheets, project management tools, presentation builders, customer relationship management tools, website monitoring, and more. “We are trying to be the IT department for these small and medium businesses,” Vembu says. “We’re trying to create a portfolio of products so that businesses can pay a monthly fee like a utility bill and get all the software they need.”

Sridhar VembuOf course, that’s also the ultimate vision behind Google Apps, Microsoft’s Office Web Apps, and Microsoft’s brand-new Office365 offering. But Google itself offers only seven Web-based office applications (Gmail, Calendar, Docs, Groups, Sites, Video, and Wave). Microsoft’s experiments with online software, meanwhile, extend only to Word, Excel, PowerPoint, and OneNote on the productivity side, plus Exchange, SharePoint, and Lync in Office365. Both companies have been lapped several times over by Zoho, which offers 25 online productivity applications—all built on a single core that makes it almost trivial for Zoho’s programmers to let users cross the boundaries between its apps. If you’re a sales executive using Zoho CRM, for example, it’s easy to read and reply to Zoho e-mail and even open and edit Zoho Writer documents without leaving the CRM app.

How has a 1,200-employee, 100-percent bootstrapped company come out of nowhere to offer a serious challenge to the giants of consumer and business software? As Vembu hints, it’s largely the story of a company where the engineers have the upper hand—which isn’t too surprising when the CEO has a B.Tech from the India Institute of Technology and a PhD in electrical engineering from Princeton. So there was nobody sitting in the company’s sales, marketing, or financial offices with the power to tell its developers that it was impossible to reinvent the productivity software market.

But there are some other important factors as well. For one thing, the company had room to experiment. Known as AdventNet until last year, when it took on the brand of its fastest-growing product line (the name Zoho is a play on “small office/home office”), the company enjoys … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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