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Dear Frederic,

One reaction to Microsoft's announcement of Office 2010 which we find amusing (or whatever the term that is appropriate in discussing one's own obituary) is “This spells the end of Zoho.” What most people fail to realize is that while the on-line Office suite is certainly an important part of Zoho, we have in fact a portfolio offering which now includes over 20 different business, collaboration and productivity applications.

But if there's anything I've learned from my years in the tech world is that companies don't get killed by competition, they usually find creative ways to commit suicide. Office 2010 will be the end of Zoho, if we stop innovating, stop being nimble and flexible in our business model. Then again, if we stop all that, Zoho will die anyway, no Office 2010 needed to do the job. There are numerous examples in the technology industry to illustrate this. Consider two companies of similar vintage, both of whom faced Microsoft: Borland and Intuit. Which company has done better? Does that have to do with their competition with Microsoft or their own ability to innovate and adapt?

Having said that, it is obvious that Office 2010 will impact what customers expect from Zoho. Assuming Microsoft does a great job (which they usually do), we may have to adapt our strategy to compete. Their natural advantage is their size and their installed base; our natural advantage in such competition is being nimble and flexible, spotting opportunities and grabbing them quickly. That is not new for us — after all, that is how we have survived Google; 3 years ago when Google entered this market, it was also deemed to be the end of Zoho — now, just how many times are we supposed to die? All of Zoho was about 30 people at that time, and now it is over 300. We have released over 15 new services in Zoho after Google's entry into the market, and made numerous updates to all our services. Zoho was “pre-revenue” (boy, do I feel nostalgic for that term – please God, just one more bubble!) in 2006, and today we are a substantial business, growing rapidly. No, I don't mean growth just in terms of users; I mean growth in paying customers, with every single one of them becoming a paying customer after Google's market entry, meaning that if customers were worried Google would kill us, they wouldn't be doing business with us. During that same time, we have forged strong partnerships across the landscape, with many more partnerships to be announced in the coming months. If this is death, we are really enjoying it!

Having under 350 people in Zoho gives us a natural flexibility in evolving our business model. For starters, we are the easiest company for partners, large and small, to work with, and many times, part of the value we bring to some other prospective companies is exactly that we are not Microsoft or Google. Those partnerships mean real paying customers and revenue, which means Zoho has the economic vitality to keep innovating. Second, there is a reason Zoho provides a broad suite of applications — there are applications like CRM, Projects, Creator, Meeting, People, Invoice and so on that face a different competitive landscape, allowing us to thrive even as we face the most formidable software company on the planet. Finally, it is a common mistake to assume that business models that worked well in the past will continue to work well in the future, even as the technology landscape changes. A company like Zoho has a lot more strategic flexibility than Microsoft has — not having to protect a $16 billion high-margin revenue stream is one important reason. What all that means is that while there is no risk of Zoho killing Microsoft anytime soon (!), we are also confident we won't die because of Microsoft.

In much the same way we don't view Google as the mortal enemy, we don't view Microsoft as the mortal enemy. We do not view competition in moral good versus evil terms. To be sure, there are important moral questions — my favorite one is what the Federal Reserve is doing to our money, an important moral question with profound implications for society, though not one normally seen that way — but there are no profound moral implications in which word processor you use to compose that love letter or even that annual report, that's for sure. When competitors fight, customers win, that is all there is to it.

In any event, hating competitors is a good way to lose objectivity and lose focus on customers. That is why we embrace Google-promoted standards and technologies, but we also support a wide variety of Microsoft products in the Zoho suite, including the Zoho plug-in for MS Office. Indeed, with the Zoho plug-in, you can get most of the collaborative features promised for Office 2010 even in Office 2003. When we embrace such technologies, all we ask are: Will this help customers? Will it provide so much value to them that they want to pay for it?

We have been in business for over 13 years now, and at numerous times, facing “mortal” challenges on numerous occasions — in fact, I remember a conversation in 1997 when a prospective partner told us “I don't see how you are going to survive against X.” Not only did we survive X (no we didn't survive by “killing” X, they are also around!), but we actually did well enough to gain capital and experience to build more software, enough to have arrived at “I don't see how you are going to survive against Microsoft.” Maybe we really should worry when people stop asking that “survival” question, because that's when we get complacent.

Feel free to post or publish this commentary in full or in part. If you would like to talk about this in more detail, please reply to this email, and Marisa Lam will help to arrange a meeting.

Regards,

Sridhar

Sridhar Vembu

CEO of ZOHO Corp./Zoho

http://blogs.zoho.com/