In 5 years, we expect India to be the largest market by revenue: Zoho CEO Vembu

After fairly good growth in the 2000s, cloud-based business software firm Zoho Corporation grew at an accelerated pace in the decade starting 2010. One of the largest customer relationship management software providers for US-based small and medium enterprises, Zoho has been run profitably and kept private by its founder and chief executive Sridhar Vembu. The company, estimated to have around $350 million annual revenues, is now also seeing massive growth in its India business. Vembu, who repeatedly warned of a funding crash during the frothy funding period of 2014-2015, spoke with TechCircle in an interview on growth, competition and ambition. Excerpts:

A few of your recent product launches were first announced in India. Is it not unusual for Zoho to announce international launches from India?

Yes. As of today, India has emerged as our second-largest market by revenue. In fact, in the next six months, our India traffic is set to overtake our US traffic. This is our fastest-growing market and hence we attach utmost importance to this market. In the next five years, we expect India to be the largest market by revenue for us. Globally, we are growing at 30-35%, while in India we are growing at 60%. And India grows from a big base since it already is our second-largest market. India recently edged out Japan and the UK. For our Zoho One, the Zoho suite of multiple products, India is the fastest-growing market. One had 35 apps last month and now has gone up to 40 and all this at the same subscription amount they paid earlier.

What about growth at the group level, including AdventNet Inc? 

It is in the top five. Again, it is gaining rapidly. We are moving from being seen as a startup to an established enterprise and that has helped us in adoption across large corporates. Our design, user experience and user interface are of world standards, primarily made for US customers, which is available to Indian customers at an affordable price. Lately, Indian corporates have upped the technology adoption for productivity gains. The GST (Goods and Services Tax) rollout played a role, helping us to improve reach and visibility. We converted a lot of such customers to our entire suite of products. It helped us reach Tier-II and Tier-III cities. We are conducting some 40 community meet-ups in the country. We also have more marketing executives on the ground today.

You are up against the likes of Microsoft, Oracle and SAP, which are well-established. How do you gain market share?

There are a couple of things. We bring fresh technology that is built for the cloud and mobile. The existing incumbents often retrofit their offerings to the newer technologies. The other thing is they often translate their dollar pricing into rupees and offer the product to the Indian consumers, which is not appropriate for our country.

Your employee count has almost gone up by three times in four to five years? Is your revenue per employee going up, too?

We are now about 5,200 employees. In the last 12 months alone, we added around 1,400 employees, all driven by rapid growth. We again expect the headcount to double in another three to four years. We recently opened a new office near Tirupati (city in Andhra Pradesh). The revenue per employee is going up. Software product is a volume-driven business and hence no direct correlation between headcount and revenue. While you expect the Indian revenue per employee to be lower, but the volume happened to be higher.

Zoho has been around for a little more than two decades. How is it that you have managed to grow at your fastest level over the last four to five years only?

You are right, our growth is accelerating. We have raised our projections for the next five years and we believe that we will grow faster in the future. We were a cloud and mobile company and cloud and mobile are going mainstream at a furious pace only now. And this is happening across different industries. We have also reached a size and scope where our reach is having a multiplier effect of positive feedback and word-of-mouth (publicity) from existing customers. So our Andhra campus is also part of the plan to de-risk our Chennai-concentrated growth. We are building campus buildings as fast as we can. Three new blocks are coming up on our Chennai campus. Our idea is that software can be created anywhere and hence we started campus earlier in Tenkasi (municipality in Tamil Nadu) and now near Tirupati.

But an engineer will prefer large cities to small towns, where opportunities are far fewer, right?

People can move anywhere, anytime. It is a hassle but people are increasingly becoming more mobile. They would save more money in such towns and cities. You can give better lifestyle in smaller towns.

Your competitors like Salesforce, Atlassian, Freshworks, Basecamp are all doing well. How do you stack up against these cloud rivals?

The trend here is that single products are not viable. Salesforce is doing it (expanding portfolio) through acquisitions while we do it (expand portfolio) through R&D (research and development). The patchwork that follows acquisitions to make all the products compatible with your products creates a lot of bugs. We use the same architectural framework. We are confident about our model and let us see which company wins in another 10 years. 

What is the impact on margins?

We try not to expand the margins too much because that means we will be underinvesting in the future. They are reasonably stable. We have substantially increased our R&D investments in the last two years and you will see that in our product announcements.

Would you cross $500 million in revenue this calendar year?

We are a private company and I would not comment. However, I would say it is a reasonable guess. We built our own campuses over the last few years and we are debt-free. We are opening offices in Singapore, Canada and Amsterdam as we speak. We launched five new products in the last six months. We opened our data centre in Europe last year. We have a data centre in China as well.

You and your younger brother Kumar Vembu have made angel investments recently. But you were always against external funding… 

These are not personal angel investments, but investments by Zoho. Those startups Zoho has invested in intend to remain private. It is not a traditional venture-capital investment and it does not come with an exit-clause attached. There is no liquidity provision for our investment. We want to encourage our startups to think long term. Our thesis is simple: That India requires R&D-driven technology startups. We have even supported startups in the healthcare space. These are basically in areas where Zoho has no expertise.

You have called venture capital easy money coming in as part of the US's quantitative easing (QE) programme…

The QE is still happening in Japan and Europe. We are talking about trillions of dollars. India's entire GDP (gross domestic product) is only $2 trillion. It is bound to have an effect on venture capital and private equity investments. Around $14 trillion assets are yielding negative returns as of today. There was a little bit of tapering. A typical venture-capital fund used to be a $100 million fund earlier, which has now become a billion dollar fund.

The cost of customer acquisition has gone up, necessitating larger funding rounds. However, I expect consolidation. You can lengthen the party but ultimately a lot of these bubbles will burst when they fail to make profits. This monetary disorder is increasing inequality and creating political and social instability. So it will not continue that way.