By Jon Reed | August 21, 2019
SUMMARY: Zoho is proving to be a fascinating force in the enterprise software market - but that doesn't come without challenges. Here's what Brian Sommer and I made out of our last intensive round of Zoho interviews and inquiries.
In recent weeks, we've looked at how Zoho is writing their own enterprise story, from the impact of being resolutely privately held, to addressing their own talent problem via Zoho University.
What we haven't done lately is review Zoho's competitive strengths and challenges.
That's a timely question - especially when you consider that some of Zoho's partners are now seeing cloud ERP players like NetSuite in deals - even as Zoho is determined to avoid the ERP monicker, and wary of the downside of "economies of scale" that other vendors are chasing.
I got into that Zoho review via a podcast I taped at the Zoholics 2019 user conferencewith diginomica contributor Brian Sommer. It would have helped if the outdoor recording wasn't a total disaster. Brian and I have recorded some good outdoor podcasts before - this wasn't one of them. Even the engineering savvy of Den Howlett's spifftastic podcast studio couldn't save this one.
Thankfully, my transcription service, Rev.com, still hates me was more than eager to help out with this goofy recording. Here's a few keepers from my exchange with Sommer.
Pricing - the ERP industry needs more white hats
For Sommer, Zoho's all-you-can-eat pricing resonates in a market where buyers are fed up with what he derisively calls "wallet fracking." Sommer's fireside chat with Zoho CEO Sridhar Vembu provoked some intense audience reactions - from customers who have been burned by other vendors. As I said to Brian:
Well, we heard a bunch of interesting customer participation in your talk. It validated that a lot of customers are definitely wary of being exploited by enterprise software pricing and hardcore contract tactics.
Brian responded:
Yes, in fact, that was probably the most interesting validation. I shared that with some of the Zoho executives afterwards: a lot of their customers really want to vent their spleen. They have been raked over the coals with bad pricing, bad integration deals, ever growing overreaching by vendors. The audience apparently really loved that concept of wallet fracking - that really resonated with them quite well.
Editor's note - for more context, check Brian's piece Rope me in, tie me up - SaaS age vendor lock-in is here.
Zoho never uses the term ERP, but should cloud ERP vendors be wary?
At Zoholics 2019, analysts pressed the ERP category issue. Sommer explained why:
Let's give the hat tip to Cindy Jutras - she's the one who actually asked the question - but I think a bunch of us were thinking the same thing. Zoho has expanded the product line now. Here is a company now that started in the CRM space originally, they have added the back office functionality that's been there for quite a while, they have their own kind of version of Microsoft Office as well. Now they've really expanded into retail, as well as a bunch of online e-commerce capabilities, which really puts them budding right into NetSuite space.
The retail play Brian is referring to is Zoho's Commerce Plus offering. It's Zoho's first vertical offering, and it's the only software Zoho showed off at Zoholics 2019 that isn't part of Zoho One. Commerce Plus requires an additional license.
Zoho might not embrace the ERP monicker, but Brian has a warning for incumbents:
My caution to Oracle NetSuite would be: you need to watch out for these guys because they take all the friction out of sales and contracting. I mean, they have an extraordinarily simple pricing model; they own all their own data centers.
Can enterprise support truly be a competitive advantage?
By now, most cloud ERP vendors are shoring up support. Vendors realize that so-called "lifetime customer value," not to mention subscription renewal pressures, shifts software support from obligatory to a difference-maker.
But how many vendors can really claim support as a competitive edge? Zoholics was the only event of 2019 where customers sounded like they actually looked forward to contacting Zoho support. Yes, you read that right. As I said to Brian:
This week, I heard stories that stretch your imagination of what is possible with support experiences. How the hell can you provide such quality support where the customers are saying, "The support is fantastic!" I mean, you just don't hear that stuff.
What's Zoho's secret there? One factor: Zoho actually treats support as a career track advancement path within their company. Many Zoho employees do a stint in support, and they move on to other roles, bringing that customer problem-solving attitude with them.
Zoho's competitive challenges - branding and enterprise scale
Zoho has it work cut out as well. Branding is one obvious challenge. And, as Zoho moves into enterprise accounts, enterprises will expect Zoho to check off all the boxes on scale, compliance, integration and data security. Zoho gets that, but plenty of vendors have stumbled on their way from SMB to "enterprise grade."
There's also the strategic direction question: expand into more verticals and move upmarket, or expand the small business footprint globally? Brian added:
Moving upmarket - I think that's going to be the most difficult strategic move Zoho will ever have to contemplate. They may feel competitively forced to do it, if they want to hang on to some of their customers. Because as customers grow, customers are going to outgrow the functionality of Zoho today.
That shakes up the partner community also:
When you move upmarket, then you have to worry, "Do I have the right kind of partners who can deliver that kind of solution? How can I keep the pricing straight forward? How do I charge for some of the extra value that we are adding and again?" It's just not a slam dunk kind of decision if they go that route.
The wrap - will private ownership be the true differentiator?
Despite the ERP sneak attack, Brian still sees Zoho leading with CRM:
One other thing I kind of thought was interesting to hear is how many of the partners we heard from, when they go into prospects, it's clearly orientated around the CRM solutions, that is still the entry point into new deals.
Before we ended our ill-fated "wind vortex podcast," Brian laid down some vintage ERP snark:
On the flip side, I did find it kind of hilarious. One of Zoho's partners was talking about how they spent twenty days on a client - that would be a huge deal. I'm comparing that to how twenty days won't even get you a sales call from one of the major ERP vendors that are out there right now.
My final podcast challenge to Zoho: give us an AI-and-jobs narrative. Zoho is refreshingly practical on AI and automation. They've focused on embedding Zia AI functionality to help customers automate and improve select processes, starting with sales enablement. But a practical focus doesn't alleviate the need for a big picture story - one that inspires and reassures users. As I said to Brian:
I want to hear Zoho talk more about the impact of AI from a human standpoint, because that is part of Zoho's values: to create work opportunities for deserving people who have been excluded. So I want to hear Zoho talk more around the impact of machines on that vision. For example, Tableau has a very articulate vision of how they see AI impacting the analysts' roles they serve. So I would like Zoho come out with something on how their AI approach fits into their vision of the future of work.
In my Zoho University piece, I also laid out a challenge to Zoho: integrate liberal arts sensibilities into the curriculum. That's a separate discussion, but it feeds into Zoho's responsibility to equip workers for the type of human contributions an automated/robotic world will need.
To me, the big question for Zoho is: how big an advantage will being privately held prove to be? I get the impression most market-watchers don't get how serious Zoho is on that front. Perhaps that's because in our industry, most privately-held software firms are still accountable to investors. Private or not, it seems like liquidity and/or IPO ambitions are always looming. Zoho seems truly determined to take a different course. As I said to Brian:
Zoho made some provocative statements about how not having wall street on their backs allows them to leave money on the table and provide more value to customers. How that proves out remains to be seen, but their 35 to 40 percent growth rate year over year, and 45 million users can't be argued with.
Zoho says remaining privately held will be a huge advantage. Now we get to find out if they are right.
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