Zoho has been making waves as a potential competitor to Microsoft Office. They have a number of free or low-cost alternatives to the Office suite including an online word processor, online spreadsheet, CRM system etc. They have over 700 developers working out of their office in Chennai (India.) And they are hyper-innovative, having churned out at least 25 different products in a span of a few years.
At first glance, Zoho appears to be a star business. They've taken a family of categories and sub-divided into two - browser based (dominated by Google) and non-browser based (Owned by Microsoft with few challengers such as Star Office and Open Office.) They're also attempting to commoditize software for small businesses(dominated by several specialists such as NetSuite, Salesforce, Intuit etc.) by offering very low prices.
I see several problems with this strategy:
1. They have too many products that look like me-too competitors. They are attempting to copy a model like Huawei which may have succeeded in the networking business by offering me-too products that competed with Cisco. But in software, the marginal cost (cost of offering an additional unit) tends towards zero and they are going into competition with established players.
2. They are waging war on too many fronts. Each of their products has a leader in it's space. Here are the leaders that come to mind in each of the categories:
- Online project management = Basecamp
- Online CRM = Salesforce.com
- Online Small Business Software Suite = Netsuite
- Online Word Processor and Spreadsheet = Google Docs
3. Even if one of their products lands up becoming a potential star, management attention is likely to be too divided to be able to nurture it to it's full potential.
4. All of the products are bunched under the Zoho name causing tremendous confusion. What's a Zoho? It's a spreadsheet and a chat room and an online CRM system and an invoicing system and anything else that you can think of.
5. The company claims that it's focusing on building a small business software provider. But in the meanwhile, it has also announced that it's had a major win with GE. Why is a business selling to GE if it's thinking of itself as a small business software maker?
So in my opinion, Zoho is likely to be a question mark and will gobble-up cash for it's owners. The owners (it's privately owned) claim that they have another business that is throwing off enough money to sustain Zoho's growth. But will that be enough?
The best option is for management to have a heart-searching, paradigm shifting retreat where they discuss what needs to be killed. My guess is that 99% of the products will need to be shut down. Then they need to find out the one successful business, angle or approach and re-build the company around that. They then need to move all resources to support that one business or idea. As I once heard from a person who was giving me advice, "All wood behind one arrow!"
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I guess ZOHO is making money.. even if they do not dislodge other big vendors, they can make money in that market.. and ofcourse you need not be the leader in that segment to make money..Even 10-20% market share from those big fishes itself can push to multi billion dollars.. I say that as their products are equally competing, if not better than them
ReplyDeleteThese are "all or nothing" type markets. It's impossible to get 10-20% market share without being substantially different and without getting a substantial number of people to like your 'different-ness'.
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