We all love the David and Goliath story. What about David vs two Goliaths? That is the improbable story of Zoho, the Web Office startup competing head on with both Microsoft and Google. On top of that, Zoho is from India and who ever heard of a product company from India? Indeed Zoho has only 10 people in America, yet it is winning really big enterprise accounts in head to head evaluations with both Goliaths. What’s more, they have not taken a dime of external money – having bootstrapped it from the start.

At Web 2.0 Expo in New York this week I met up with Raju Vegesna, one of Zoho’s founders, to find out how they’re succeeding despite the odds.

Defying Conventional Wisdom

Everything about this story is improbable. And gloriously old fashioned. When I met Raju Vegesna, I kept on thinking this was some kind of time warp. Zoho has simply ignored much of the conventional wisdom. Consider:

1. Product breadth. Look at the range of products they sell. This defies the conventional wisdom that you should focus on one thing only. When I put that to Raju, he replied that the ‘one thing’ model “works if you are building to sell the company”. That’s right. The classic model is to build one product that slots right into the acquirer’s portfolio. In Web 2.0, when speed is everything, even products take too long and so you just built features. The hierarchy is: features go into products and products go into companies. But Zoho is clearly building a company.

2. Building to last. Every startup says they are build to last, publicly. Nobody advertises that they are building to flip. But Zoho looks like they really are building to last. They don’t have VCs on board with an exit compulsion. Nor do they need VCs. They can finance internally and make money personally the old-fashioned way, from dividends, knowing their equity value is also building every day.

3. They run their own data centers and buy all their servers. No, they don’t use Amazon Web Services or even conventional hosting vendors. They run 1,000 servers in two data centers, one in California and the other in New Jersey. In a SaaS world where performance/reliability are differentiators, running data centers is a core competency. They have the cash flow to buy their own servers!

4. They charge real money for their software, with no advertising. But the price is really low. This is like WalMart. This is like Basecamp, reasonable prices for great software. That is so boring! In branded consumer goods, buying expensive conveys status. In software, buying expensive when there is an equivalent at lower cost, simply conveys a willingness to burn money.

A Serious Contender

Do you still think that Zoho cannot possibly be a serious contender? GE, after a vigorous evaluation including Google and Microsoft, selected Zoho. That is 400,000 desktops up for grabs worldwide. GE is a master at taking costs out of established processes, they do it relentlessly and continuously and they know how to evaluate and manage the risk of working with start-ups. Where GE break a trail, others are likely to follow. You can view a GE presentation about this deal here, from the recent Office 2.0 conference:

This is Part 1. In the follow-up post, Zoho Part 2: The Cookbook, we look at how Zoho works in more detail.

Image from Wikipedia