Understanding Zoho, The Company Taking On Google, MS

Zoho, a software company started in 2005, has built applications that compete with Google and even Microsoft. The vendor believes it can stay in the game by having a quick development cycle that adds new features to their products faster than the big guys.

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As Yarmis explains, that's because the software is delivered over the Web and updates happen automatically when the user logs in, opposed to having IT departments have to patch updates through the company network on people's individual machines. He adds that this rapid pace can be too fast for some users, but if SaaS vendors can keep their products user-friendly, it offsets that problem.

Zoho typically hosts the data for its SMBs, though with enterprises that have asked to host the data on premise for reasons of security and compliance, Vembu says they're happy to do so. The Zoho data center is built upon the principles of multi-tenancy - servers are partitioned in such a way to maximize space. So two companies data might live on one machine, but it is separated.

Still, some companies find this close proximity uncomfortable even with the safeguards, and Zoho will set aside servers for companies (though that costs extra money).

"The benefit of multi-tenancy is that it saves us money, and that is savings we can pass onto the customer," Vembu says.

Vembu himself monitors the Zoho blog and feedback loops to see what users are saying about the product, and his development teams makes tweaks in turn. He also says that he constantly looks at what's happening in the consumer space to keep his product looking fresh. He has even taken design cues from Facebook.

According to AMR's Yarmis, it's tough to figure out what the end game will be for Zoho. While Vembu wants to remain independent, he says "never say never" about a possible acquisition in the future. Microsoft would be an unlikely candidate, for the mere reason that they'd prefer to build a Web-based productivity suite based on Office files. Google, on the other hand, could be a compelling option if they feel they have fallen sufficiently behind Zoho in functionality and don't want to build it themselves.

"Is it a foregone conclusion that Google can do a better job?" Yarmis asks. "Google has only taken over one market: search. Every other market they makes some noise in and get some penetration, but in the end, [with software], it comes down to this: 'do you do it better?'"