Zoho weaves more of its own apps together, pulls in threads to third-party software

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1 19 August 2009 IMPACT REPORT Zoho weaves more of its own apps together, pulls in threads to third-party software Analysts: China Martens & Kathleen Reidy When we last met with Zoho, the on-demand productivity and business applications arm of parent AdventNet had taken a bit of a break from debuting new software in favor of establishing stronger links between its existing offerings. Integration continues to be a key endeavor for the division and its 19 applications and one that it has even extended to overall company branding. AdventNet formally renamed itself Zoho Corp at the end of May. The move has enabled the parent company to be more closely associated with Zoho, its youngest and strongest brand, while also making it easier for the Zoho division itself to point to its backer and the 13-year history of Zoho Corp. So, for clarity's sake when we refer to Zoho in this report, we're talking about the Zoho unit, sometimes referred to as Zoho.com, not the parent company. The 451 Take Zoho continues to push forward on establishing tighter and deeper links between the members of its large apps portfolio, as well as building more hooks out to third-party software. Its efforts represent a gradual process, but one where integrations so far have appeared on a timely basis. Re-branding the entire company as Zoho was a smart move, and we're intrigued about future technology cross-fertilizations across the organization. In particular, we'd expect the addition of more ManageEngine capabilities to Zoho CRM in order to raise its potential appeal to larger organizations. With rivals keeping a close eye on Zoho, we guess a mark of how seriously they view the outfit will be when those firms debut specific anti-zoho price or migration deals. Context Founded in 1996, Zoho Corp is privately held and splits its business into three divisions Zoho, ManageEngine and WebNMS. Zoho Corp's main focus for its applications is the SMB space, but it also nurtures enterprise ambitions. ManageEngine provides enterprises with IT management software, while WebNMS targets OEMs in search of a network management suite. Zoho Corp has been profitable throughout its 13 years and has yet to take any external funding and it shows no sign of changing that strategy. While it doesn't discuss its Copyright 2008 The 451 Group Page 1 of 5

2 financials in details, the vendor does say its Zoho CRM business is now profitable. The company is not looking to be acquired, but claims it has received several offers over the past year, not just for its Zoho business but also for its other divisions. Zoho Corp now has around 1,000 employees, compared with 750 a year or so ago, and its Zoho division currently employs 330 staff, up from 250 in July The company's headquarters are in Pleasanton, California, but the majority of its staff is based in Chennai, India. It has other US locations in Austin and New Jersey and offices in Beijing, London and Tokyo. Products Zoho's online applications consist of 10 productivity and collaboration offerings and nine business applications. Many of the product names are self-explanatory, and all are preceded by the Zoho brand. In the productivity camp are its Zoho Mail , Writer word processor, Sheet spreadsheet, Show presentation tool, Docs document management, Notebook note taker and Share centralized repository, as well as the Wiki, Planner and Chat apps. Turning to the business applications, there's Zoho CRM; Meeting Web conferencing; Creator platform-as-a-service to build online database apps or customize existing templates; Invoice invoicing; Projects project management; Reports (formerly DB Reports) for reporting and business intelligence; People human resources information systems and applicant tracking; Business hosting and a bundling of many of Zoho's productivity applications with security and management capabilities; and Marketplace, where users can buy or request applications built on Zoho Creator. Many of the applications began life as stand-alone offerings, and Zoho has been gradually working on stripping out any remaining redundancies within individual products, such as their own calendars, as well as building plenty of integration between its applications. In particular, it's been constructing more bridges between its productivity and business applications, recently announcing a particularly important link, marrying its Zoho CRM and Mail products. Typically, sales reps adopt either the CRM application or the software as their primary working environment. By creating tight links between the two applications, Zoho can better cater to both those sets of users, enabling, for instance, a Zoho Mail tab to appear within Zoho CRM and the automatic display of all exchanged with a particular contact and conversely allowing Mail users to save contacts directly into Zoho CRM. It's also charging an additional fee for the integration $3 per user per month. It's interesting to contrast the approach Zoho is taking to upgrading its CRM versus its Projects applications. It recently debuted version 2 of the project management software, with new features including integration with Zoho Chat, the hooking of its time sheet into Zoho Invoice, the ability to create a central wiki and Twitter-like user status bars. With CRM, Zoho is not releasing a full-blown version all at once; instead it's fine-tuning the application one screen at a time and doing a lot of work revamping its user interface. Within the next 3-6 months, Zoho hopes to come out with several more integrations with its CRM software. Given that some customers are already starting to put Zoho CRM to non- CRM uses, hooking it into Zoho Creator to make customization easier is one direction to Copyright 2008 The 451 Group Page 2 of 5

3 take. The other is integrating Zoho CRM with Reports so that users can create reports and charts from their CRM database. In the planning stage is integration between Zoho CRM and Docs to enable sharing of documents between sales reps, which they've been sharing with customers. Zoho is also readying integration between CRM and Zoho Chat. With CRM part of Zoho's single-sign-on since February, there's the ability for users to log into Zoho CRM via their Google or Yahoo accounts. There are also already hooks between CRM and Zoho Meeting, Invoice and Sheet. At the same time, Zoho is also keen to integrate with more third-party technologies for instance, its plug-ins between Zoho CRM and Microsoft Office and Microsoft Outlook. Most often, users are looking to carry out mail merges, and Zoho's next step probably in the next six months would be to create mail merges between Zoho CRM and its own Write documents. Zoho is also readying an interesting integration for its CRM later this month, hooking it into Intuit's QuickBooks accounting software. Zoho provides additional plug-ins and add-ons to link its products with other Microsoft offerings, including a recent integration with Microsoft SharePoint, which lets documents stored in SharePoint use Zoho for online access and processing. Documents display within SharePoint and are saved locally, but integration with Zoho enables multiple simultaneous viewers and editors. Strategy Zoho has deliberately not strongly branded itself as a SaaS apps vendor because it does also offer on-site deployments of its software. It's also taking care not to push too hard on cloud computing either, seeing the term currently more applied to computing infrastructure versus its positioning as an application player. That said, Zoho did roll out CloudSQL late last year it's a developer tool to link data stored in its applications to third-party SaaS or onpremises software via various SQL versions. One area where Zoho is set to expand is in the cross-fertilization of technologies across Zoho Corp as a whole. The company's ManageEngine division has over 30,000 customers and already has some links with its Zoho counterpart. The applications division employed some of ManageEngine's technology to launch its Zoho Status website, while the IT management operation took advantage of Zoho's cloud computing framework to build out its first SaaS product, a version of its OpManager network and IT systems management offering. Looking ahead, Zoho might seek to bring in more ManageEngine technologies, particularly its helpdesk, as a way to increase customer service and support automation for Zoho CRM. Clearly, there's also plenty of opportunities as Zoho applications embody more enterprise functionality to potentially cross-sell them to existing ManageEngine customers. Customers Zoho currently has two million registered users for its apps, a doubling in size over the past year or so. That growth has mostly come about through word-of-mouth referrals, although Copyright 2008 The 451 Group Page 3 of 5

4 Zoho is also seeing more individuals and companies coming to its website after searching for 'CRM' on Google or for alternatives to Microsoft Office. Zoho has about 225 resellers around the world and is keen to ramp up indirect sales. It's also looking to partner with systems integrators as it attempts to win more enterprise deals. Most of Zoho's productivity and collaboration applications are free, while it charges for its business software. For example, Zoho CRM is free for a maximum of three users, and then costs $12 per user per month for the professional edition, and $25 per user per month for the enterprise edition. Zoho's target market is the SMB space, and it claims to get about 15-20% conversion to paid users from free accounts. Earlier this year, it launched Zoho Business, which is the main vehicle for customers looking to use multiple Zoho productivity apps together with group administration capabilities (there are plans for this to support LDAP and Active Directory soon). Zoho Business is free for the first 10 users, and then carries a $50-per-user annual charge. Use of individual apps is free, but if companies want group administration capabilities or the ability to provision access to multiple apps simultaneously, then Zoho Business is required. Competition Zoho faces off against Microsoft and Google most often with many of its productivity applications. While Google's offerings are on-demand and come in free and paid business versions, Microsoft has just begun talking about its plans to offer free Web versions of applications like Excel, OneNote, PowerPoint and Word next year. With Oracle soon to complete its purchase of Sun Microsystems, it will be interesting to see whether the new owner decides to push Sun's OpenOffice.org strongly or not. In terms of CRM rivals, Salesforce.com is Zoho's main focus, particularly given that the SaaS vendor has a variety of Salesforce CRM editions catering to small, midsize and enterprise customers. Zoho's addition of tight integration between its CRM and software was geared toward Salesforce.com customers whose CRM has hooks into Google's Gmail, Microsoft's Outlook and IBM's Lotus Notes. Last month Zoho announced Zwitch, a program targeting existing Salesforce CRM users, which includes free data migration and a 15-day trial of Zoho CRM with the user's own data. Microsoft is also a competitor with its Dynamics CRM Online as well as the on-premises and partner-hosted versions of its CRM software. Zoho says it has yet to encounter commercial open source players like SugarCRM. SWOT analysis Strengths As promised, Zoho has delivered on the integrations and added functionality that it committed to a year ago, and it's set to release further hooks between its own applications and to apps from third parties. It's also doubled the number of registered users of its Weaknesses However, Zoho still faces the same issue that besets commercial open source software players how to get more of its registered users to expand their usage of its applications so that they start paying for them. Copyright 2008 The 451 Group Page 4 of 5

5 applications in a year. Opportunities There continues to be plenty of interest in easy-to-use, inexpensive alternatives to Microsoft's Office suite, as well as interest from those new to CRM or keen to try out options to their current deployed software. Zoho is well positioned to appeal to many of these individuals and companies given the breadth of its portfolio and its focus on tying those pieces tightly together. Threats Look at any of the 19 applications Zoho fields, and it's up against some sizable competitors in the shape of Google, Microsoft and Salesforce.com, as well as many other smaller outfits in the on-premises, ondemand and commercial open source worlds. Reproduced by permission of The 451 Group; copyright This report was originally published within The 451 Group s Market Insight Service. For additional information on The 451 Group or to apply for trial access, go to: Copyright 2008 The 451 Group Page 5 of 5