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Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 6)

Posted on Sunday, Jul 15th 2007

Here we begin to explore the current status of Zoho a bit further. Impressive numbers considering there has been no advertising campaigns conducted. The business model is simple – let users try the service for free, when they are comfortable they will migrate over. Afterwards, they compete based on pricing (less than 20% of the competitor’s price-point). Simple and quite promising. [Our discussion is still around Zoho’s CRM suite, which is in direct competition with Salesforce.com.]

SM: How many customers does 50,000 users translate into? SV: About 3,000 businesses.

SM: In terms of selling into these accounts, is it the IT personnel making the decisions? SV: It is mainly the sales management who are really coming in now. Initially they come over for price reasons.

SM: They are already sold into the on-demand concept. SV: Exactly. I am really not ashamed to compete on price, that is our main strategy. We are going to compete on price.

SM: On the CRM side that will work. I think the office suite is a lot more difficult. SV: Yes, I would agree. We have about 300,000 users signed up already. There is a real good usage I am seeing. You are right that today I cannot persuade a large customer to adopt the suite. A lot of their employees are doing it one at a time, and there are a lot of university students and professors coming on board, and those types of adoptions spread widely.

We can also break up the portfolio. It may not be the office software you want, but you would like a really good meeting software. We provide an online meeting capability which is affordable. We are never going to charge for the personal edition of our software.

SM: The meeting software, which will compete with WebEx and Citrix … what are you charging for that? SV: It is free right now.

SM: The only product you are pulling in revenues on right now is the CRM suite? SV: Correct.

SM: What type of numbers do you have on the whole project? SV: The free is huge, I am completely comfortable with the open source model for 90% of the users. Keep marketing costs low. That is really the strategy. When you start looking for advanced offerings, then add some cost. If you do the Sales Force economics, 75% of their revenue is spent on acquiring customers. There should be a better way of doing business than charging the customer for acquiring him. Why not give it away for free, if all the money will be spent on acquiring the customer elsewhere?

This segment is part 6 in the series : Happily Bootstrapping: Zoho CEO Sridhar Vembu
1 2 3 4 5 6 7

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“If you do the Sales Force economics, 75% of their revenue is spent on acquiring customers. There should be a better way of doing business than charging the customer for acquiring him. Why not give it away for free, if all the money will be spent on acquiring the customer elsewhere?”
that is an interesting point….

Shashin Tuesday, April 8, 2008 at 8:00 AM PT

It was an insightful interview. I like Sridhar’s idea around increasing adoption by giving away a limited time free edition. However, his plain number comparison of engineers, I’d be wary about that. First of all, when you compare engineering organizations, compare their experience as well in addition to their numbers. You may have 600 engineers mainly constituting 2-7 years of average individual experience versus 100 engineers constituting 10+ years of average individual experience. The productivity could be the same. Plain number comparisons are misleading here.

Reema Friday, May 8, 2009 at 1:29 AM PT

His idea is brilliant, makes a lot more sense to do business by promoting free usage rather than spending to acquire customers

Taranfx Monday, January 18, 2010 at 2:50 PM PT