CIOs believe Zoho’s de-rationing model needs to mature

Zoho announced the launch of Zoho One, earlier this week, which puts all of Zoho’s applications for USD 30 a month per user. The license in India, however, is priced at Rs 1000 per employee, per month.

The maverick software provider’s intent is clear: It wants to be one holistic operating system for your business.

Till date, Zoho offered applications bundles including CRM Plus, Workplace for Office Productivity and Finance Plus. However, this is the first time it’s offering all of its software for one price and tied together through the new admin panel.

The current business model offered by other SaaS providers is closely rationed as tech heads have to purchase licenses and then select a limited number of users who have access to those applications.

Decoding Zoho’s business model

De-rationing software is a model similar to the ones adopted at Amazon and Facebook, with small margins but big revenue opportunities over a huge user base.

CIO India talks to the top tech honchos of the Indian enterprise to get a read on whether Zoho’s new business model can make it big with the large corporations in the country.

Yateen Chodnekar, group CIO at Writer Corporation believes that the initiative to de-ration software needs to further mature.

Citing his expectations from software application suites, he says, “All-in-one suite solutions should include applications like ERP, CRM, HRMS, Office, messaging, and collaboration apps. Additionally, these should also include underlying databases.”

People are moving away from a Capex model to a subscription-based model. But a key challenge when it comes to multiple applications in one suite lies in integrating these apps to enable data-sharing.

“Now what separates one software provider from the other is how well they’re able to integrate these apps together. That is the key challenge that we foresee. You may have 38 different applications, but if they don’t talk to each other, then there’s simply no value,” says Darshan Appayanna, CIO, Happiest Minds.

Microsoft’s Enterprise Productivity Suite is actually a good example to show how well various applications integrate. “Ever since Satya has taken over, you’ll see how they use cognitive computing to draw meaningful insights,” adds Appayanna.

Citing an example, he says: “If you look at Microsoft, you’ll see that even the operating system is going to be part of a subscription based model. From what I know, I don’t think Zoho is doing that yet. So this is where companies like Google and Microsoft are a step ahead.”

Sounds great, but can Zoho crack the large enterprise segment?

What Chodnekar expects from all-in-one suites is for them to be able to take care of databases as well, and be free of hardware hassles. This, he believes, will bring clarity and transparency to software licensing.

“This will ease administrative overhead by having a single contract, negating the need for multiple contracts and multiple renewal cycles. This in long run will improve software license compliance in the SME segment,” he says. 

The one thing Chodnekar believes that could help Zoho make the cut is by making the license offering independent of devices.

Now, there’s no denying that the Indian market is very price sensitive. “In this context, I don’t know if USD 30 will fly. It’s all based on what value the entire ecosystem brings. Not everyone will use all 38 apps available in the ecosystem,” says Appayanna.

Explaining his reservation, he explains that if someone’s using all the apps, maybe USD 30 is a great price. But then there may not be many companies that would use the entire slew of apps.

Sridhar Vembu, Founder and CEO at Zoho, clarifies the contention saying that the pricing in India is actually Rs 1000 per employee per month, while the global price is USD 30, so the Indian price is almost half the global price.

Rajiv Kumar Singla, Head IT at ACC Limited opines that this type of a business model would be beneficial to small and medium enterprises as affordability would be a major factor for them.

“Large enterprises like ours are not too excited about de-rationing of software because we need solutions that cater to our scale. Also, since large companies have the budget and ability to afford solutions provided by bigger vendors, I don’t think this model would click,” says Singla.

Appayanna seconds this thought saying: “This model can force the big players and ERP vendors to rethink their strategies because a lot small and medium will move away from using ERP monoliths and switch to vendors who provide better value.”

Vembu says that it comes as no surprise for CIOs to have initial reservations as the model is on the cusp of disrupting the software licensing model as we know it. 

“It is natural that the CIOs would be somewhat skeptical, because this is such a revolutionary move in terms of software licensing. Just to provide one illustration, we are committing to keeping this price fixed, even as we add more applications to the suite. There’ll be three more arriving this year alone,” says Vembu.

Throwing light on the magnitude of Zoho One, Vembu says: “Over 4000 partners around the world, run on Zoho One. We are proving it can scale by actually scaling ourselves.”

Zoho, right from its inception, swam against the tide, and it has turned out well. Right from the time the man at its helm, Sridhar Vembu turned down VCs to invest in his firm, the company has carved out a place for itself in the SME sector. What remains to be seen now is if this odd fish can make inroads into larger enterprises.