Salesforce Lightning Strikes, Burns Customers 

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Lightning struck last week when Salesforce announced its new Sales Cloud and Service Cloud Lightning Editions. The new editions come with a whopping 15-20 percent across-the-board price hike.  

In its announcement, Salesforce said, “Over the past 17 years, we’ve delivered thousands of features across our products, increased our data center capacity, and we continue to make our systems more trusted, bringing additional value to our customers.”

While this sounds laudable, it doesn’t pass our bullshit test. For all its talk of adding value to customers, Salesforce spent a paltry 15 percent of revenue on Research & Development in 2015. Meanwhile, 51 percent of its operating expense went into customer acquisition (i.e. sales and marketing).  

Known already for lofty prices, Salesforce uses the “customization and configuration” sleight of hand to justify this new luxury tax. Last we checked, the implicit promise of cloud applications was that new features, updates, and versions are included in the subscription fee.

The Dark Side of the Force 

Reckless spending to acquire customers, unmindful of profitability, always ends badly – as price increases for customers. Well, it’s been 17 long years of unprofitable growth for Salesforce and their recent price hikes confirm that shareholder pressure is taking its toll.

We’re not the only ones who saw this coming. In April 2015 Forrester predicted that the “original Salesforce CRM software, for which the company is known, will not support this revenue growth on its own.” Forrester added this: “What is good for Salesforce’s investors is not necessarily good for its clients.” 

Salesforce’s Lightning editions reflect this exact dilemma. Consider two-factor authentication–a method that uses a combination of two different ways to authenticate every user–that’s become essential to secure cloud data. Salesforce provides two-factor authentication only in their $150 per month premium plan. At Zoho we see security as a right; we’ve even made it part of our free edition. The pressure for investor returns at Salesforce has supplanted customer data security, precisely as Forrester predicted. Salesforce cloud security is now just for the one percent. 

Over-investments and poor investments cause higher prices, which end up burning customers. Just examine Salesforce’s real estate plans. Perhaps CEO Marc Benioff can explain to Jim Cramer on his next “Mad Money” appearance why they’re spending $1.1 billion on a fancy new office tower in the most expensive city in the country while customers are watching prices go up. Mad Money, indeed.

An Innovative Cloud For All 

Salesforce’s price hikes fit the time-worn strategy of a bloated, aging software company retreating to large risk-averse enterprise customers. Raising prices, soaking smaller and medium sized businesses to serve the largest, and overpricing in international markets (even under a strong dollar) is a far cry from the promise of cloud software: to reduce costs and make amazing software technology affordable. “King of Cloud” it does not make. 

Salesforce’s new prices and market strategy reaffirm our distinctly different mission at Zoho: To bring innovative, high quality software to any business at unmatched value. 

Consider the combined cost of Salesforce’s Sales Cloud, Marketing Cloud, and Service Cloud, which will likely be upwards of $500 per user per month. Zoho’s equivalent offer is CRM Plus. It is a suite of 8 different apps – spanning marketing, sales, and customer service – and costs $50 per user per month. Which means a year’s subscription of Salesforce will buy you a decade with Zoho. Small and medium companies all over the globe can afford what used to be the prerogative of the very large in making their businesses efficient. This is the revolution of the cloud.  

Your Salesforce Discount Code: Zoho 

A closing note: If you’re ever in negotiation with a Salesforce rep, just let them know you’re considering Zoho. There isn’t a faster way to squeeze out a fat discount.

Recent Service Disruptions

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We have been facing an on-and-off surge in network traffic that is causing these service disruptions. It is a denial of service attack, and we are working with our service providers to mitigate it.

As we work through these, we are also putting in place stronger measures so that we can withstand serious attacks in future.

We sincerely apologize for these service disruptions. Our own business relies on Zoho so we know how painful these disruptions can be. We want to assure you that we are working on both short term and long term steps to handle these attacks.

Salesforce Acquisition: Nobody Rings a Bell at the Top

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Yesterday rumors broke out that Salesforce is entertaining buyout offers and has hired investment bankers to consider “strategic options”. My first thought? What a great time to sell! My second thought: please don’t jinx it – not when someone is coming up on a $50-$60 billion payday at 10x forward sales. The P/E of course is incalculable since there is no E.

Nobody rings a bell at the top of the market. But we gotta admit – Marc Benioff is the best salesman in software the cloud, ever. Now, I am trying hard not to think of ​Steve Case and AOL and Time-Warner, because this time it ​will be different, of course.

In the past few weeks, BlackRock’s chief Larry Fink released a letter addressed to the CEOs of S&P 500 companies talking about the need for a long-term view. That may not be a good idea, because it is no fun to think about write-downs and kitchen-sink quarters. Only spoilsports talk about a hangover when the party is in full swing.

Consolidation

Consolidation is coming to the cloud; we at Zoho recognized that a long time ago. Our entire strategy has been dictated by our desire to stay independent (as I have explained before), even as consolidation alters the landscape around us.  Even CRM, a very significant industry just by itself, doesn’t make much sense as a stand-alone product. The proof is that Salesforce (hint: their stock ticker is still CRM) has been on an acquisition rampage over the past few years trying to complement its product portfolio and show growth by acquiring revenue.

But even with the more than $3 Billion spent on acquisitions in the past 3 years, and even with their market cap of $40 billion $50 billion dollars, Salesforce finds itself the target of a takeover.

Why do we expect consolidation? Simple – there are too many companies not making money. Why don’t they make money?​ Again, simple – they spend way too much on sales and marketing. Let’s consider a hypothetical combination of Box and Zendesk – both “Post-IPO Non-profits”  as we call them – you could cut the combined sales and marketing spend by half, and that may just be enough for them to turn a profit. That is the classic case for consolidation; a case that looks ​compelling on a spreadsheet – you know, the tool that Box actually doesn’t know how to build.

If only company cultures were modeled as cells in a spreadsheet, where people stay in their neat little boxes and hairy code-bases magically combine to produce beautiful children.

Take the case of Salesforce acquisitions for the past 3 years – here is the extensive list. How many of them have been integrated even at a single sign-on level, let alone at a product level? In fact, to solve that problem, Salesforce recently acquired a single sign-on company.

Winner’s Curse

​When you escape the jinx, there is still the curse – the winner’s curse. Most acquisitions fail and silently get written down or written off entirely – see for example, Zimbra’s acquisition by Yahoo. Salesforce has written down a bunch in the last few years, after overpaying by hundreds of millions of dollars – at least, the money didn’t come out of their profit!

Jinxes and curses? No, we don’t want these to befall our customers. Since consolidation is coming, if you are a customer of cloud companies, it’s time to get used to being traded around.

Except, of course, if you are a Zoho customer. With us, you will not underwrite any acquisition premiums or bloated sales and marketing costs. You will get a broad suite of deeply integrated products that helps you run your business on the cloud. Private and bootstrapped since our founding – we don’t answer to anyone but you. We never will. We aren’t going anywhere.

Sridhar

Microsoft’s Oxygen Supply Problem

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Zoho and Google both have offered free office suite for years, and today, Apple announced that their office suite will also be free across all Apple devices.

Given that Microsoft Office has long been the de-facto monopoly, none of our three companies have anything to lose in commoditizing the office suite market. That is the nice thing about facing a monopoly in an adjacent market – every player other than the monopoly would win if they get a non-zero share of a massively shrunk market. If the $20 billion market shrinks to $2 billion, we at Zoho would celebrate it, as long as we can hope to get a share of that shrunken market. In fact, competitors would win even if they don’t get any share of the shrunken market, because it denies the monopoly the ability to use its cash cow to dominate adjacent markets they do have an interest in.

That very same dynamic has played out in the operating system market already. The near-zero revenue share that competitors to Windows had meant that Google and Apple could give away their operating systems (which Apple also announced today!) and not have anything to lose. What Google achieves with the $0 ChromeOS license it charges OEMs (which costs Google exactly $0 in foregone operating system revenue) is that the OEM will now turn around and ask Microsoft for a $0 Windows license.

What OS X, iOS, Android and ChromeOS have collectively achieved is to drive Windows market share to under 25% of all client devices and yet, these alternative operating systems derive near zero revenue in and of themselves.

There is really not much Microsoft can do to fight back to stop the erosion of these core franchises. Their traditional weapons – closing the document format; tying the Office suite closer to Windows – none of these weapons work anymore. Today, for the first time in a couple of decades, Microsoft faces serious competition in Office, from competitors who, for their own reasons, all want to tear down the monopoly. Why do Apple or Google or Zoho all want to commoditize Microsoft Office? Each company has its own reason: Apple wants to add value to its world-class devices, Google wants to extend the reach of its web services, and for Zoho, the Office suite is one part of our broader work-oriented application suite. As I have argued above, underlying these different strategies is a more fundamental reason: why not tear down a market where we face a monopoly? Apple would want to stop Microsoft from being able to leverage the Office franchise and money into tablets and smart phones, Google would want to stop Microsoft from being able to pour money on Bing indefinitely and so on. Bill Gates would know what it means to “cut off the oxygen supply” – after all it was a phrase he invented while finishing off Netscape. Apple and Google recognize, just as we do at Zoho, that the $12+ billion in oxygen (aka operating income) that Microsoft Office contributes to the mothership is now extremely vulnerable.

The Windows and Office monopolies have massively incentivized the broader ecosystem to come up with business models that drive down the value of those core Microsoft franchises to near zero. This is the price Microsoft has paid with its profoundly anti-competitive tactics of the 90s – every single player in the ecosystem, from their once-slavishly-loyal OEMs to would-be competitors all want to see their market shrunk to zero. Microsoft has punished itself more than the Justice Department could ever have done.

Zoho Outage on Sep 26, 2013

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We experienced an outage yesterday, September 26, that affected all Zoho services. The outage started around 2:32 pm, PST. This was due to the network disturbance caused by a misbehaving access switch in our primary datacenter LAN. This switch actually has redundancy built in. The switch was losing packets, but didn’t fail fully, and so the backup switch didn’t take over.

Our team took the troublesome switch off the network, and had the backup switch take over. Most of the Zoho services including Zoho CRM which were hosted in a different network were up within the first hour. Actual downtime of Zoho CRM and other services was 52 minutes. Zoho Mail, which was hosted in the same network as the failed switch, was the most affected, and it took around three hours to restore full service.

We are still analyzing the root cause of this issue, and we will post our observations, corrective actions, as we get more insights into the events that led to the outage.

Any downtime is painful, and we are investing in both infrastructure and R&D to avoid downtime. We apologize for letting you down yesterday.

What the US Government Surveillance Programs Mean for Zoho Customers

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At Zoho we take privacy and security of your data very seriously.

However, privacy is not just a matter of software engineering. A few customers have asked us what the recently leaked US government surveillance programs mean for us as a company and for you, our customers. Our data centers are based in the United States, and we do a sizable chunk of our business here as well. We are, therefore, subject to US law. We do not make the laws, but we are bound by them – whether we agree with them or not.

We would love to be able to guarantee the privacy of your data against any government intervention. However, realistically that is not possible. Companies like Google and Verizon have also found themselves having to comply with over-reaching requests. Choosing not to comply is not an option given the way the current laws and programs work. Customers might want to consider the fact that the US government can do as it pleases – with your data whether it is stored in the cloud, or sitting inside your own company walls.

It is our view that the federal programs that have come to light (and others that we might not know of yet) are too far-reaching. We hope that with the intense pressure that the current administration is facing from media and the general public, these programs will be modified to allow for better due process and increased transparency.

Meanwhile, we continue to focus on the elements of privacy and security that we are able to influence and control. The technical safeguards that we work on are meant to protect you against hacking attempts, and also to keep Zoho itself out of your data. In matters of privacy, it is worth highlighting that Zoho remains the only major email service provider that never displays any ads. In fact, there are no ads inside any of our products. We don’t have an incentive to look inside your data ourselves. While Google has gone on record to say you can’t expect privacy from Google itself, we can assure you that we guarantee your privacy, at least from Zoho itself, if not from the Government.

So far we have not faced any situation that has presented us with these conflicts, but we do not assume we will never face it. This is not a technology issue, this is a political and constitutional issue. We just thought we would let you know about the current environment that companies like us face.

Sridhar