Zoho can come second and still win

Earlier in the week I spoke with Raju Vegesna, evangelist with Zoho about the upcoming Zoho CRM for Enterprise. Larry Dignan has all the key facts and correctly surmises:

Let’s be clear about Zoho’s motives: It wants to take on Salesforce.com’s CRM, which Zoho portrays as bloated.

I also spoke with Zoli Erdos, a fellow Irregular and advisor to Zoho. We discussed various aspects of Zoho's strategy in an effort to figure out what this means for the SMB CRM market as a whole and for Salesforce.com, the 800lb gorilla in the room.

Zoho's strategy is fundamentally different to Salesforce.com. It has a 'we build it all' mentailty rather than the platform thinking that Salesforce. com espouses. This has meant that its 200+ developers are beavering away on different parts of the overall suite of applications rather than being focused on any particular module. This has allowed Zoho to come into the market with a steady stream offerings and not be dependent on partners to provide functionality. This should mean clean integrations between CRM and other applications. Today, that is limited to Zoho Sheet.

Raju says further major integrations are on the way with a drip feed series of announcements in about two months' time. Zoho is also working to clear up the anomaly that leaves CRM as the only application that doesn't offer single-sign-on.

It also says that over time, Zoho will release a set of APIs so that developers can build upon Zoho. That is some months away and may be back burnered if integration efforts stall.

Readers might be surprised to learn that Zoho CRM claims 800,000 users registered on the system. With that number of users and fast reported growth, would you be in the mood to be acquired? Especially when, as Zoho believes, the primary past suitor is more marketing than engineering led?

The market for an integrated, elegant suite of business and office productivity applications in the SMB space is enormous. I have not seen recent figures for the US but I believe there are 4 million in the UK that could potentially benefit. This segment is seen by all the major players as ripe for picking. It is also the area where we will see the fiercest hand to hand street fighting for users.

Zoho uses the pull model and has less than 10% of its people working in sales. This will give it a slower growth trajectory than competitors. While the company is proud of this overhead to sales ratio, it will need to make some radical changes to its marketing strategy if it is to be perceived as a credible alternative choice beyond the small number of customers it is winning through its current model.

If Zoho is able to do all these things and continue to deliver fresh baked functionality at a steady clip, then it becomes a significant competitor to any other provider that including Microsoft, NetSuite, Intuit, Intacct and of course Salesforce.com.

Positioning istelf against Salesforce.com this week and offering the juicy story about its past dating efforts with Marc Benioff's market leader was always guaranteed to spark interest. Zoho now has to demonstrate it can deliver in quantity while innovating at a faster rate than its competitors. So far it has done a good job.

It also needs to put its foot down on the development accelerator to get the integrations into place and so improve its relative attractiveness against a variety of potential competitors. Sweeping all these caveats aside (which is always a dangerous thing), Zoho can give all comers a run for their money. There is plenty to play for in a market where there is considerable price pressure. It is for these reasons I believe that Zoho can become a credible second place contender. In any software market, that's a good enough place to be.