INTERVIEW: Zoho CEO Talks Cloud Industry, Salesforce

Vembu doesn't believe blockbuster M&A helps in the sector, but thinks it will continue

   

When it comes to the cloud computing industry, there seems to be no end to the good fortunes.

Just last week, Salesforce.com (CRM) plunked down $2.5 billion for ExactTarget (ET) and IBM (IBM) spent $2 billion to buy SoftLayer Technologies. Plus, we’ve seen a spate of successful cloud IPOs, including doublers for Workday (WDAY, +137%) and ServiceNow (NOW, +120%).

To get another viewpoint on the cloud industry’s recent success, I interviewed Sridhar Vembu, founder and CEO of one of the pioneering companies in the space, Zoho.

Zoho has taken a very unconventional approach to its business by not taking any venture money. But that strategy, strange as it seems, is paying off. Zoho has built a line of more than 25 applications — including CRM, project management, web conferencing and invoicing — and claims more than 7 million customers.

Here was Vembu’s take:

Q: Can you give us some background on Zoho?

A: Zoho provides an integrated suite of applications for business in the cloud, with depth and breadth that is unmatched by any other player. We have been consistently profitable, with over 1,600 employees worldwide. We intend to remain private, so we do not disclose financial information.

Q: How does Zoho compete with big companies like Salesforce.com?

A: We compete in two ways: We differentiate ourselves in our product breadth, depth and coverage. For example, Zoho CRM integrates email in a very deep way, which no other company does as well. And, Zoho believes that the full suite — from CRM to document management to marketing to project management to accounting — should be contextually and deeply integrated. Unlike Salesforce, we have a very strong R&D strategy to deliver this integration. We believe this strategy works better long-term compared to their “acquire and bolt-on” approach.

Q: What’s your opinion on Salesforce.com and the mega-deal? Do you expect more dealmaking?

A: We do not believe in these blockbuster acquisitions, which we think destroy value. Salesforce’s balance sheet is one of the worst in the technology industry. Keep in mind that the typical technology companies does carries very little debt. Although, we do expect more dealmaking in the cloud because Salesforce’s strategy is perceived to be the way to do it.

Q: What about traditional companies that are moving into the cloud — such as with IBM’s latest deal?

A: IBM has been very strategic about areas they get out of (PCs) and areas they get into (cloud). I believe we will see many attempts to emulate IBM by other traditional companies, but they do have unique advantages in terms of depth of R&D that is hard to emulate.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


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