Understanding Zoho, the company taking on Google, MS

Here's an interesting strategy for a new software company: create applications that place you squarely in the competitive sights of Google and Microsoft, bypass venture capital funding, and rebuff an acquisition offer from Salesforce.com, the surging software as a service (SaaS) company that delivers its products over the Web.

That's been the exact path of Zoho, a SaaS company launched in 2005 that offers a wide range of online software, including e-mail, a word processor, spreadsheets, wikis, and even a customer relationship management application that it sells to sales and marketing departments. In all, Zoho sells 17 productivity and collaboration apps, all for prices that, by traditional software standards, are dirt cheap.

For the whole lot of Zoho's business applications, it costs a mere US$50 per user per year (the same price that Google asks large enterprises for its Google Apps software). By contrast, Professional Version of Microsoft Office, the popular software found on workstations throughout most of the corporate world, retails for as high as $499, the same price as some personal computers on the shelf at Wal-Mart.

Like Google, Zoho is betting on the cheapness of delivering software over the Web and hosting the data on their own servers to cannibalize the traditional "on premise" method of businesses buying software (like Microsoft's) on discs and installing it manually on employee workstations and company servers.

Zoho's software doesn't care what kind of hardware companies use, or what operating systems run on top of them. People merely need an internet connection and a Web-browser to access and use Zoho applications.

"Software is commoditizing as a result," says Sridhar Vembu, the CEO of both Zoho and its parent organization, AdventNet, a privately held company that handles IT support and data center maintenance. "It's going to be a more high volume, low margin business now."

Despite Google and its deep pockets to invest in Google Apps, Zoho stays competitive with Google on price. Vembu has a 200 person developer team in India release new features rapidly. In the process, industry analysts say Zoho has developed a product capable of competing, impressive given what it's up against.

"They've got more applications than Google [Apps]," says Jonathan Yarmis, an analyst at AMR Research that examines emerging technologies. "The apps they have are richer. They just don't have the publicity vehicle that Google has."

Analysts such as Yarmis say Zoho has built a compromise between what's being offered by Microsoft and Google. Microsoft software, such as Office, has been criticized as bloated with features that most people don't use and as too expensive. Google's Google Apps have been described as cheap and pretty, but lacking some essential features found in Office.

Zoho, Vembu says, wants to embrace the feature-rich environment of Microsoft Office while offering the cheapness and user-friendliness of a Google Apps as a result of the software being delivered over the Web.