Calm and composed, donning a traditional attire of white mundu (veshti) with Zoho-coloured stripes, and a blue shirt bearing the logo of the company, Sridhar Vembu, is no more than ordinary. He currently works from a small town in Tenkasi, one of the significant spiritual places in South Tamil Nadu. 

“Every time I visit Kottarakara (in Kerala), I munch on the unniyappam prasadam from the Ganapathi temple there,” a humble Vembu told AIM on the sidelines of Zoholics India conference, the company’s annual user conference, held in Bengaluru last week. 

Vembu’s vision of taking opportunities closer to where the talent is, has been one of Zoho’s goals. As a social entrepreneur, building capabilities and retaining talent in rural India has been his prime focus. 

He spoke about a small town Kottarakara, in Kerala, where you can easily set up 50% of R&D centres, something that Zoho is working on. “I have to look at how to positively create jobs, moving skills and capabilities, and ensuring that we retain our talent, because there is a lot of pressure in rural areas for talent to migrate away,” said Vembu.

“I live in rural India, I know my neighbours and I know the region well. I cannot live there and not care about the people around me.”  

Zoho recently became the first bootstrapped company to cross 100 million users, an organisation that has been thriving for over 25+ years, becoming one of the leading B2B SaaS companies in the world, without any form of external funding. 

“When there was a big bubble, it was hard to stand out, but because we were bootstrapped. Our long-term strategy started to pay off. The customers could see deep value in our profit portfolio, which led to an acceleration of user/customer acquisition,” said Vembu. 

Today, Zoho competes with some of the biggest players such as Salesforce and Microsoft, and has even witnessed big customer migrations from their competitor platforms. “I am bullish on growth, but against the global backdrop, that itself is challenging,” said Vembu.

Zoho has been continuously growing and witnessed a 37% growth in revenue in 2022. 

Zoho Corp. India’s Revenue Growth 

Though optimistic on Zoho’s growth, Vembu refers to the uncertainty of the global economy, as living in an earthquake zone. “We’ve built a resilient house with a strong foundation, but you will still face scraps because of the earthquake.” 

Recently, Vembu even tweeted about the economy taking a turn for the worse, which implies a direct effect on the SaaS market as well. Vembu expects a further dip in stock valuations in the current market. “Some SaaS vendors are trading at 2-3x, which used to be thought of as very low, but is happening,” he added.  

However, in the economic backdrop, he expects many companies to switch to affordable product solutions such as those offered by Zoho. “Existing businesses seeking more value will switch from companies like Salesforce which is a positive,” he said. The market will be “more subdued, but more rational”.

Calls Out the AI Hype 

Pulling parallels to how everything becomes a bubble such as crypto, or even SaaS which has been crashing, Vembu believes that there is an AI bubble as well. Equating AI usage to a marketing buzz, he also said that the initial excitement surrounding it has come down in the last few months. “There are still challenges from a business point of view,” he said. 

Vembu highlighted ‘hallucinations’ and AI neural network’s capability to memorise and regurgitate what it memorises, as the two challenges that need to be solved for commercial product use. 

“We have to be cautious. I don’t want to overhype it, oversell it, but we have invested in the technology, so that all the capabilities are realised and the problems are kept at least.” 

Consolidation Amid Competition

Speaking about the highly competitive and overcrowded space that SaaS companies operate in, he believes consolidation will be the way forward, which will be “inevitable”.

Vembu mentioned that companies ought to become profitable, as VC funding dries up. With SaaS companies, end customers will not want to deal with 600 vendors, and that’s why he believes consolidation will become inevitable, something he has been saying for years.

According to Vembu, consolidation can be market-driven, customer-driven and valuation-driven, and an example of the latter being Slack. “Salesforce overpaid $27 billion for Slack, and I’m sure they won’t pay that today.”  

While partnerships with OpenAI, Anthropic, and other AI companies will continue as “these companies are open to partners, as that is how their market is made,” Zoho is also investing in its own models that are domain-specific, and will be watchful of how things will materialise in the future.

“We have to see how this shapes up in the next few years.” 

Talking about forward-looking investments in such companies, Vembu was clear in his approach. “I generally only invest when the hype dies. I won’t invest in end valuations.”

Zoho for the People

In the backdrop of companies integrating AI applications on their platform, and cutting on costs and resources, Vembu is clear on the directive he has for Zoho. 

While he believes that software development can be made more productive, even achieving a ten-fold development leap with AI, which will have implications for jobs in the future, the employees will be repurposed towards customer, engineering and other roles.

“We will caution our employees on the technology, but we will not resort to layoffs. We will internally repurpose,” said Vembu.