He said that SaaS companies spend a lot on marketing and sales akin to the dot-com model where most of Yahoo’s revenue came from selling advertising to other dot coms who were losing money.
“A lot of (SaaS) companies, a lot of their revenue is coming from other SaaS companies for which they spend an extreme amount of marketing money. So money losing companies spending a lot of money on other money losing companies.”
He said that while other companies spend between 40-60% on marketing and sales, Zoho Corporation spends around 20% on marketing and hence was able to attract a different customer base worldwide. So while major SaaS companies have been focused on the US market and derive most of their revenue from the North American market, he said Zoho’s revenue from the US is a smaller proportion than their competition and amounts to about 38%.
The Chennai-headquartered global technology company’s approach to focus on countries apart from the G7 countries has paid off, Vembu said as countries like Jordan, Nigeria, Columbia, Brazil and increasingly Mexico have embraced Zoho’s suite of products. He said it was unusual for a SaaS company to follow such a model of prioritising non-G7 nations, however, Vembu said that it was an early focus for the company.
The G7 is an informal grouping of seven of the world’s advanced economies, including Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, additionally, the European Union (EU) is a “non-enumerated member”.
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“India is the hottest market,” he said. “The Middle East is immediately after that and then there’s Latin America and Africa, where we have seen tremendous growth. Developed markets are much more sluggish – the US and the European Union (and) Japan is in deep doldrums.”He said that the company has been targeting geographical diversification and has made a strong push for India which has resulted in India becoming the third largest market for Zoho. Within three years or so, Vembu said he expects it to overtake the European Union and become the second largest market for the company while also stating that in seven to 10 years, it could even replace the US as the largest market.
“That’s a major transformation for the company because approximately 10 years ago, maybe 2% of the revenue (was from India),” he explained. “And within India, the smaller towns will be where the best growth will be found.”
In keeping with this, Vembu on Monday shared updates regarding the company’s ongoing rural revival efforts and reiterated their commitment to investing in R&D and people. In the last six months, the company has opened two ‘hub’ offices in Tiruppur and Trichy; and plans to open others in Tirunelveli and Madurai districts in Tamil Nadu as well as one in Uttar Pradesh, down the line.
“We are at a time of increasing economic uncertainty. In addition, powerful AI technology could transform the way we work, presenting both huge challenges and opportunities. We are busy reinventing ourselves, and our history of previous reinventions and our strong culture of R&D remain as relevant as ever during this reinvention,” he said in a statement.
In 2020, Zoho decided to follow a hub-and-spoke model of offices to cater to a distributed workforce, and as part of its ‘transnational localism’ strategy of being locally rooted, while staying globally connected. The hub offices are ones that can accommodate 1000 or more employees, while the spoke offices are smaller offices of up to 100 employees. Eventually, each hub office will have a few spoke offices associated to it for infrastructure support and team collaboration.
The company currently has five hub offices, including ones in Chennai, Tenkasi, and Renigunta, and around 30 spoke offices presently in India. Nearly 2000 employees are working out of Zoho’s hub and spoke offices in villages and Tier 2/3 towns, out of which about 1000 employees were hired locally.
“Many of our product development teams today sit out of these hub and spoke offices, including some teams that are involved in deep-tech R&D. The long-term vision of these efforts is to create self-sufficient and economically prosperous rural communities,” Vembu added.
Zoho is also expanding its current facility of Kalaivani Kalvi Maiyam, a learning centre opened during the pandemic for educating the young children from villages in and around Tenkasi.
(The reporter is at Tenkasi at the invitation of Zoho Corporation)