Well I know we’re into a new year now, because my first conference of 2020 just ended. Zoho’s annual analyst event took place in Austin, Texas this week and as in year’s past I had a chance to sit down with CEO and co-founder Sridhar Vembu for a wide-ranging conversation. And quite literally we had a fireside chat.. while in rocking chairs.
Below is an edited transcript of our conversation, where Vembu shares his thoughts on how the company has developed over the past five years, how it is positioning itself as a technology company and not just a software company, why he feels the cloud should help provide dignity and opportunity to rural communities, and why Zoho is taking a hard stance against the industry practice of “surveilling” customer data. To hear the full conversation watch the video or click on the embedded SoundCloud player below.
Small Business Trends: When you think about the last five years, what has that meant to Zoho the company?
Sridhar Vembu: We’ve seen tremendous growth. I think we showed, say over six, seven years, almost 10 fold growth we have seen. And that I think is continuing now; the growth rate is still accelerating now. Now we now have an ability to tell the story as well as we are able to engineer the product. We’ve been a good company, but we were not able to tell the story before. Now, I think these events have helped us refine our messaging, help tell the story and connect with people.
Small Business Trends: So what is the big part of the story that may have been missing a couple of years ago that you can now tell and feel good about?
Sridhar Vembu: I think a lot of it is our culture as a company, how unique it is, how differentiated it is. I mean, we’re shy talking about ourselves as a company.
Small Business Trends: I’m going to say you are very shy …
Sridhar Vembu: Always, always been true. You know my attitude, build a great product, throw it over the fence, people would buy it if they want it. That was the attitude. These things have helped us realize there’s more to it than that. Because ultimately, every engineer has to learn this. Computers don’t buy products people do. And people have a reason, need a reason to buy it.
Small Business Trends: Right.
Sridhar Vembu: They have to feel a connection with who is supplying technology to them. It’s not just only the technology, it’s also the connection, human connection. That’s the biggest thing that has changed in the last five years.
Small Business Trends: Now your evangelist, Raju Vegesna, he said a little earlier today that Zoho is not just a software company. It’s a technology company. Talk about that, what does that mean?
Sridhar Vembu: What Raju means is that this is a company that goes deep down into every aspect of what we do. And that is the depth of technology in terms of the software itself, the hardware underlying it, the networks that are powering or the data centers; all of it. Also, in a deeper way, for example, we talked about construction, we talked about education, we talked about healthcare. So we think holistically about all these problems, not fragmented pieces, but we think holistically how are we going to get employees, train employees. How do our facilities look and how do they provide a nice home for employees. So these all of these aspects we think about.
Small Business Trends: You always come up with very good phrases. The last time we talked you talked about, how the capital is within the culture of the organization and not the finances.
Sridhar Vembu: Exactly.
Small Business Trends: And that really resonated with not only me but a lot of people. But this year you talked about how you don’t want to be … I want to make sure I get the phrase right. You don’t want to be a cost –
Sridhar Vembu: Costly input to our customers.
Small Business Trends: Costly input to your customers.
Sridhar Vembu: Yes.
Small Business Trends: Talk about what that means?
Sridhar Vembu: This actually came from my observation of the farm problem. The farmer problem, farmers face a problem where their inputs are getting costlier and costlier while the output is getting commoditized. So they’re literally squeezed. In fact, a lot of them have negative margin in their business now more and more, which is why the farm bankruptcies, a lot of the crises, rural crisis, agrarian crisis, which is pretty much worldwide. This is in the US, this is an India everywhere it’s happening.
I spent time in rural India and so I was able to observe these things first hand. Then I realized for a lot of businesses technology is a critical cost and we don’t want to be a costly input to our customers, because then our customers cannot survive in business very long term if they have very costly inputs from us. And so the only way to be sustainable, this relationship to be sustainable is we become an affordable input to them. This provides a nice framework to think about our business, how we structured ourselves. I talked about deep technology that is driven by the fact that we have to avoid costly inputs ourselves so that we don’t become a costly input to our customer.
Small Business Trends: So the other thing that really resonated is not only that you don’t want to be a costly input to your customers, but you want the cloud to be more than some great technology. You want it to – and I never heard anybody talk about it like this – you want the cloud to provide dignity.
Sridhar Vembu: Yeah.
Small Business Trends: And give more opportunity.
Sridhar Vembu: Correct.
Small Business Trends: Talk about that a little bit.
Sridhar Vembu: Today with technology we are able to work from anywhere. We just spoke before you said you work from home?
Small Business Trends: Right.
Sridhar Vembu: From Atlanta, in suburb of Atlanta, right? I actually worked for now mostly from rural India now and Raju works in Austin. And yet we are all connected now. I talked to Raju from rural India at least once a week and on video a couple of times a week.
Small Business Trends: Right.
Sridhar Vembu: That’s what technology has enabled now. And this actually has startling implications for where the jobs are to be and what the incomes can be and the identity of people. In other words, if someone is a rural citizen and they have skills now they can actually have a job that pays a meaningful wage, that affords them a dignified life and they’re also be … could be change leaders in their communities. And all of this is possible today that was never before possible.
So to me, the cloud has a broader purpose, a bigger purpose. The cloud is not a delivery channel for software, cloud has a bigger purpose. It enables us to work from anywhere and that liberates us from constraints for example, expensive real estate trap that so many young people are trapped. So many people are trapped in heavy big mortgages in big cities. One of the reasons entrepreneurship has fallen in the last 20 years in this country is because too many people are trapped in heavy mortgage that they … and student loans, all of these issues. So they don’t have the freedom to experiment, freedom to go out on their own. So the cloud can be actually a transformational medium for it and the fact that we can work from anywhere and that is critical.
I see this now in terms that are not purely technology, but its sociological implications that it can revitalize rural areas. It can retain talent, it can even attract talent back into rural areas because rural areas have suffered a brain drain, talent drain for a long time, talent it will be simply upper leaf. But now people can stay in their home towns, maybe come back to their home towns and help revitalize those areas. So all these are possible today.
Small Business Trends: And you talk education in terms of lowering that cost. But when you started looking at the data centers and being able to be more efficient in the way that you use power in that role of it, talk a little bit about that in terms of “costly inputs.”
Sridhar Vembu: I remember one of the biggest cost items would be running the data centers to deliver our services, our applications to customers. One crucial ingredient of data center cost is power. The power consumed by all the servers and the switches and all of that. And it turns out there are many, many ways now to reduce the power and also provide the power in the renewable power, like a hydroelectric power or solar power all of these. So we look for data centers with that, so we now built a solar plant to power data centers in India, we’ve hydro-power powering our data centers in the US, so these are some of the areas that we pay attention to. We also are looking for ways next generation to reduce the amount of power, to serve a particular customer in the data center, this translates both into lower overall power consumption and it also lowers the cost of service delivery long term. So these are things that we look at.
Small Business Trends: One of the stats that came out, I forget who said about it might have been you or it might’ve been Raju, somewhere along the line, it would cost $10 million a year if you are running Zia [Zoho’s AI technology] on AWS. Talk about the impact of not running on AWS has for Zoho, and Zoho customers.
Sridhar Vembu: As you look at our search infrastructure that is searching across a very wide span of applications, it’s sucking in all of the data of the customer in Zoho, indexing it, cross correlating it and cross indexing it. Your CRM data, your financial data, your document data, your email data, your chat data, all of it has to be cross-referenced, correlated, all of that. This takes massive amounts of compute and storage, all of these, these indexes, all that.
Public cloud infrastructure, we did evaluate for this. It cost us a lot more to do this than what it costs to do it ourselves. We would have to increase the prices substantially on our customers.
Customer Data Surveilling
Small Business Trends: I think, this subject today that got a lot of people’s attention was this whole idea of surveillance companies and surveilled data. A lot of people probably don’t know what that means and maybe you could just define what that means?
Sridhar Vembu: Today, regrettably, many consumer internet companies have become de facto surveillance companies. It’s Google and Facebook, all of them. Whether they like to be called that or not, they have become surveillance companies. And exactly the same way that citizens would react to the thought of if the government surveilled them, we also have to react to internet company surveillance. It’s wrong, it’s wrong with them but normally it’s wrong when private companies do it and it’s done with the purpose of marketing all of that data.
But in fact there was news yesterday where this company was fined 140 million something because they were actually the free software for EHR, Electronic Health Records. They were showing the doctors, they were prompting the doctors to prescribe their Opioids. And they had a secret arrangement with a pharma company to enable this, to increase the sales of all those painkiller prescriptions and the Feds caught them and severe fine was imposed on them. This just shows the negative consequence of that type of a business model were you are sharing data with [crosstalk 00:13:05] .
Small Business Trends: Basically, it’s the data/advertising model like Google.
Sridhar Vembu: Yes.
Small Business Trends: They make a lot of their money from ads [crosstalk 00:13:13].
Sridhar Vembu: And this creates really bad incentives on … and there is always somebody with a tempting offer for how we want to use the data. And this example this pharma example shows that.
Small Business Trends: Right.
Sridhar Vembu: But it has a huge cost to society and to people who are prescribed useless painkillers for things they don’t need. So this is why I think it’s important. And at the same time, I would say this, my phone knows everything I do, especially today. To be a smart phone it has to know everything about me. So I’m not worried that it knows what I do, I’m only worried about where the data will go, what the companies that have access to the data build with the data.
Small Business Trends: How they use it.
Sridhar Vembu: How they use it.
Small Business Trends: How they sell it off to the third party.
Sridhar Vembu: Exactly, so this is why I think I draw this thing right to be a smart phone. It needs to know a lot about me, but I don’t want everyone to know everything about me. My where abouts, where I am, what I’m doing right now all of these things, it doesn’t have to be broadcast to the entire world. In effect that’s what has happened to a lot of us, where all these surveillance companies are taking this data and repackaging it and selling it to various parties, without the customers knowledge, you don’t even know how many places this data is going today. And so I do believe that we are going to have … not only this is, in fact I give this analogy, it’s exactly how smoking was 40, 50 years ago, but if we had … we’re sitting here having this chat 40, 50 years ago, one of us would be smoking.
Small Business Trends: Yeah.
Sridhar Vembu: It was very common.
Small Business Trends: Right on TV.
Sridhar Vembu: Right on TV and In this room probably like everybody would be smoking and it would be so common place that we all accepted it.
Small Business Trends: Right.
Sridhar Vembu: Today we actually don’t accept it. Nobody smokes inside buildings and we even have laws against it now that every closed place and offices, hotels everything should be smoke free, no smoking zone. And this happened both by social awareness of the harms of secondhand smoke and legislation. I believe the same thing is happening now, the awareness is spreading that this privacy violation is happening, surveillance is wrong. Now legislation is following, slowly GDPR as an example, California passed a law. I don’t believe stringent regulations are necessarily here and this won’t prevent progress. It will guide it the right direction where we draw boundaries, ethical boundaries. What can a software engineer do with the data? Data is now a valuable thing about a person and so software engineers have to handle it the same way a doctor handles a patient.
Small Business Trends: Medical records, yeah.
Sridhar Vembu: Medical records of a patient. There’re ethical boundaries based on doctors, we need ethical boundaries on software engineers.
Small Business Trends: There was a question because you went over this today and there was a question. I think it’s a pretty valid question, because everybody in industry pretty much is doing this. I don’t know if that’s purposely or not there, it’s the way it’s gone in the industry. But what does that cost Zoho in terms of is there a lost insights? Is there lost revenue? What does that cost you and why do you think the benefit of doing what you’re doing outweighs it?
Sridhar Vembu: So for example, we eliminated all trackers, third party trackers from our site and even our own marketing was apprehensive at first that they’re going to lose certain insights. And I told them that’s okay. We build the tools in house and we do not share the data with anybody so that’s a given. So that was what I said and that did have an initial cost to it. And I’m the certain we cannot compute for certain campaigns we do. And that’s an acceptable price to pay in my opinion, longer term, the trust we had with the customer, is far better than any short term things.
In reality, we have been growing consistently and the growth has actually accelerated in the last couple of years as we have taken a stronger privacy stance. So I would say maybe does even help the business, even though that was not why we did it, because we were willing to pay the price. In fact, we were willing to suffer a reduction on traffic if that’s what’s going to happen. I said, that’s okay. Because life is short. How badly do you want to be successful if you don’t feel good about how you do it … you cannot sleep well at night. That’s how I put it.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.
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