Who buys Zoho?

The name Zoho is a play off the term SOHO (small office home office), which was the area of the software market that Zoho first intended to penetrate.

But as Zoho expanded the capacity of its data centers and its developers began building more online software beyond its first application (Zoho Writer, a word processor), the vendor gained more interest from small and medium sized businesses (SMBs), such as law firms and doctors offices who were looking for minimal IT costs, says Raju Vegesna, the company's chief evangelist. They have also received business from non-profits and the public sector, such as Teachers Without Borders and the Hawaii State Government.

More recently, they have begun seeing interest from large enterprises, particularly on the departmental level, where they have taken advantage of some of the collaborative functions (such as document sharing and wikis) and the addition of CRM software.

"They're coming in because they can see the productivity gains and they can see the savings," Vegesna says, who mentioned that the company has generated one million users from its business and free consumer versions.

Swisscom, a telecom company in Europe, recently began piloting the software, and Vembu says he has received interest from large enterprises in the United States as well.

Many parts of Zoho's offering are free for up to a few users. Unlike Google Apps, their experience is not subsidized by ads. Vembu hopes that these users will engage with the Zoho development group over the Zoho blog and give feedback about the software, then hopefully tell friends.

"That's our marketing expense," he explains.

Three's company

Zoho faces two challenges in cracking the software market. First, they must compete with the incumbent giant (Microsoft) over time by making Zoho applications just as functionally rich but available more cheaply on the Web. Secondly, Zoho must overcome the popularity of Google, which not only has spent lots of money making inroads with SMBs and large enterprises, but also has enticed a generation of future users with services such as Gmail, the email service that gives users free access to the consumer version of Google Apps.

Given this competitive landscape, it might seem counterintuitive that Zoho didn't decide to focus on one or two core applications, perfect them and see if other giants in the market take notice. But Vembu seems to be in this for the long haul: he says the diversification of the Zoho portfolio not only brings more value to his users, but it also will allow the company to remain independent.

"We believe the software market will consolidate," he says. "We felt offering a breadth of apps would help us stay independent, and we believe those apps have the depth to compete."