This entry is out of considerable deliberation and after discussions with some brilliant friends who share the thoughts. The reason was because though I have the freedom (Thank God!) to write what I feel like, I am actually talking about decisions other people have made. And I respect those people, so it doesn't feel good to write this. Nevertheless, I have been having this thought and it was only adept that I put it into words.
So what is this about? I am primarily talking about business on the Internet. Many of us have been unfortunate enough to witness the big dot-com burst at the dawn of this millenium. All of us realize why that happened. If you don't, here it is in simple words - too much money was poured into online businesses which did not have a strong enough revenue model to get profits. A kid would understand that if you put your money into something, you should know how that would generate profit for you. Take that and multiply it a zillion times. When too many people put in money into too many things and don't care or know about how that investment will generate profits, then too much money is in the wrong place. That causes deficits in other places, hence creating a false boom of prices, salaries and everything else. When that might seem like a boost for a while, it eventually collapses because after time there is no return and all the rich people who invested in the first place stop doing that. And the people who are yet to generate profits out of the businesses they ventured into suddenly have a reduced cash flow, increased costs and no profits. Crash! There is very little to say after that point.
When everybody who was in business then learnt their lessons, not everybody was fortunate enough to survive the bust. Today is a different world. Forced by the cost cutting exercises that many global companies went through during that phase, work moved to countries where "labor" was cheaper. That has resulted in the offshoring and outsourcing model that we see today - which has become so successful that it is not just for IT, but has gone further into business process outsourcing as well.
Looking back at the lessons we learnt during the bad phase, companies and organizations have to take strong decisions that have a solid revenue model backing them. It is this that brings me to the crux of this discussion - which is the path that Zoho is embarking on. Zoho, a product of AdventNet, Inc., is launching a series of amazing Web 2.0 products that deliver a complete office suite on the Internet, with nothing more than a browser required. Everybody I know has been awed by the amazing work done, specially on Zoho Sheet and were even surprised when I said that it was created out of a company based out of Chennai, India. Zoho has a Word-equivalent called Zoho Writer, a PowerPoint-equivalent called Zoho Show and many other productivity tools. And Google, which recently announced Google SpreadSheet, just has an online spreadsheet program. There were friends of mine who wondered, "Why didn't Google just think of acquiring Zoho?"
AdventNet, for people who haven't heard of them, is a remarkable organization based in Chennai. They have some of the most brilliant minds in the industry and some of the most innovative products. They also have built amazing prototypes such as SQLOne - a product that I think can lead its way to context-sensitive search engines, if they get it right. Just looking at www.adventnet.com awes you with the breadth of products and technical excellence and solidity of these products. AdventNet also has had a reputation for strong senior management and for creating startups into magic companies. Also, evidently they still love startups and are an extremely confident lot in believing in what they do. An example is Applibase or Jambav, the former founded by an previous founder of AdventNet, and the latter an amazing organization backed by AdventNet that can give you the real job satisfaction - combining the worlds of technology and social responsibility.
Given all the background, I must sound like an idiot to say Zoho is probably a huge step in the wrong direction. But I still have my convictions that somehow, AdventNet is not getting it right this time around. Zoho is no doubt out of this world, even in its current humble BETA form. Also, you can realize by just visiting the site that AdventNet has not put up Zoho just for fun, but is serious about making money through the product. Google might very well put their product out for free, license it to enterprises and keep it free for the general public, banking on ad revenue. Zoho, on the other hand also looks like licensing a Professional Edition for serious users and keeping it free for the the general public.
Let us take a step back and take a look at the complexity involved in building something as comprehensive as Zoho. They released well before Google SpreadSheets and are announcing a new product every other week. Google is still limited-user and hence has users waiting to see what is in store. Zoho, on the other hand, is even willing to "publish" charts for you as images hosted off their servers. Now to have achieved all this, Zoho must have put in a huge investment to get to where they are. Let us assume, looking at the size of the project, and having mentioned in a previous post that JavaScript skills are not easy to get, they must have had a team of senior developers working for at least a good year. Taking a shot at an average salary of a developer (assuming a mix of senior developers, managers and juniors) at Chennai, I am assuming a figure of INR 4.5 lakhs, which is close to USD 10,000. (Oh yeah! why do you think outsourcing works?). Assuming a team size of 40 (considering the number of products) - that would work out to $400,000. Add to that an investment in servers, development software, testing tools, operating costs, etc. which might have run into something like $1,000,000 (Assuming salaries are a 30% of operating costs).
That means the whole investment in building Zoho in its current state might be around $1.4M. If you took a look at Zoho, they have miles to cross before it can be any serious competition to the likes of Microsoft Office, or even Open Office. The reasons:
a. Bandwidth - a luxury only in countries like the USA where the "Updating" that occurs after every entry in a cell in Zoho Sheet will not matter. Organizations in India are heavily trying to conserve bandwidth given the large number of employees and hence might not really be keen towards having their major productivity tools web-based.
b. Productivity - Which brings me to my second point. The product's target segment is users who want to use a productivity tool such as Microsoft Office. Notice the key word - productivity. How can productivity increase with tons of JavaScript running in a memory constrained browser window, making server roundtrips at beck and call as opposed to rich client applications utilizing system resources, hyper-threading, core duo, high power graphics cards, tons of RAM, virtually unlimited disk space, high-speed IO devices, etc? The answer is in the question - productivity takes a hit!
c. Connectivity - Zoho claims that it makes "global availability a reality". They should probably talk to their sales force and ask them if they would go for a customer presentation without an office product installed on their laptops and rely on Zoho Show and Zoho Virtual Drive to load up the presentation. The Internet is not always available, well, yeah Wi-Fi, WiMax, blah blah, but no, not yet. How could I make that last change in the costing slide when I am sitting, waiting for my presentation, just before the client walks in - and specially when I am in the customer's office!
d. Enterprise Needs - Question again. Would the AdventNet sales team use Zoho Show? (Would they? Really?) Or would their finance team create all of their balance sheets and tax calculations for they year on Zoho Sheet. (Really, again?) Or would they expect their technology teams to create 3000-page product and technical documentation on Zoho Writer? If they ever did, I bet it is a good year away looking at the current BETAs and even then, it would be unbelievable if they did not have a single license or installation of a different office suite.
e. Reliability - How many enterprises would be willing to depend on a service provider to store data pertaining to the organization? Even if Zoho planned a "deployment" model where they host their product in the customer network, several organizations will be bound by compliance and security restrictions that prevent using such an alternative. Specifically, Zoho Virtual Drive makes no sense for organizations that have the least concern of protecting data and information. And it is not just the organization - customers of the organization run audits to ensure their data is stored safely.
The only benefit, and I think AdventNet sees it as the prime advantage, is the pricing that works out far cheaper than Microsoft Office Standard Edition - almost 16 times cheaper if I consider the 500-user licensing mentioned at https://store.adventnet.com/jsp/fp.jsp?filter=10010&p1=10118 vs. the Microsoft Volume Licensing Advisor (http://www.microsoft.com/licensing/mpla/) which gave me a quote of $183,000 for 3 years. But then, the question remains - how many 500-strong companies would consider AdventNet against the de facto leader in the office productivity market. To add to Zoho's woes, Google has made its intentions clear of getting into the space and surely, Google knows how to attract customers even if some of their products have better competing alternatives.
Now, going back to my initial cost estimates at building Zoho, I am making another assumption that they still have another year's development to get it anywhere close to Microsoft Office (try adding a very large number in Zoho Sheet and generate charts, try working with the suite in IE 7 BETA 2, try cross-referencing values between sheets, try disabling ActiveX when using Zoho Chat - this was the most surprising - after looking at Zoho Sheet - you wonder - ActiveX!!?!, try understanding Zoho Creator, try looking for documentation, try export/import features, etc. etc.). That would mean another $600,000 (Average 20% hike for developers and some operating costs). Total - $2M.
And then, I have not added hosting costs for the ASP-model, marketing costs, product re-inventing, re-writing future versions, investments for support infrastructure.
If AdventNet recreated magic, they would need to get 1000 organizations buying 500-user licenses. Or many, many more individuals licensing software. In a year. Because then, they start incurring more costs. From the looks of where Web 2.0 is, the concerns people still have and many other factors, it looks like a very, very steep ask.
AdventNet will, needless to say, back it up with large investments and hope to make it really big. But in that, they are trying to compete against the product planners of Microsoft Office, the inventiveness of Google and the likes of Open Office. It will be interesting to watch if they can pull this off.
If you asked me, they are headed the wrong way. I only pray that not too many companies invest too much and trigger another collapse. Let us hope, for us and for AdventNet, that I am wrong.