Zoho's large client wins may offset decline in SME business due to COVID-19

MUMBAI: Software as a Service (SaaS) company Zoho said large-client wins have offset the hit it has taken from small and medium businesses – its primary clients base – being impacted across the United States due to the Covid-19 pandemic.
“Up to 45% of our revenues come from the US – you can see immediately what it can account for us,” Sridhar Vembu, the founder and CEO of the Chennai-based firm said.

“Having said that, some of the larger organisations seeking savings at this time are switching over from other player... On balance, we are definitely seeing declines, but not as hard as we expected,” Vembu added.

Zoho will also look to increase the share of domestic revenue in its overall earnings.

Rising trade tensions, the growing need for high quality technology products built domestically and over-dependency on low cost labour arbitrage in the technology sector would necessitate a shift towards a domestic-first business model, according to Vembu.

“There are rising trade frictions all over the world. We have to look at solving our own problems first...It’s not that we don’t want to sell everywhere, but we don’t know if we will be able to sell everywhere in the next 4-5 years,” he said.

In the past ten years, Zoho’s revenue from India has risen to 10% from next to nothing, Vembu said.

"Currently 90% of Zoho's revenue comes from outside. In a normal world, it would be considered safe. But in the emerging world, it is going to be a worry. So, the 90-10 pattern we have right now cannot continue. It will be either 70-30 (70 from overseas sales) or 50-50," he added.

Meanwhile, the company has cancelled bonuses of staff and also asked employees to be prepared for pay cuts. It will, however, “avoid layoffs at any cost,” Vembu said.

Its total headcount at the end of the year will be 8,300-8,400, he added.

Zoho is also looking to change its workspace model after the crisis, with more distributed and remote offices across small towns, like its current delivery centre in Tenkasi in Tamil Nadu.

“I think there are going to be rural offices with 10-20 persons. Like this, we will be doing a lot more remote offices using this experience. That may be the model we may move to,” said Vembu.

He also expects consolidation in the SaaS sector, accelerated by the pandemic.

He said startups with valuations and growth bolstered by venture capital funding alone could fall.

“You have too many players with too many subscriptions that customers have to endure, a lot of such issues were there even last year, but during downturns these issues get exposed. Companies with stronger balance sheets, with the ability to endure cost structures that are aligned and those not out of control in terms of their spend will survive,” he added.