Push Comes to Shove

In 2008, I wrote a post Why We Compete with Google, in response to the persistent question at that time “How can you guys survive Google in the online office space?”

My basic argument was that business software, due to its extensive sales and support requirements, simply does not have the productivity or profitability of consumer internet businesses, and could never produce the margins that Google enjoys in search or what Facebook enjoys in social networking today or for that matter how today’s margins at over-the-hill Yahoo and getting-there eBay compare to the still-hot Salesforce. I concluded that post (keep in mind it was written in 2008) with:

When push comes to shove – and there is a lot of very messy push and shove in the business software market –  Google’s resources are going to flow into figuring out how to monetize the humongous traffic of YouTube or compete in online auctions, rather than figure out a way to squeeze a bit more margin compared to Oracle or Adobe or Salesforce. That may explain why Google has been silent on CRM, Project Management, Invoicing or HR type of tools, because those markets don’t offer the profit potential they already enjoy.

Well, today, the Wall Street Journal has a well-researched post by Clint Boulton, Google Organizational Changes Cloud the Future of Apps. On purely strategic grounds, the enterprise business is very sales and support intensive, and it does not have the potential to offer Google-y margins. Microsoft achieved its 90% operating margin due to its monopoly pricing power, and the emergence of the cloud and mobile devices, in part thanks to Google’s role, has eroded that pricing power. So it was always clear, to me at least, that Google was in this game to make sure Microsoft does not have the infinite cash to keep throwing money at search. As Google’s strategic threat from Microsoft fades into the rearview mirror while Facebook emerges as a strong potential threat, I predicted that Google would naturally lose interest in what remains a fundamentally inferior business to their own core business. Senior executives in Google in charge of the Apps business seem to be reading the tea leaves, as Boulton reports. There have been a slew of executive departures and other organizational changes in the Google Apps division.

Signs are emerging that Google is de-emphasizing its efforts in online productivity tools that compete with Microsoft, which was never the core of its business to being with, to focus even more on search and social networking, and its increasing competition with Facebook.

…

Google Apps has had some churn to its core leadership as the company evolves under CEO Larry Page, including the loss of Dave Girouard as vice president of Apps and president of Google’s Enterprise business. Girouard, who joined Google in 2004, oversaw the development and launch of Apps for businesses. He left April 6 and no successor has been named.

A source familiar with Google Apps told CIO Journal: “I was personally shocked to see Dave G leave. That was his baby, and he was so invested in it.”

At Zoho, of course, we have patiently been investing in R&D, while building our business for the long haul. We came to the conclusion a while ago that ad-driven consumer internet business is a poor fit for a business-focused suite of apps. In an ad-driven business, the users are the product, to be packaged and sold to advertisers. When you ask someone to directly pay for something, as a visitor or a user becomes a customer, the very nature of the engagement changes.

That’s why since the very beginning we have never funded our business through advertising. We’ve made a commitment to our users that we’ll never display ads, not even in our free products, and that we’ll never sell their data to a third party so that they can be “better targeted”. We’ve understood since the beginning that advertising and business applications just don’t mix.

We will continue to execute to provide a compelling, ad-free cloud experience in our Zoho suite of apps, particularly Zoho Mail and the Zoho Office suite. We respect the engineering prowess at Google, and indeed, we will continue to actively participate in the Google Apps marketplace, but ultimately whether a business makes sense or not is not an engineering question alone. In that sense, I am not at all surprised that someone high up at Google looked at the business question of the Apps suite, and came to the conclusion that was obvious from the start.

Our deep, existing integration into the Google Apps suite makes it really easy to migrate customers from Google Apps. We welcome Google Apps users to Zoho, and we are very happy to provide migration free of charge!

Now, what about the other elephant in the room? Microsoft Office365 is going to be a formidable player, but so far, their execution in the cloud and in mobile is less than terror-inducing, to put it mildly. Our Mail & Office suite are written from the ground up to be in the cloud, on tablets and smart phones. We will continue to invest in R&D to make them stronger, and, unlike Microsoft, we will provide first-class support to all the devices out there, including the iPad, the iPhone and Android-based devices. Of course, we will also continue to integrate our Mail & Office suite with our other business apps, including our rapidly gaining CRM.