How Zoho’s full-stack strategy keeps it in control of cost and sovereignty

Unlike most software-as-a-service (SaaS) providers which tend to rely on the infrastructure of cloud hyperscalers to deliver their offerings, India-headquartered Zoho spent two decades building its own datacentres and servers to stay in control of costs and data sovereignty.

Additionally, a hyperscaler could dictate the pricing of applications, but Zoho wanted more control so it could adapt them to customer needs, the company’s country head for Australia and New Zealand (ANZ), Rakesh Prabhakar, told Computer Weekly in a recent interview.

As a developing nation, India is particularly aware of the importance of energy availability and reliability, Prabhakar pointed out, and other countries, including Australia, have woken up to the reality that the advent of artificial intelligence (AI) means much more energy will be consumed.

There are two ways of dealing with this: increasing renewable energy production or making datacentres operate more efficiently. As a technology vendor, Zoho decided to address the latter by making more efficient hardware.

It has now started using its own Nathu La servers. Named after the Himalayan pass on the India-China border, these Xeon 6-powered servers were designed in-house, in collaboration with Intel, specifically to run the company's own applications.

According to Zoho, the servers reduce total cost of ownership by 20–30% and power consumption by 12–18% compared with equivalent hardware. Nathu La was designed with AI inferencing in mind and features a Zoho-designed motherboard, chassis, network interface card and firmware stack.

Prabhakar was not in a position to discuss how these power savings were achieved, but he mentioned that Zoho previously set up its own solar power plant in India to at least offset the electricity requirements of its onshore datacentres.

“I think organisations should realise that at the end, we are in business to make everybody’s life better. So, if that means we contribute to energy generation or contribute in some way, we give back to society. As an organisation, we are conscious of that and we work towards that,” he said.

Asked whether the savings were being passed on to customers, Prabhakar pointed out that while competitors were expanding their product portfolios through billion-dollar acquisitions, Zoho chose to focus on building its own capabilities organically.

“We were able to be more efficient, and that efficiency was passed on to our customers,” Prabhakar said, noting that while Zoho’s offerings are inexpensive, the company operates at healthy margins.

Zoho is also the biggest consumers of its own software – for instance, the company runs many events around the world, so it built its own event management software. It also launched its Ulaa browser and has been developing a database system, so having its own server puts it another step closer to controlling its own destiny.

In Australia, the company owns its servers and infrastructure but houses them in commercial datacentres in Sydney and Melbourne, whereas in some other geographies it owns the datacentres outright. As Zoho’s presence spread, conversations with customers shifted from where data is stored to which country’s laws apply.

Most SaaS companies are controlled by the law of their home country, Prabhakar pointed out, but “our local entity conforms with Australian law”.

Although Zoho’s strategy has enabled it to be independent of US hyperscalers and store customer data onshore, it remains a foreign company from an Australian perspective. According to Prabhakar, local customers regard Indian ownership positively, describing it as “a refreshing change to see an Indian business operating out of Australia as a separate entity and delivering services”.

Zoho now has nearly 50 employees in Australia, with a presence in four states “that’s not lost on our channel partners or customers”.

While customer relationship management (CRM) remains the mainstay of the company’s product portfolio, Prabhakar noted that Zoho’s communications suite, which includes email, has been doing “phenomenally well” in recent years. “We are able to displace Microsoft or Google with little effort,” he said.

On plans to open datacentres at other Australian locations, Prabhakar pointed to the company’s 20% annual customer growth rate over the last several years, but noted that its status as a privately owned organisation with zero debt and no outside funding means any additional investment comes from profits.

“There’s definitely demand for our software, and that means we need more datacentre space, servers and network equipment to service our customers,” he said. “We have an appetite for growth, but we will do it in a way that’s compliant, ensuring that data sovereignty is maintained,” he said.

Turning to the current focus on AI, Prabhakar said AI is not needed to solve every problem. Some applications are frivolous and add little value to day-to-day business. But the impact on vendors like Zoho is that datacentre costs have shot up considerably as more energy is consumed, and hardware prices have escalated rapidly. It is impossible for every SaaS vendor to pass on these cost increases, so Zoho’s approach was to build its own infrastructure as a way of gaining some control over costs, and hence pricing.

Zoho is also investigating AI sovereignty in response to questions from CIOs and chief technology officers of current and potential customers. “We will look at it and we will do it, but at this point of time, it’s more to do with staying relevant and not getting carried away with the hype. Things are moving fast, but we want to build the right foundation so we can genuinely serve our customers.”