On this episode of The Six Five On the Road, hosts Daniel Newman and Patrick Moorhead welcome Sridhar Vembu, CEO at Zoho for a conversation on transnational localism, bootstrapping, and the future of AI.
Their discussion covers:
- An overview of the current tech landscape and Zoho’s strategy to navigate this landscape that’s being dominated by a few giants
- An insight into Zoho’s business strategy and outlook for 2024
- Sridhar Vembu’s thoughts on AI and how Zoho might incorporate AI in future projects
- The trend of Bootstrapping as a business strategy
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Transcript:
Patrick Moorhead: The Six Five is on the road in McAllen, Texas here at Zoho Day 2024. We are chatting all the way from economics to business, SaaS, full stack computing, full stack applications. Dan, here we are. We’re in our home state of Texas, how often does this happen?
Daniel Newman: Yeah, it’s great to be in Texas and McAllen may not be the first place that comes to mind when you say, “Hey, we’re going to do a tech event-
Patrick Moorhead: Right?
Daniel Newman: … in Texas.” Having said that, it’s great to be here, the day started off with some conversations that we’re going to dig into here just momentarily, we’ll make everyone wait just a little longer-
Patrick Moorhead: Exactly.
Daniel Newman: … to know who we’re going to talk to, but they start off talking about driving economic development, driving prosperity into different marketplaces. And McAllen’s a town right on the border of Mexico and it’s a thriving little town in some ways, but it has many of the challenges that smaller rural parts of the country have. So really interesting to come here to be here, it’s not San Francisco, Las Vegas, New York or Austin-
Patrick Moorhead: Right.
Daniel Newman: … but it’s really great to be here, Pat.
Patrick Moorhead: Let’s introduce our guest, it’s great to have you Sridhar here. Thank you for coming on The Six Five.
Sridhar Vembu: Thank you for having me.
Patrick Moorhead: Yeah, and congratulations on the event, it’s-
Sridhar Vembu: Thank you. Thank you.
Patrick Moorhead: … your events are not only very creative, hence the background here, but also you seem to go very global this year. I mean, at the event last night, at the dinner, I mean, I think you had a taste of the world.
Sridhar Vembu: Yeah.
Patrick Moorhead: Typically when I show up to Texas, it’s barbecue, which you had now-
Sridhar Vembu: We had that too, yeah.
Daniel Newman: Tacos too.
Patrick Moorhead: Tomahawk steaks, but you also had even food from India, which I thought was quite special.
Sridhar Vembu: Thank you. Thank you.
Daniel Newman: Yeah, so let’s kick off. You heard my preamble, I’m talking a little bit about where we are. You gave a really interesting keynote speech, which you always do. A lot of tech CEOs come out and they’re going to say, “Rah rah, here’s our product. Rah rah, here’s all of our customers in development.” You come out and you get in front of a room of analysts and press. Thinkers, thought leaders and influencers, and you want to talk about your view of the world. For instance, why we’re here in McAllen, you came out with some really interesting commentary about how a few companies really dominated technology last year. Am I allowed to say dominated tech? How about you start there, give us a little bit of just the flavor for everybody out in the audience of what you really came and talked about here today and why you thought this was the most appropriate message to deliver.
Sridhar Vembu: Yeah. So as we started with, today, increasingly the tech landscape is dominated by a few giants everybody knows that. And you look at any metric, profit margin, you look at cash hold to the percentage of profit and the entire ecosystem going to the dominant players and profit as a share of GDP as compared to income, labor, income as a share of GDP, all of those metrics. It’s very clear that it’s the richer, getting richer, that’s true in tech as well. And the question is what is the broader societal industry implications? First, what happens to other companies, the smaller companies, right? If you look at last year, year and a half, you saw a clear divergence between the big guys and the mid-sized to smaller players. We saw that and because the cost of customer acquisition is high, we don’t have enough differentiated technology in terms of a lot of the mid-size companies.
The acquisitions didn’t happen that they were hoping to happen, so these are the structural forces for the software, the non-big tech software players. And then the societal implications were places like McAllen, they’re completely cut out of that whole value generation of tech. They consume iPhones and whatnot, you consume here, but they’re not part of the value of production, value generated for production enough, and this is true for so many places. If this iniquity is not addressed, it has broader implications. I mentioned some tech CEOs, Sam Altman has proposed UBI, universal basic income as a way in which we automate all production, you don’t need employees, but we’ll distribute UBI and the government will tax the AI company to pay for UBI. That’s basically the thesis, and that’s one vision.
So it’s good that he recognizes the problem, how are people going to derive income to consume all of the tech products and everything else if they don’t have jobs or jobs that pay enough. So these are the questions that we talked about. Within that I addressed how with the enterprise software landscape itself is challenged by new emergence of tools that increase software productivity, we see this with LLMs, but it’s broader than LLMs. We are working on some, I believe that 10x software productivity, development productivity is possible. That has implications for enterprise software scarcity as they call it.
Patrick Moorhead: Yeah. So you’ve had a strategy in place for a while, transnational localism-
Sridhar Vembu: Yeah.
Patrick Moorhead: … and it’s really focused on understanding core markets and doing a lot of your development, having people feet on the streets-
Sridhar Vembu: Streets, yeah.
Patrick Moorhead: … people programming and tech, and McAllen I think is a version of here, here in Texas. Can you talk about how transnational localism and McAllen fit or do they even fit?
Sridhar Vembu: They do. So we unwheeled its whole vision about four or five years ago, pre-pandemic and then the pandemic interrupted all this. There’s nobody could travel and all of this. In the last six months, I’ve come twice to McAllen now, so I think I’ll keep coming back now. We’re hiring a lot of people. So the goal is to move jobs closer to the customer with the idea that we need to generate the value from the production, meaning the software, what we provide the customer, more of the value would be captured locally, that’s a operating principle we have. Why? Well, it’s only sustainable way. If production and consumption don’t balance regionally, locally, we are going to have problems and we are already seeing those problems. Lack of resilience, and there’s only one plane company now that can serve everyone. These are the lack of resilience problems that we are seeing now. And then if there’s only one company, if they become inefficient, we have a problem.
So how do we create resilience? Answers, I believe lie in tech itself, that is the key insight here, that we can invent our way out of this, and the way I capture that is lower cost, capital goods technology, production technology, all manner of production technology, whether it’s software, whether it’s missionary, all of that can be done lower cost through R & D, through research and development. That’s the key.
Daniel Newman: And you followed this, it’s been prescriptive for you with Zoho in India-
Sridhar Vembu: Yeah.
Daniel Newman: … even in where the traditional tech centers in India you’ve been outside of the-
Sridhar Vembu: Outside, yep, yep.
Daniel Newman: … Chennai and we’re-
Sridhar Vembu: Yeah.
Daniel Newman: … focused on, and here you’re bringing that same strategy to the US.
Sridhar Vembu: Yeah.
Daniel Newman: I mean, how expansive, how scalable is this? I mean, I’d say there’s thousands of McAllens in the United States-
Sridhar Vembu: Yeah.
Daniel Newman: … and there’s hundreds of cities like that in India and across the world. Is this your vision with Zoho, is to bring this trans-
Sridhar Vembu: Yeah. Obviously we cannot do it in every McAllen-
Daniel Newman: Of course. Of course.
Sridhar Vembu: … but our hope is to demonstrate that these things work well enough, that a lot of companies adopt this type of models. It’s already starting to happen. I see it happen already in India, we are seeing a lot of companies announcing they’re going to a smaller town, and so same thing I believe will happen here. In fact, when we moved to Austin was what, about eight, nine years ago? Austin wasn’t this-
Patrick Moorhead: Right.
Sridhar Vembu: … you recall, right?
Daniel Newman: Yeah.
Patrick Moorhead: Exactly.
Sridhar Vembu: Austin still had a little bit of the local flavor.
Patrick Moorhead: Mm-hmm.
Sridhar Vembu: Now it’s completely-
Patrick Moorhead: Very different.
Sridhar Vembu: … a very different vibe now. McAllen has that same thing, what Austin used to be eight, 10 years ago. And there’s a lot of places like this, in Texas, not just in the USA, but in Texas alone. You have 10 places like this and then maybe hundreds all over the US. So, other companies have to do it. What I would urge my fellow CEO was, everyone flocked to McAllen, that’s not the point-
Patrick Moorhead: Right.
Sridhar Vembu: … but find your McAllen.
Daniel Newman: Yeah.
Patrick Moorhead: Right. No, I think that’s very wise and it’s definitely a unique strategy.
Sridhar Vembu: Yeah.
Patrick Moorhead: Right? Because most tech companies are, “Let’s hit the major MSAs and if it’s manufacturing, it’s a manufacturing MSA.” So it’s very unique. You touched a little bit about AI and talked about the productivity that it will likely provide. Can you talk a little bit about the AI strategy, not only inside of Zoho, right? You talked a little bit in your keynote about making programmers more productive, but also maybe talk about how you’re infusing this across the Zoho suite of products.
Sridhar Vembu: So first things, we are doing the LLMs, but the key thing here, in fact today a lot of presentations cover this, the smaller mid-size models that are cheaper to run but very domain specific. That is a key part to take an expense management domain or fraud detection domain. You can run a 8 billion, 10 billion model, maybe 15 billion model. You will get a lot of the stuff that you get out of the bigger models at a much lower cost in terms of GPU, compute, all of that. So that’s one critical strategy. So we are running lots of models, lots of smaller, mid-sized models, that’s the first step. The second, the software productivity itself, I don’t believe that it’s only about LLMs, we need a lot of complimentary technologies, that’s what I’m personally working on. That includes a lot of better languages, tools, compilers frameworks, a lot of that.
And there is fundamental work possible, just like how LMS came and revolutionized, until then people didn’t know that all this was possible. And in a similar way, I believe a lot of innovation is possible in the act of software development, and we have to combine these two, the LLM driven productivity, and they’re also very context specific model. Like you are Java code, you have an LLM, very trained on only Java code, nothing else. That can offer payoff, and then combined with better tooling around security, all of that, put them together you can raise productivity. In existing languages maybe you can squeeze out two or 3x, but if you design systems from ground up, I believe 10x is possible.
Patrick Moorhead: Interesting.
Daniel Newman: So, AI is a great sort of intersection of technology and some of the more macro themes that you brought to light this morning at Zoho Day, and AI is going to drive endless opportunity, productivity, new types of companies, businesses, and at the same time you’ve heard some of your peer CEOs talk about changes in roles, jobs augmentation, potentially less. Every industrial revolution, Sridhar has led to more not less jobs.
Sridhar Vembu: Yep.
Daniel Newman: But it’s not obvious yet, it’s not obvious when you have a system now that writes for you, that does your math for you, that can code for you, what’s going to come next? Do you have any thoughts on how AI and society are going to meet? Because to your point, the Sam Altman idea of UBI, it seems lazy.
Sridhar Vembu: Yeah.
Daniel Newman: I get it, and I get why we might want to end up there, but it seems lazy to me to be like, “Oh, just give everyone money because only 10 people are going to be in need it anymore.” I think the alternative is how do we up level society because that’s what every revolution has done before. What are you thinking about this?
Sridhar Vembu: Yeah. So, I’m an optimist here, humans will always find new things to do.
Daniel Newman: Yeah.
Sridhar Vembu: That’s not the problem.
Patrick Moorhead: They need a purpose.
Sridhar Vembu: But the problem is this, do those things human find themselves to do, would they pay enough to afford all the technology they have to consume, to stay relevant? That’s the real question. And I gave the example, singing for kids might be a good job that many humans would want to do, right? That’s the purpose for them, they allow kids, all of that, but will the job pay enough to afford the latest iPhone or the latest Vision Pro, whatever, that is the question. And in other words, the production question here is a technology and automation question. The consumption becomes a political economy distribution question. One answer is the UBI, but hey, we won’t worry about the distribution question, we’ll just give everybody a free check. I believe better answers are possible and that involves that localized production and consumption. So, that’s basically my two-minute pitch on that.
Patrick Moorhead: Yeah, I want to talk about India for a sec. So, biggest opportunity right now for growth of any country that I see is India-
Sridhar Vembu: Yeah.
Patrick Moorhead: … and that thesis comes from a… There’s a little bit of politics involved between different countries, but education levels and the work ethic in India is just incredible. And we’ve seen a lot of things taken off the table that were inhibitors-
Sridhar Vembu: Yeah.
Patrick Moorhead: … which is infrastructure-
Sridhar Vembu: Yeah.
Patrick Moorhead: … roads, internet, electricity, water and things that are baseline to get this moving, and there’s been an incredible amount of investment.
Sridhar Vembu: Yeah. In fact there’s a massive Capex boom going on in India.
Patrick Moorhead: Yeah, it’s been impressive, particularly in the last five or six years. And I see really amazing, incredible things that maybe we had seen in China before, maybe before that South Korea, Taiwan, Japan-
Sridhar Vembu: Yep.
Patrick Moorhead: … right? So the wheel of growth innovation, what is your role? I mean of course you’re based out of India-
Sridhar Vembu: Yeah.
Patrick Moorhead: … but what is your role in driving that growth in India?
Sridhar Vembu: Yeah. Really my primary role is to make sure that we invest enough in R & D, and one of our current problems in India is that we don’t invest enough in R & D. We are investing heavily in Capex boom, but R & D investment is not sufficient. You measure it as a percentage of GDP, percentage of corporate value added, percentage of profit, any of the metrics, we are still low. This requires an R & D mindset and R & D culture that we are only now beginning to build in India. So that’s really, I see it as one role, get Indian companies to invest in R & D, invent.
Patrick Moorhead: Right, and you’d hope people would be asking your opinion given that you’re, if not one of the largest tech companies-
Sridhar Vembu: Definitely-
Patrick Moorhead: … in India.
Sridhar Vembu: Yeah, definitely, I participate in a lot of industry events, a lot of even government sponsored events where I give the same message. It’s very warmly received. The key problem is not that people don’t want to invest in R & D, how to go about it-
Patrick Moorhead: Right.
Sridhar Vembu: … what is an R & D culture? Because R & D is not something where you can forecast a clear return on investment, like you know exactly what’s going to happen every quarter, all of that. We already take some bets, we already do some experiments, that mindset we have to cultivate.
Patrick Moorhead: Excellent.
Sridhar Vembu: We already do it in Bollywood-
Patrick Moorhead: Right.
Sridhar Vembu: … they make gigantic movies now and they take risk.
Patrick Moorhead: Yes.
Sridhar Vembu: We just don’t apply the same thing in R & D.
Patrick Moorhead: Yes.
Daniel Newman: So let’s talk a little bit about how this plays out within Zoho, you’re a private company, you always like to kick off the presentations talk a little bit about that, the contrast and you threw some numbers about the cashflow that just a small number of companies create an operating income daily.
Sridhar Vembu: Daily.
Daniel Newman: It’s incredible. By the way, your accomplishments as well.
Sridhar Vembu: Thank you.
Daniel Newman: But the business has to evolve, so you’ve got this sense of altruism and social good, you also have a thriving innovation hub, you’re playing in everything from AI and algorithm development to chip development, which is-
Sridhar Vembu: Yeah.
Daniel Newman: … something Pat and I will love to talk about. How do you find that common space of social good and societal and altruism and trends, transnational localism and at the same time be a great servant leader to your people, to your customers, make sure your products stay innovative and on the-
Sridhar Vembu: Yeah.
Daniel Newman: … front edge so that they can grow their businesses on your platform.
Sridhar Vembu: Yeah. Great question. I actually don’t think of this as a dualistic, like this part of the brain works on this, that part of the brain works on that. I holistically integrate the two, and the way I do that is I always, even my engineers working in a rural area know why your work is so important, you are going to bring technology to this region, you are going to help balance this regional economy. We are going to derive what I call the high margin, high value added revenue here, which will have a 10x multiplier effect, that’s very conventional economics. Like McAllen region finds, let’s say a new cure for cancer, somebody here, they sell it to the whole world. Suddenly this place will become very, very rich. Qualcomm made San Diego so wealthy.
Daniel Newman: Right.
Sridhar Vembu: You saw that in the 90s. San Diego housing in 93 versus what it became now, you know? So much was driven by Qualcomm. You know this in-
Daniel Newman: Sure.
Sridhar Vembu: … the industry, it’s all driven by one company. One company had that impact on that whole region, so it’s possible to do it, but every region has to catch up on something, whatsoever. Critical, competitive edge, where can we generate value? That is, to me, R & D and that if I’m able to convince engineers to work on this, that’s my first and foremost job, then I connect all these threads. This region is going to benefit from your work, we are going to create jobs for people who are not in tech that pay better. It’s not just the tech people who get better wages, it’s the drivers, it’s the cooks, it’s the housekeeping staff, all of those, the hotels around, and that is critical too. We brought so many people to McAllen, all the taxi drivers here, the Uber drivers, they all thank us.
Patrick Moorhead: I love that, we’ll check on the way back to the airport.
Sridhar Vembu: Yeah.
Patrick Moorhead: So, we’ll tell them where we were.
Sridhar Vembu: Yeah.
Patrick Moorhead: So it’s been a great conversation so far and I wanted to pivot a little bit to your priorities for 2024, I mean, I have to say, I covered you as an industry analyst, analyst firm, and you’re doing so many different things and I’ll call it PaaS and SaaS, I mean ERP, SCM, CRM, database is a service, low-code, no code.
Sridhar Vembu: Yeah.
Patrick Moorhead: I mean, and you even brought out a web browser-
Sridhar Vembu: Yeah.
Patrick Moorhead: … as well.
Sridhar Vembu: Oh, yeah.
Patrick Moorhead: I mean, you have a-
Sridhar Vembu: Privacy centric, very privacy centric.
Patrick Moorhead: You have a lot of things going on, as you look to 2024, well, actually we’re in 2024. What are some of the biggest opportunities for Zoho and its customers? What do you really want to lean into? I’m not asking for your roadmap or to prenounce anything, but what are the things that are on your mind? Obviously Aiifying-
Sridhar Vembu: Yes.
Patrick Moorhead: … things.
Sridhar Vembu: So, I mentioned already the AI driven software productivity game, that’s one project I’m driving. We also are, from a customer immediate perspective, we are evolving as a really good platform from a bundle of products, a platform evolution that’s well underway. It’s happening, that is where we are moving up market. Our upmarket momentum is coming from our platform strategy and that includes the platform of service, but really directed towards Zoho customers not generally offered yet, but that’ll evolve too. So that’s where this evolution is happening right now, and data centers everywhere, getting closer to the customer, more offices everywhere. I’m going to Mexico tomorrow, so…
Patrick Moorhead: Right. That’s great.
Daniel Newman: Yeah, it’s really exciting to have spent some time with you. I maybe just wanted to do a quick rewind just before we take off here, and I’m sure you got a busy slate of conversations, this one’s the best though.
Patrick Moorhead: Of course it will, it’s first of the best.
Daniel Newman: But privacy was your theme a year ago and well, I think you’re a visionary and so you’re not necessarily going to talk about the same thing every year. I was a bit curious, we saw the DMA made some changes in Europe, it seems that with AI there’s more conversations about IP rights and copyright and infringement. So you were a little ahead of your time. Is privacy centrism, is there still a need for this? Is that going to change? How is that talk track evolving?
Sridhar Vembu: Absolutely. As everybody can talk the talk, only if you can walk the walk because you have a problem of business models. You have to have alignment to your fundamental business model to be able to afford privacy. Can a company afford privacy? I mean, privacy guaranteed to their customers, that’s why we have taken a very principle stance from the beginning. This is our business model, this is what we get paid. Customers know, everyone knows. This ULA browser that you mentioned, it’s a very corner zone of privacy because it starts there and because we are putting in safeguards there, for example, including VPN built-in, a lot of things that you would’ve to pay for we are bundling it in right now just so that the privacy can be a cornerstone. We have many multiple modes of work in all of that, there’s a lot of innovation going there, it’s on the client side it has to start.
Then on the infrastructure side, we make sure that customer data is never shared with anyone without their explicit integration request. We just don’t share it outside at all. So these are some of the safeguards we are putting in, and we have now very strong compliance team, particularly the GDPR rights we have extended worldwide to all our customers, meaning we treat every customer as though they were subject to the EU regulations so that they get the best protection possible. So those are some of the ideas, and we’ve written the code to enable GDPR, so we are applying it worldwide.
Daniel Newman: Yeah. Well, Sridhar, I want to thank you so much for spending-
Sridhar Vembu: Thank you.
Daniel Newman: … some time with us here at Zoho Day 2024.
Sridhar Vembu: Thank you.
Daniel Newman: Great event. Great way to start our day hearing from you. I personally love any intersection of technology macroeconomics, there’s so much going on in the world, we’ve got a big election year that’s going to definitely change the-
Sridhar Vembu: I didn’t talk about that today.
Daniel Newman: So, who are you going to… No, we will not ask you here, but let’s definitely make sure that we stay in touch and-
Sridhar Vembu: Yeah.
Daniel Newman: … maybe have you on again, maybe next year at Zoho Day 2025.
Sridhar Vembu: Yes.
Daniel Newman: But thanks for joining us.
Sridhar Vembu: Thank you.
Patrick Moorhead: Thank you very much.
Sridhar Vembu: Thank you for coming all the way to McAllen.
Patrick Moorhead: Absolutely.
Sridhar Vembu: Appreciate it.
Patrick Moorhead: Listen, many more people traveled farther than we did, so thank you for having it in Texas again. Thank you.
Daniel Newman: Thank you so much for coming in. Thank you everyone for tuning in today. Hit that subscribe button, join us for all of our episodes here on The Six Five. It’s fun to be on the road here in McAllen, Texas at Zoho Day 2024. But for this one, for this show, for this pod, it’s time to say goodbye. See you all later.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.