zoho office logo What is the business model of Zoho. How Zoho plans to make money from Zoho Office when it offers the suite for free ? Sridhar Vembu explains in an email:

This question comes up surprisingly often both from end users as well as partners. On reflection, it is easy to see why: real business users want to see a viable business model before they commit to a supplier. They don’t want to entrust their data to a company whose business model is unclear.

For those who worry about the business model of Zoho, I would point to the business model of AdventNet, the company behind Zoho. AdventNet offers a lot of free products. In fact, every product comes with a fairly generous free edition. In the beginning, those free editions “lose potential revenue”, in sales jargon – my sales people always hate me when I propose “free”. But over time, the benefits start to accumulate, and the product becomes profitable at lower prices to the customer and lower cost of operations to us. Is that just theory? AdventNet has been in business 11 years now, and we have tens of thousands of paying customers (and millions of free users!); AdventNet’s profit is funding Zoho, so we must be doing something right!

Now, we do charge for two Zoho services today – Zoho CRM and Zoho Projects. They both start with a free edition, and then scale up when the needs of the customer expand. I am happy to say the response has been tremendous for both services. Therein lies the answer to why we haven’t charged for other services. We still have our work cut out to ensure that other Zoho services reach that state of maturity where business users can get their work done on Zoho, without thinking about Zoho itself. That is my definition of a maturing technology: it gets out of the way.