YEE-HAAW from Zoho in South Texas

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I have just been at ZohoDay 24 in McAllen, South Texas, a bus-ride away from Elon Musk’s SpaceX facility (which is about as far south as you can get in the USA; the nearer the equator you are, the more the Earth’s spin gives your rockets a boost, or something). The location is important, as part of the Zoho ethos is to setup in developing small city, semi-rural or rural areas (in this case, the Rio Grande Valley). Nothing at ZohoDay caused me to revise my positive opinion of Zoho’s ethical and community-based culture, made possible, in part, by it being a private company still, able to resist short-term pressures from the stock market. I am sure that this will continue as Zoho grows organically.

In his keynote address, Sridhar Vembu, the CEO and Co-Founder of Zoho Corporation, shared his insights around the delicate balance between short-term action and long-term vision. He draws inspiration from Benjamin Graham, Warren Buffett’s mentor, and Vembu highlighted the distinction between two investment philosophies: the short-term voting machine and the long-term weighing machine. The former refers to market sentiment, where stock prices fluctuate based on popular opinion and emotions. In contrast, the latter emphasizes intrinsic value, focusing on the fundamentals of a company over time.

In contrast with the stock market message, that companies come and go in the Fortune 500 (say) with great rapidity, Vembu points out that the dominant companies in 2024 were already known in 1994. Apple, Microsoft etc are already playing the long game; and (on a smaller scale) Zoho does the same.

Vembu’s thesis was based around the Marxist macro-economics thinker Kalecki’s Levy-Kalecki Profits Equation. See the discussion of “Why Government Deficit Spending (Typically) MUST Boost Corporate Earnings” here. The equation is:

Corporate Profits = (Investment – Foreign Savings) – HouseholdSavings – Government Savings + Dividends

which can be stated as:

Corporate Profits = (Investment – Foreign Savings) + Household Deficit + Government Deficit + Dividends

What this says is that short-term debt financing just increases corporate profits. And the USA government, which is beginning to pay more in interest payments than it invests in doing useful stuff (payments on the debt could become the second-largest federal program – behind only Social Security”) is doing just that; as Vembu says, “someone is not playing the long game”. This short-term approach is general, as households have also taken on debt in order to maintain consumption. “We have historically low wages as a share of GDP combined with historically high consumption as a share of GDP”. Zoho will not take on debt in order to grow, and doesn’t have to, being a private company. It takes the long view, as (Vembu says) do Microsoft and Apple.

He also says that the average SaaS company spends way too much in marketing to acquire customers, hoping (perhaps unrealistically) for profits from miraculous – magic – new technology. At the moment AI, before that, the world wide web and apps. But the small start-up with its short term (time-to-market is everything) view has nothing that the big player cannot build or acquire for themselves – and they have the distribution channels start-ups don’t have.

Vembu sees this situation as part of a much more endemic problem, structural and ineffective over-consumption of software. He quotes a tweet on modern working: “you get a message in Slack with a link to the Confluence doc to prep for the meeting on Zoom, where you take notes in Notion, and track project progress on Monday and then update the Trello and you get to the end of the week and instead of doing ****ing anything you’ve just moved bits of information around in 17 different databases and each one costs $15 a month per user…”

At first glance, this may seem to be a counter-intuitive message from Zoho – after all, doesn’t Zoho sell software? Well, yes, but I think the message from Zoho’s POV is that it sells Zoho One, which delivers useful (AI-driven) contextual messages from a single database (effective use of resources) and where all the software you need is available with a single license, at no extra cost. The overall message, I think is that software is good, but it is not an end in itself. Installing CRM software isn’t the goal, but engaging more effectively with your customers and reducing churn, might well be.

In any case, Vembu sees software becoming increasingly commoditised. “A different structural force is emerging”, he says “Programmers have worked like artisans of old, weaving code painstakingly by hand – machine looms are coming”, as AI assists developers and facilitates development automation.

Nevertheless, what differentiates Zoho, I think, is not its entirely adequate software (don’t knock “adequate”; it means “does the job” and lots of software falls short) but the company ethos, based on no debt and on returning benefit to the community – with a social contract, enabled by taking a long view of the market.

For example, Vembu spent some time on the demographic issue: birthrates are falling, the average age of the population is rising. There will soon be a shortage of fresh young talent, newly come from University and already tech aware and trained. Vembu says: “we’re in the talent seeding business [with Zoho University and so on] while our competitors think in terms of talent harvest”. Zoho recognises that it is in a social contract with the world as a whole.

As an aside, from someone well into their 7th decade, I note that as our population ages, the issue of usability becomes critical. Older individuals often struggle with complex interfaces and small screens. Could AI detect such access issues and adapt user interfaces in real time? Perhaps the future lies in empathetic AI that understands individual limitations (and abilities) and adjusts accordingly – and Zoho is the sort of company I’d look to, in order to implement such an idea effectively.

Zoho is clearly still focused on AI and I like its model:

  1. An AI produces an Actionable Insight;
  2. It then explains WHY this came about;
  3. In conjunction with a human being, it produces an Action Plan, designed to mitigate or exploit the insight.

Unfortunately, being human, we get lazy and start to forget about steps 2 and 3. We “just do what the computer says” – which is very risky. To explore this, I put my notes from the keynote into Bing’s AI. It wrote me a rather nice article, properly spelled, that I could easily publish – except for one small issue. The issue? It was frequently wrong or misleading, and if I had published “as-is” my reputation (such as it is) would be in tatters.

An example, taken from the generated article: “Lastly, Vembu touched upon the rising perception of IT as magic. With AI’s rapid advancements, technology feels increasingly like wizardry. As AI permeates our lives, demystifying its workings while preserving its wonder becomes essential. The challenge lies in striking a balance between awe and understanding”. Nice, except that Vembu said nothing of the sort. This quote is based largely on a note to myself, tagged “me”, saying something rather different, around the fact that people seeing AI processing as incomprehensible “magic”, based on their interactions with iPhones, makes “just do what the computer says”, unthinkingly, far more likely.

The AI was, in fact, quite helpful for this article, it pulled my notes together and gave me something to get started with. It was well-written enough to tempt me into posting, let’s face it. Any shortcomings might be due to my not having fed it all the information I had – but, unsurprisingly, nothing in the interface warned me of this, and it will be a common situation in practice. Luckily, I decided to review and rewrite, which meant that the time advantage of the AI more or less disappeared. However, I think that using it did improve the quality of the final article – but only after my refactoring and fact checking. To summarise, your job probably isn’t at threat from an AI; but it may be at threat from someone who can use AI well…

A final note from my AI co-author, who did get something just about right:

Sridhar Vembu’s keynote resonates with Zoho’s ethos: think long-term, act sustainably, and empower all. Whether it’s software adoption, rural tech, or empathetic interfaces, Zoho exemplifies the art of balancing the voting machine and the weighing machine in a dynamic world.”