The first part of the article can be accessed here: Part 1. This is the second part
From challenger to contender
In Part 1 of this series, we examined how Zoho, today a $1.1 billion self-funded Indian tech firm, has stepped up to challenge Microsoft’s global dominance, signalling India’s transition from back-office outsourcing to genuine product innovation.
Zoho has built a base of 100 million users (including free individual users), largely in the MSME (SMB) segment. Its integrated Zoho One platform, with its product breadth and integration, privacy focus, and AI-led innovation, positions it as a credible alternative to MS’s “fortress”.
But the leap from challenger to true global contender requires more than feature superiority.
To threaten Microsoft’s 1.2 billion–strong user base spanning enterprises, mid-markets, and governments, Zoho must address systemic hurdles: its weak global marketing muscle, absence of external risk capital, and self-imposed refusal to go public.
The scale problem
Even with 30%+ organic growth, Zoho cannot overtake Microsoft without dramatic acceleration. Microsoft’s advantages are entrenched:
- Universal file standards: MS file formats are the global default, expected by clients and partners everywhere
- Decades of training and user habit, embedding “muscle memory”
- Deep enterprise integration: MS not just software; it is core IT infrastructure
- Inertia, keeping organizations locked into existing MS systems
Breaking this stranglehold means Zoho must double or triple its user base quickly to reach critical mass, an uphill task. Without such a surge, growth could plateau, and in tech, plateaus often lead to decline.
The simplest wedge may, in my opinion, lie in a vast but underexploited segment: governments.
The government wedge
Governments worldwide represent an estimated 200 million users, excluding state-owned enterprises. Microsoft treats them as part of its enterprise market.
Zoho could do for governments what it did for SMBs: build a Government Operating System that unifies productivity, CRM, finance, HR, and workflow into one sovereign-ready suite.
My proposed hook: make it free for government users, permanently or at least for three years.
Since governments typically decide purchases on cost grounds, this could force, or at least justify, migration.
Three years give time for transition, customization, and deep embedding into governance frameworks.
Optional paid services for implementation and customization could provide sustainability, while the core suite remains free.
All the 50+ Zoho apps already exist; costs lie mainly in hosting infrastructure, compliance, and support, high but not prohibitive. The obstacle is not technology, but scale.
But absorbing these costs would badly hurt Zoho’s financials. The obstacle is not technology; it is scale. The solution should be out of the box.
Zoho One GovTech: Fortress and laboratory
The answer could be a strategic spin-off: Zoho One GovTech (ZOG), a separately funded subsidiary tasked with storming the government IT market at scale, while shielding the parent from risks and quarterly market pressures.
ZOG plays two roles:
- Fortress: It carries the massive capital and revenue costs of infrastructure, compliance, and service delivery. Risk is entirely on ZOG and its risk capital investors.
- Laboratory: For decades, Zoho has shunned IPOs. ZOG lets Zoho test-drive investor relations, governance, etc. If successful (as is most likely), Zoho may optionally revisit its anti-IPO stance; if it fails, lessons come at risk capital investors’ expense (who come in knowing the risks), not Zoho’s. But the side benefits listed below would stay, more than justifying the experiment.
ZOG thus becomes both a firewall and a sandbox: protecting Zoho while preparing Zoho for the future.
The investor pitch: Buying the future
Unlike most startups, ZOG doesn’t need to sell a dream. Its case rests on tangible levers:
- Zero cost base product: ZOG begins with royalty-free rights to 50+ mature enterprise apps (at least till users are not charged). Zoho’s in-kind contribution earns it equity.
- Customer lock-in: With three free years, governments are embedded deeply. Migration, retraining, and process redesign make exit nearly impossible.
- Credibility hold: Many users hesitate to leave Microsoft despite high costs and inadequate security due to lack of critical mass. Once national governments adopt Zoho, compatibility fears vanish significantly, and enterprises could follow.
- Potential high terminal value: By Year 4 or 5, ZOG can mature into a multi-billion-dollar enterprise, primed for IPO. Investors aren’t funding a high-risk venture; they’re buying a multi-bagger.
This isn’t venture capital as usual. It’s a unique opportunity: involving modest upfront capital for super-high returns.
The parent company’s jackpot
For Zoho Corp, ZOG yields cascading advantages:
- Prestige: Free enterprise IT for governments guarantees free headlines. The David-versus-Goliath story amplifies Zoho’s brand.
- Compliance: ZOG’s sovereign certifications flow back into Zoho’s global suite.
- Learning: IPO experience builds capital markets know-how without compromising Zoho’s DNA.
- Market spillover: Once governments migrate, the private sector follows, dispelling compatibility fears.
- Ownership: Zoho, as promoter, gets equity in ZOG with no cash outgo, potentially generating more wealth than the parent Zoho, while keeping the parent still private.
The result: risk-free growth with high momentum.
As a first step, the Indian government is willing to migrate, as indicated by the IT Minister, Ashwini Vaishnav, a welcome move.
Risks, critics, and counterpoints
The likely critiques may include:
- Investor objection: “3-year free offer to government” would delay monetization
- Counter: Without it, the segment is nearly out of reach; once embedded, governments rarely leave
- Regulatory suspicion: Free IT may look like a Trojan horse
- Counter: Win-win, Promise local hiring, sovereign data centres, open audits
- Execution risk: Compliance and certification challenges could be daunting
- Counter: Free 3-year window buys time
- Directional drift: A listed ZOG may stray from Zoho’s DNA
- Counter: Zoho’s directors and equity stake will retain balance
These critiques highlight, not weaken, the disruptive nature of the plan.
Will this strategy make Zoho the market leader?
No. It would help Zoho Challenge Microsoft strongly, but not replace it as the leader
If Zoho wants to become the leader, it should not stop with SMBs and governments. Over time, or in parallel, it should extend its integrated “operating system” model to all segments, including enterprises and mid-markets.
Whether this expansion happens in one bold move or in carefully sequenced stages is a decision for Zoho and prospective investors to take.
In my view, governments are the lower-hanging fruit, with enterprises and mid-markets as natural next frontiers.
Will this strategy work? Has any company done it earlier?
History shows that a few “late entrants” have toppled entrenched giants:
Google toppled early search engines like Yahoo, which were once thought impossible.
Apple’s iPhone redefined mobile, toppling Nokia and BlackBerry..
Strategy, timing, and flawless execution could outweigh incumbency. Zoho could be next.
Zoho: The next global giant?
Zoho may or may not replace Microsoft. The goal is aspirational. Even partial success will be welcome.
India will no longer be the world’s outsourcing shop floor. It would have produced a true global product company, independent, profitable, and sovereign-first, that the entire world will respect.
That itself would be a historic victory.
A note of caution
This article is not a research paper or a consulting report. It is a broad strategic reflection on one possible path Zoho could take. Other viable strategies undoubtedly exist. And even this roadmap, if at all pursued, would need detailed planning, financial structuring, and possibly major adjustments.
But as an outline, it highlights what is both possible and, perhaps, necessary if Zoho intends not merely to be a junior “also ran” alongside Microsoft, but to redefine the field.
(Concluded)
Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
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- Can Zoho topple Microsoft? A strategic wedge, Part 2 - October 2, 2025
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