Now, they don't treat their Chennai office as a second-rate sweatshop to whom you parcel off grunt work and forget about it. That is a recipe for disaster. At the same time, they are very open about the fact that CS education/programming skills in India aren't nearly as good as in the U.S. So what do they do? They train their Indian programmers in house for 9 months. You can definitely take smart people without a great educational background and bring them up to speed if you're prepared to do that.

Sridhar is http://news.ycombinator.com/user?id=sridharvembu, hopefully he can give us more details and correct me if I've gotten anything wrong.

India is one hell of a resource. It's kind of raw at the moment. IE, you can't easily just buy services there and expect good quality. Being able to make it work well could be one hell of an advantage. As you say, you can't just take elance rates and calculate what you save by producing in India. You would probably end up paying many times more to attract, train & keep the best. Could still be cheaper the California, but probably within range.

Basically what I am saying is this: You can probably save a lot and still get quality by being exceptionally good at producing in India. Sounds like Zoho is. But that still doesn't bring your costs down by enough to give a competitive edge to a product company. If you are a service business, cutting production costs (without harming quality) to 60% is a massive edge. If you are a product company, does that still apply?

Side note: It sounds like Zoho's important "technology" is knowing how to produce great quality products in India. I wonder if that is technology another company would pay to acquire. How much would it be valued at?

- update: - I have just read some of the other comments and found a link that sheds some light on my questions, I think. The product company / service company split is far to simplistic. Zoho sees itself as a business software company. An area where (apart form MSFT's monopoly), margins do count and success is not binary. Getting employment costs down and productivity up, even marginally, can make a difference here. I recommend reading the blog post.

http://blogs.zoho.com/uncategorized/why-we-compete-with-goog...

So basically, some intrapreneurship happened, funded by the company.

The CEO's on here, so he probably can give you a better idea.

More here: http://blogs.zoho.com/general/so-whats-in-it-for-zoho

Source? Or is this just conjecture on your part?

Funding (in times of success) is an accelerant. Zoho had funding, which fueled growth. It wasn't VC funding, but cash is cash. I'd MUCH rather take cash from previous successes (and have in the past) than from VCs, but it's not entirely true to look at Zoho as a bootstrapped business, especially if you're thinking of it as a model.

VC funded businesses are a long road. Bootstrapped businesses are a much longer road.

Also its easy for a particular part of the business to be the fastest growing business if it starts out close to zero.

I'm not trying to put down what Zoho has accomplished (brand awareness in a crowded field, as well as competing with the big boys), but merely point out that people should not assume that they are making a ton of money on their web 2.0 stuff.

http://blogs.zoho.com/uncategorized/why-we-compete-with-goog...