We often cover what is going on in the foreground of the local, SMB ecosystem. But there is always a lot going on in the background as well. So it piqued our interest to read about the conclusion of a lawsuit between Zoho and Freshworks. We’ve covered these two companies extensively on these pages.
It seems that Zoho sued Freshworks over actions taken by a Freshworks employee. That unnamed Freshworks employee allegedly used his “spouse’s computer without her knowledge” to access some Zoho sales leads. According to the news piece, the actions by the now ex-Freshworks employee were not at the direction of anyone at Freshworks.
Zoho’s lawsuit alleged that Freshworks employees uploaded some 4,000 leads from the Zoho CRM into the Freshworks CRM. Zoho then suggested that the “stolen” leads helped Freshworks earn the trust of investors, which helped to propel its IPO. Freshworks did in fact go public. It was trading as high as $50 per share with a market cap of more than $13 billion in early November. However, as with many high-flying tech stocks, the high didn’t last. Freshworks is now valued at around $5.7 billion.
Drop in the Bucket
Coincidentally or not, an ex-Zoho Vice President and technical architect launched Freshworks mo than a decade ago. So it’s unsurprising that the two companies found themselves in litigation.
Zoho is a private company that has been working in the small business market since the mid-1990s. Back then it was called AdventNet. In the small business space, 4,000 leads seem like a drop in the bucket. With millions and millions of small businesses in the TAM or total addressable market, unless those 4,000 were super warm leads, it doesn’t seem like Freshworks could have built its IPO case on them.
We doubt this is the only lawsuit out there in the land of local, SMB, and SaaS. As the market tightens and leads become more scarce, we’ll expect other legal action to pop up. And we probably won’t learn about most of these until after they’re settled. However this case is an important reminder that in an aggressive “dog eat dog” space, legal action remains an available strategy for improving the bottom line.