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Before lovefest came Zoho dalliance

CEO says Web application company Zoho rejected an acquisition offer from after a failed integration with AppExchange.

Only months before and Google integrated their Web applications, offered to buy Zoho, a direct competitor of Google Apps.

Sridhar Vembu, the CEO of Zoho parent company AdventNet, divulged that juicy nugget in a blog posting following the much-ballyhooed tie-up. Zoho makes Web-based productivity and business applications.

Vembu said that the proposed deal was never close to consummation, but it wasn't over the price tag.

He said that the Zoho and business models are fundamentally at odds because spends much more proportionately on marketing and sales. He also accused of being a lousy partner.

Talk of an acquisition grew from an effort to integrate Zoho with applications through its development platform. But CEO Marc Benioff decided to pull the plug, Vembu recounts:

We invested in R&D to make the integration work, and we were about a week from launch, when Marc Benioff decided to pull the plug. He invited me for discussions. He offered repeatedly to acquire Zoho outright, which we rejected. I told him there is absolutely no fit between our companies, particularly with his business model (as noted above) and our business model. I told him there is just no cultural fit between our companies and such an acquisition would be miserable for both parties. Finally, he offered to let us integrate Zoho into AppExchange, provided we pull the plug on Zoho CRM. We told him that kind of pre-condition is totally unacceptable, and it also completely negates his claims of openness of their platform. Needless to say, we never did agree on the issue, and we dropped the integration effort.

By contrast, working with Google--its primary competitor--over Google Gears has gone well, Vembu said.

Meanwhile, has done with Google precisely what it appears to have set out doing with Zoho--close product integration.

It's easy to discount Vembu's comments as sour grapes. After all, it's Google, not Zoho, that now has better access to customers.

But his comments shed light into how business does, or doesn't, get done among software-as-a-service companies as they compete to build the most vibrant partner ecosystems on their platforms.