Zoho founder Sridhar Vembu has warned that the software industry could face a difficult period as rising artificial intelligence costs and higher server prices put pressure on technology companies. He said Zoho is taking steps to control costs and is trying to avoid large-scale layoffs.
In a recent public statement, Vembu said Zoho has frozen annual salary increments for employees this year and has also reduced spending on marketing. He apologised to employees for the decision and asked people to “please pray for us”, while describing the company as being in a difficult phase.
Vembu said the current pressure could take three to five years to ease. He linked the situation to higher technology costs as well as wider geopolitical developments, while warning that the future of software businesses is becoming harder to predict.
Zoho Faces Cost Pressure
The comments have raised concerns over employment in the software sector, particularly as companies increase spending on AI infrastructure while trying to protect margins. Vembu said Zoho is making efforts to avoid large-scale job cuts, but did not rule out the broader employment pressure facing the industry.
Zoho has not increased its employee count for around 18 months, according to Vembu. The decision indicates that the company is currently relying on its existing workforce rather than expanding headcount, although a hiring freeze by itself does not mean that layoffs have taken place.
Vembu did not announce a specific number of jobs at risk or confirm any planned layoffs at Zoho. His comments instead pointed to the difficulty of maintaining employment and business growth while technology and infrastructure costs remain high.
AI Costs Raise Concerns
One of the issues highlighted by Vembu is the sharp increase in the cost of servers used for data centres. He said server prices have risen as much as four times, adding pressure to businesses that need computing infrastructure for AI-related services.
AI systems require significant computing power, memory and supporting infrastructure. As companies add more AI features to their products, the cost of running and developing those services can increase, particularly when demand for specialised hardware remains high.
For software companies, this creates a difficult balance between investing in AI and controlling operating costs. Zoho has therefore been cutting expenses across areas including marketing while holding back salary increases for the current year.
Zoho Controls Spending
Vembu said the company is focused on reducing new expenditure and making better use of existing resources. The salary freeze is one of the measures being used as Zoho deals with the current cost pressure.
He acknowledged that annual increments are important for employees and apologised for the decision. According to his comments, most employees have understood the situation, although the freeze still represents a financial setback for workers who expected a pay increase this year.
The company is also facing uncertainty over the longer-term direction of the software market. Vembu has suggested that the combination of AI-related expenses, hardware costs and global developments could keep pressure on technology companies for several years.
About Zoho
Zoho is a privately held software company founded in 1996 by Sridhar Vembu and Tony Thomas, with a business built around cloud-based software for companies. The group develops products covering areas such as customer relationship management, finance, productivity, collaboration and business operations.
Zoho has grown into a major privately held technology business without following the conventional venture-capital route. It operates across multiple markets and has built its business mainly through subscriptions for its software products. Vembu has also been closely associated with Zoho Schools, an alternative education and training model created to develop technology talent.
Tech Sector Uncertainty
The immediate question for Zoho is whether the current cost-control measures will be enough to prevent reductions in its workforce. Vembu has indicated that avoiding large-scale layoffs is a priority, but has not provided a guarantee that jobs will remain unaffected if business conditions worsen.
The company has also not expanded its employee base for 18 months, suggesting that hiring is already being kept under control. Whether this approach continues, or whether deeper cost reductions become necessary, will depend on how technology costs, AI spending and the wider software market develop.
For now, Zoho has frozen salary increments and reduced selected expenses while continuing to operate with its existing workforce. Vembu’s warning places the company within a wider debate over whether rising AI infrastructure costs will create new opportunities for software businesses or increase pressure on jobs and profitability.
