‘Imagine the challenge for other firms’: Bengaluru CEO on Zoho’s AI costs and salary growth freeze | Today’s news
Bengaluru-based Pareekh Jain, CEO of EIIRTrend, raised questions about the financial pressures facing software and software-as-a-service (SaaS) companies. Zoho co-founder Sridhar Vembu cited the rising cost of artificial intelligence (AI) and explained why employees won’t get the usual pay rise this year.
Highlighting the distribution of Zoho’s workforce, Jain noted that more than 90% of its employees are based in India, including tier 3 cities and remote locations where operating costs are relatively low compared to those of other software and SaaS companies.
“And if Zoho is thinking of layoffs, then imagine the challenge of other software and SaaS firms, most of whose employees are located in the US or Europe with high operating costs,” Jain said.
His remarks come amid a broader debate about the economics of AI adoption, as companies weigh the potential savings from developing AI-enabled software against the costs of running AI systems.
Why did Zoho report rising AI costs?
Zoho co-founder Sridhar Vembu said the company would not offer its usual salary increases to employees this year, citing rising artificial intelligence spending, higher server prices and an uncertain business outlook.
In a post on X on October 13, Vembu said that AI has dramatically increased costs, pointing to a fourfold increase in the price of servers needed for data centers and the rapidly growing use of AI. He also said Zoho has cut its marketing budget and will work to avoid mass layoffs, even as the outlook for software contracts remains bleak.
The decision focused on the financial implications of AI adoption, particularly for software companies that must manage infrastructure costs alongside investments in new AI capabilities.
“AI makes software cheaper to build but more expensive to run”
Jain’s comments highlight the difference between the cost of developing software and the cost of operating it after deployment.
“AI makes software cheaper to build but more expensive to run,” Jain said.
While AI tools can help developers write and test code more efficiently, deploying AI products can require additional computing infrastructure and ongoing expenses to use the model. The resulting cost impacts depend on the scale of deployment, the choice of infrastructure, and how companies price their products.
Jain’s observation also raises the question of whether companies with larger workforces in higher-cost markets may face more operational pressures if AI-related costs rise while revenue and productivity gains don’t keep pace.
However, the extent of this pressure would vary between companies depending on their workforce distribution, technology infrastructure, adoption of AI, and ability to shift costs to customers.
Zoho’s artificial intelligence costs and employee wages are increasing
Vembu’s announcement brought the financial implications of AI adoption into the spotlight for Zoho employees and the broader software industry.
Explaining the decision, Vembu said that the outlook for the software business was uncertain and that AI had significantly increased costs. He cited higher server prices for data centers and the growing use of AI as contributing factors to the cost increase.
Social media users are questioning Zoho’s spending decisions
Jain’s post has received 140,000 views since its publication, with users discussing Zoho’s costs and its business decisions.
One user questioned the company’s real estate investments in relation to the financial pressures mentioned.
“If the profit is low, why did they invest in real estate that newly built a European building in chennai. They did something and later claimed consumption of AI is not acceptable. The same thing happened when Intel raced with AI.”
Another user asked if Zoho manages their expenses effectively compared to other companies.
“It means that Zoho is not able to manage where others can manage…”
The comments reflect differing views on Zoho’s explanation for withholding pay raises and whether the pressures it cites are company-specific or indicative of broader challenges facing the software industry as AI adoption expands.
