'Imagine The Challenge For Other Firms': Bengaluru CEO On Zoho's AI Costs And Salary Hike Freeze

(MENAFN- Live Mint) Bengaluru-based Pareekh Jain, CEO of EIIRTrend, has raised questions about the financial pressures facing software and software-as-a-service (SaaS) companies after Zoho co-founder Sridhar Vembu cited rising artificial intelligence (AI) costs while explaining why employees would not receive their usual pay increases this year.

Jain highlighted Zoho's workforce distribution, noting that more than 90% of its employees are based in India, including tier-3 towns and remote locations, where operating costs are relatively low compared with those of other software and SaaS companies.

"And if Zoho is thinking of layoffs, then imagine the challenge of other software and SaaS firms whose majority headcount is located in US or Europe with high cost of operations," Jain said.

Quick answers to key questions

.5 QUESTIONS1Why is Zoho freezing salary hikes this year?⌵

Zoho co-founder Sridhar Vembu cited rising AI expenses, higher server prices and an uncertain business outlook. He also pointed to a challenging geopolitical backdrop.

2What AI-related costs did Zoho say had increased?⌵

Vembu said server prices for data centres had risen fourfold and AI usage was growing rapidly, leading to higher expenses.

3How can AI make software cheaper to build but more expensive to run?⌵

AI tools can help developers write and test code more efficiently. But running AI-powered products can require more computing infrastructure and ongoing spending on model usage.

4Is Zoho planning mass layoffs because of rising AI costs?⌵

Vembu said Zoho would work hard to avoid mass layoffs. He also described the outlook for software jobs as grim.

5Why could AI cost pressures be greater for software firms with employees in the US or Europe?⌵

Pareekh Jain noted that Zoho has more than 90% of its employees in India, where operating costs are relatively low. Firms with more staff in the US or Europe may face higher operating costs as AI expenses rise.

His remarks come amid a wider debate over the economics of AI adoption, as companies weigh the potential savings from AI-assisted software development against the costs of running AI systems.

Why did Zoho cite rising AI costs?

Zoho co-founder Sridhar Vembu said the company would not offer employees their usual pay increases this year, citing rising AI-related expenses, higher server prices and an uncertain business outlook.

In a post on X on 13 October, Vembu said AI had raised costs dramatically, pointing to a fourfold increase in server prices required for data centres and rapidly growing AI usage. He also said Zoho had cut its marketing budget and would work to avoid mass layoffs, although the outlook for software jobs remained grim.

The decision has brought the financial implications of AI adoption into focus, particularly for software companies that must manage infrastructure costs alongside investments in new AI capabilities.

'AI is making software cheaper to build, but more expensive to run'

Jain's comments highlight a distinction between the cost of developing software and the expense of operating it after deployment.

"AI is making 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-powered products can require additional computing infrastructure and ongoing spending on model usage. The resulting cost implications depend on the scale of deployment, infrastructure choices and how companies price their products.

Jain's observation also raises a question about whether companies with larger workforces in higher-cost markets could face greater operating pressure if AI-related expenses rise while revenue and productivity gains fail to keep pace.

However, the extent of that pressure would vary across companies, depending on their workforce distribution, technology infrastructure, AI adoption and ability to pass costs on to customers.

Also Read | Why Zoho's Sridhar Vembu is trending after 'pay hike, mass layoff' tweet Zoho's AI costs and employee pay increases

Vembu's announcement has brought the financial implications of AI adoption into focus for Zoho employees and the broader software industry.

Explaining the decision, Vembu said the software business outlook was uncertain and that AI had significantly increased costs. He cited higher server prices for data centres and rising AI usage as factors contributing to the increase in expenses.

Also Read | Zoho cancels salary hike- Sridhar Vembu cites rising AI costs

Social media users question Zoho's spending decisions

Jain's post has received 140,000 views since it was published, with users debating Zoho's cost concerns and its business decisions.

One user questioned the company's real estate investments in the context of its stated financial pressures.

"If low profit, why they invested heavily for real estate that newly constructed europe building in chennai. Done something and later claiming AI consumption, isn't acceptable. Same thing happened like Intel real estate race with AI."

Another user questioned whether Zoho was managing its expenses effectively compared with other companies.

Also Read | Zoho targeting WhatsApp Business with Arattai for Business? Here's what we know

"It means Zoho is not able to manage where as other are managing..."

The comments reflect differing views on Zoho's explanation for withholding salary increases and whether the pressures it has cited are specific to the company or indicative of broader challenges facing the software industry as AI adoption expands.

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