Zoho co-founder and Chief Scientist Sridhar Vembu on Tuesday, 13 October disclosed that the company has frozen annual pay increases for employees and slashed its marketing budget, citing a dramatic rise in costs driven by artificial intelligence and an uncertain global software business environment. Vembu made the announcement in a post on X (formerly Twitter), marking one of the most candid public admissions by a major Indian tech founder about AI's financial strain on operations.

What Zoho Has Decided

Vembu confirmed that Zoho has cut its marketing spend and informed employees that the company cannot deliver its customary annual salary increment this year. 'We have cut down on our marketing budget. We have also told our employees that we cannot have our usual pay increase this year. I have apologized for not being able to avoid this,' he wrote.

The move is notable for a privately held company of Zoho's stature, which has historically prided itself on employee-first policies and avoiding mass layoffs. Vembu added that while the company is working hard to prevent large-scale job cuts, 'outlook for software jobs in general is grim.' Notably, Zoho has not grown its employee headcount in 18 months.

Why Costs Have Surged

The primary pressure, according to Vembu, is infrastructure inflation tied to AI adoption. He cited a four-fold increase in server prices required for data centres, compounded by rapidly rising AI usage across the organisation. 'The business outlook for software is uncertain and AI has raised costs dramatically,' he wrote. A 'challenging geopolitical backdrop' is an additional headwind, he noted.

This comes amid a broader industry pattern: cloud and compute costs have surged globally as enterprises race to deploy AI workloads, squeezing margins even at well-capitalised firms. For Zoho — a bootstrapped company that does not rely on external funding — the pressure to self-finance these infrastructure upgrades is especially acute.

A Period of Reinvention

Vembu framed the current moment as a pivotal transition rather than a crisis. 'We are in the middle of reinventing ourselves. Next 3-5 years will decide how our reinvention has worked,' he said, signing off with an appeal for support: 'Please pray for us.' He also expressed gratitude to employees, noting that 'most of employees understand the situation.'

The remarks reflect a deeper strategic reckoning at Zoho, which competes with global SaaS giants including Salesforce, Microsoft, and Google Workspace. The company must now balance AI investment — essential for product competitiveness — against the cost burden that investment imposes on its self-funded model.

Vembu's Earlier AI Bubble Warning

This is not the first time Vembu has raised alarms about AI-driven market dynamics. In May 2026, he cautioned that soaring valuations of the world's largest technology companies, fuelled by investor enthusiasm around artificial intelligence, exhibit characteristics of a market bubble that could eclipse the dot-com era.

He had highlighted elevated price-to-sales ratios at firms including Nvidia, Apple, Alphabet, Microsoft, Meta Platforms, and Micron Technology, arguing that current market valuations appear increasingly detached from underlying business fundamentals. Vembu referenced remarks by Scott McNealy following the collapse of the dot-com bubble in the early 2000s — who argued that investors paying ten times a company's annual revenue would need extraordinary performance over many years to justify such valuations — to underline his concerns.

What to Watch

With Zoho reportedly serving over 100 million users globally across its suite of enterprise products, any shift in its employment or compensation strategy carries signal value for India's broader SaaS and IT services sector. The company's ability to complete its self-described 'reinvention' over the next three to five years — without external capital — will be closely watched by the industry.