Zoho Corporation will not give its employees their usual annual salary hikes this year, as soaring artificial intelligence (AI) costs, a fourfold increase in server prices and geopolitical uncertainty put pressure on the software company’s business outlook.
Zoho co-founder and chief scientist Sridhar Vembu announced the decision in a post on X, acknowledging that the company could not avoid the freeze on salary increases despite recognising its impact on employees.
The announcement comes as software companies worldwide grapple with the cost of adopting AI, even as the technology threatens to disrupt traditional software development and reshape employment across the industry.
Vembu said Zoho had already reduced its marketing expenditure and had not increased its employee headcount for the past 18 months. The company is attempting to control expenses while reinventing its business for a rapidly changing technology landscape.
“We will work hard to avoid mass layoffs but the outlook for software jobs in general is grim,” Vembu said, while thanking employees for understanding the company’s position.
He added that the next three to five years would determine whether Zoho’s reinvention had succeeded.
AI turns into a cost challenge
Explaining the decision to withhold the usual salary increases, Vembu pointed to the sharp rise in infrastructure costs associated with AI.
He cited a fourfold increase in server prices required for data centres, alongside rapidly growing AI usage that has substantially increased the company’s expenses.
“The business outlook for software is uncertain and AI has raised costs dramatically,” he said, identifying infrastructure expenditure and the cost of AI adoption as two major challenges.
The pressure is significant for software businesses that must invest in computing infrastructure, data centres and AI capabilities to remain competitive. While AI offers opportunities to develop new products and improve productivity, the infrastructure required to build and deploy these systems can also increase operating costs.
For Zoho, controlling these expenses has become important enough to affect both marketing budgets and employee compensation.
The company has apologised to employees for not being able to provide the usual pay increase this year. Vembu said most employees understood the situation and expressed gratitude for their support.
His remarks suggest that Zoho is prioritising financial discipline and technological transformation over near-term spending on expansion and employee increments.
Software jobs face an uncertain future
Vembu’s warning about employment reflects a broader concern within the technology industry: AI could change not only how software is developed but also the economics of the software business itself.
AI-powered coding tools are making it easier to build applications and automate tasks that traditionally required sizeable development teams. This could increase productivity, but it could also intensify competition for established software vendors as customers explore cheaper alternatives.
The challenge for companies such as Zoho is twofold. They must invest in AI to remain relevant while managing the risk that AI-enabled competitors could put pressure on their existing products and revenue streams.
Zoho’s decision not to expand its workforce for 18 months, combined with the salary freeze and marketing cuts, indicates a cautious approach amid these uncertainties.
However, Vembu has not announced mass layoffs. Instead, he has said the company will work hard to avoid them.
The coming years will test whether Zoho can adapt its products, business model and cost structure to an environment in which AI is both a competitive necessity and an increasingly expensive investment.
Vembu’s call to Indians in the US
The salary announcement also presents an interesting backdrop to Vembu’s recent appeal to Indian technology professionals working in the United States to return home and contribute to India’s technological development.
In a post on X on October 9, Vembu urged Indian professionals to consider returning to India amid uncertainty over their immigration prospects in the US.
“Indians have made a major contribution to America’s technological prowess. Yet, a big part of America no longer wants us,” he wrote.
Referring to the difficulties faced by Indians who have spent years building careers and lives in the US, he called on them to turn the uncertainty into an opportunity to contribute to India’s future.
“Come back, let’s build India,” he said.
The appeal followed reports that several major technology companies, including Indian IT services firms, had been suspended from the US Department of Labor’s Permanent Labour Certification programme, a key step in the employer-sponsored green card process.
Vembu’s argument is that professionals who have acquired technical expertise and industry experience overseas could help strengthen India’s domestic technology ecosystem, support innovation and create opportunities for younger generations.
His latest comments on Zoho, however, underline the challenges involved in translating that ambition into business reality.
The challenge of building technology businesses in India
The juxtaposition of the two messages raises a broader question for India’s technology sector: can the country attract experienced professionals from overseas while ensuring that domestic businesses can offer sustainable careers, competitive compensation and opportunities for growth?
Zoho’s salary freeze does not, by itself, establish that the company cannot afford to pay employees or that its broader business is in decline. Vembu has specifically attributed the decision to rising costs, an uncertain software outlook and the need to reinvent the company.
Nevertheless, the announcement illustrates the pressures facing even established software businesses as AI changes investment priorities and competitive dynamics.
For professionals considering a return to India, the availability of meaningful work, the strength of domestic technology companies and the prospects for career progression will be important considerations alongside immigration uncertainty in the US.
For Indian software companies, attracting and retaining skilled professionals will depend on their ability to build products that can compete globally while maintaining viable business models.
Zoho’s experience highlights the tension between these objectives. The company wants to navigate the AI transition, avoid large-scale layoffs and reinvent itself, but it has also had to suspend its usual annual salary increases.
Vembu acknowledged that the outcome remains uncertain.
“We are in the middle of reinventing ourselves,” he said, adding that the next three to five years would determine the success of the effort.
For now, Zoho’s employees will have to contend with a year without their usual pay increases as the company seeks to navigate what its co-founder describes as an increasingly difficult period for the software industry.