No salary hikes at Zoho this year: Sridhar Vembu cites rising AI costs

Zoho founder Sridhar Vembu has announced that employees will not receive their usual salary hikes this year, citing rising operating costs, increasing artificial intelligence expenses and an uncertain business outlook.

In a post on X, Vembu said server prices had increased fourfold, while growing AI usage was adding to the company's expenses. He also pointed to geopolitical uncertainty as another pressure on the software business.

The decision comes as Zoho reviews its spending and workforce growth amid changes in the software industry. Vembu said the company had reduced its marketing budget and had not increased its employee count for 18 months.

Why Zoho is holding back annual salary increases

Vembu said the combination of rising infrastructure costs and higher AI-related expenses had made the business environment more challenging. The company is attempting to control spending while navigating uncertainty across the software sector.

Explaining the pressures in his post, Vembu wrote: “The business outlook for software is uncertain and AI has raised costs dramatically.”

He identified two specific cost pressures:

• Server prices: Vembu cited a fourfold increase in server prices for the data centres the company needs.

• AI usage: Increasing use of AI was leading to substantially higher expenses, which Zoho is attempting to control.

• Geopolitical uncertainty: He identified the broader geopolitical environment as an additional challenge for the business.

Vembu also confirmed a reduction in marketing expenditure as part of the company's cost-control measures. He said Zoho had informed employees they would not receive their usual pay increases this year and apologised for the decision.

Zoho has not expanded its workforce for 18 months

Alongside the pay decision, Vembu said Zoho had not grown its employee count for the past 18 months. He thanked employees for understanding the situation and said the company would work to avoid mass layoffs.

“The outlook for software jobs in general is grim,” he said in his post, while reiterating the company's efforts to avoid large-scale job cuts.

His comments signal caution around workforce expansion, although he did not announce a mass layoff programme. The remarks also reflect broader uncertainty about the economics of developing and selling software as AI capabilities expand.

AI costs and changing software demand create new pressures

Vembu's comments point to a cost challenge facing software businesses adopting AI: rising infrastructure expenses can coincide with uncertainty over how customers will buy and use software.

An internal communication reported by ET Now, also indicated Vembu had raised concerns about customers replacing some Zoho software products with alternatives built using AI-assisted coding, often described as “vibe coding”.

The reported shift could add competitive pressure on software providers, although the available information does not quantify its effect on Zoho's revenue or customer base.

Zoho looks towards the next three to five years

Vembu said Zoho was in the middle of reinventing itself, describing the next three to five years as crucial to determining the outcome.

For employees, the immediate decision means no usual annual salary increases this year. For the company, the stated priorities are controlling costs, adapting to AI-driven changes and navigating an uncertain software market while seeking to avoid mass layoffs.