New Delhi: Sridhar Vembu, former CEO of Zoho Corporation, announced on Tuesday (October 13), in a post on X, that the Chennai-headquartered software company will freeze annual salary fee hike of its employees due to rising AI-related operational costs and global geopolitical uncertainties.As reported by Mint, the numbers behind the freeze have been accumulating as Zoho reported Rs 12,313 crore in operating revenue and Rs 3,191 crore in net profit in financial year (FY) 2025, but its net profit fell 3% that year even as employee costs rose 29%. The pressure has been mounting since November 2022 – the month OpenAI launched ChatGPT. The same squeeze happened in the subsequent year, FY23, when profit rose just 3% and employee costs jumped 49%. This happened through two ends. On one hand, the cost of running a software business has ballooned: server prices for the data centres Zoho needs have risen fourfold and AI usage within the company is itself generating higher operating expenses. On the other hand, the market that Zoho built its business on is basically selling relatively affordable, broad-purpose software to small and medium businesses. It is the segment most at risk from AI. Changing predictions of industry expertsIn March 2025, industry consortium SaaSBoomi, community of software-as-a-service (SaaS) founders and other software developers, projected that India’s domestic software market would reach $100 billion by 2035, with AI expected to drive growth. The report described AI as an opportunity and a turning point for the software industry. By 2026, however, SaaSBoomi had stopped issuing annual growth projections for the sector for the first time in six years and had not published another dedicated report on the Indian software industry. Rajiv Ramaswami, president and CEO of Nutanix, put the survival condition plainly in a June 2026 interview with Mint: “Only those software firms that make software that’s essential to the core technology operation and cannot be replaced by automation processes will survive.” That is a high bar, and it filters out a significant portion of what India’s SaaS ecosystem has built over the last two decades. A broader patternZoho is the first company to speak up about the issue, however, the pattern is wider and other companies have acted according to the issues highlighted by Zoho, but have never announced anything like this. Freshworks, co-founded by former Zoho employee Girish Mathrubootham, laid off almost 500 employees in May 2026 which is about 11% of its global workforce, as part of an AI-driven restructuring. CEO, Dennis Woodside, told Reuters that AI was no longer limited to pilot projects and that automation was generating more than half of the company’s code. This was not the first time, in November 2024 it had already cut around 660 jobs, which constituted 13% of its workforce, citing efficiency measures. Prior to this, the company had cut jobs in 2023 through multiple rounds, including layoffs of around 114 employees in March and another 90-100 jobs in June. Moving beyond software companies, Cognizant, which employs more than 3,57,000 people worldwide, including over 2,50,000 in India, is reportedly considering cutting between 12,000 and 15,000 jobs under its restructuring programme, Project Leap. India is expected to bear the largest share of the impact. This programme was announced in April 2026 which aims to shift the company away from a workforce-intensive business model towards greater use of AI and automation. Cognizant expects the restructuring to cost between $230 million and $320 million. Meanwhile, more than 30,000 technology job cuts were announced worldwide in the first two months of 2026, with India recording 920 jobs cut, the highest share in Asia. A review by Mint of the financials of Indian SaaS companies shows mixed performance. Darwinbox, which provides human resources management software, saw its net loss widen to Rs 179 crore in FY25. TestMu, a company that automates software testing, reported little change in revenue and profit during the same period, as generative AI began performing tasks similar to those offered by its services. LeadSquared, which develops customer relationship management (CRM) software, performed better, recording 17% revenue growth and reducing its losses by 39%. However, it also cut employee costs by 8.5%, raising questions about the role of workforce reductions in improving financial performance.Zoho was founded in 1996 in New Jersey as AdventNet and built over three decades into a sprawling suite of over 55 business software products used by more than a million organisations globally. The company celebrated its 30th anniversary in February 2026, employing 19,000 people across 28 countries and 90 offices. Vembu stepped down as CEO in January 2025 to take the role of chief scientist, saying at the time that his focus would shift to research and development as AI impacted the business. The business model of the company rested on the framework that it could build good-enough software at low-enough prices to compete with global giants like Salesforce, Microsoft, and Google for the vast middle of the market. Kashyap Kompella, founder of AI consultancy RPA2AI Research, told Mint that Zoho’s low-cost positioning is now a liability. “With automation lowering the cost of internal technology operations with clients, Zoho may be faced with having to compromise margins to retain clients – thus putting its immediate business at risk,” he said. Abhisek Mukherjee, managing partner at strategic consulting firm YCP India, said small clients are less encumbered by custom data and legacy integrations than large enterprises and therefore quicker to migrate when something cheaper arrives. “For Zoho, a big challenge is that many of its clients are small clients, who aren’t too reliant on custom data, and may thus migrate rapidly to cost-effective solutions due to AI,” Mukherjee said.