Zoho has decided to skip its usual annual salary increases this year rather than lay off employees or raise prices for customers, CEO Mani Vembu has explained. The decision comes as the software industry faces an uncertain business outlook, rising server costs and growing expenses linked to artificial intelligence.
Vembu said the company had considered several options before deciding to put appraisals on hold. While the move was difficult, Zoho wanted to protect its workforce and avoid passing higher operating costs on to customers who are already dealing with financial pressures.
His explanation follows a recent statement by Zoho founder Sridhar Vembu, who said the company had informed employees that they would not receive their usual pay increases this year. He also warned that the outlook for software jobs remained grim, even as Zoho worked to reinvent its business for the AI era.
In a post on social media, Mani Vembu noted that there was no single right answer when a business faced difficult financial decisions, and that what mattered was deciding which priorities to protect in the long run. He recalled how Zoho had offered free licences to customers during the Covid-19 pandemic, despite the revenue loss involved. This time, the company is dealing with a sharp rise in server costs, making it necessary to reconsider its spending.
One option considered was to lay off employees. However, Zoho felt this was not the right approach while its business continued to grow. The company has more than a million customers to support and products that need continued development. Cutting jobs could affect both employees and customers, Vembu said. Instead, Zoho plans to focus on making its products and infrastructure more efficient through research and development. It has also cut marketing expenditure and is examining other areas where it can reduce costs.
Increasing prices was another possibility, but the company decided against it for now. With customers already facing rising expenses and geopolitical uncertainty, Zoho did not want to add to their financial burden.
He added that Zoho, as a privately held company, has to balance the needs of its employees, customers and business over the long term, while publicly listed companies also have shareholder expectations to consider.
Sridhar Vembu had earlier explained that the software industry's challenges go beyond slowing or uncertain business prospects. According to him, AI has significantly increased the company's expenses, with server prices rising fourfold and growing AI usage adding to its costs.
The Zoho founder also said the company had not increased its employee count for 18 months. Although Zoho wants to avoid mass layoffs, he cautioned that the outlook for software jobs in general was grim.
Referencing broader industry trends, Sridhar Vembu said Zoho is choosing to retrain employees to work on new products and help customers rather than cutting jobs, even as data centre and AI expenses rise. He emphasized that the company has chosen a different approach than venture-backed and public firms, adding that the results of this strategy will become clearer by 2030.