Indian software company Zoho has announced a freeze on its usual annual salary increases for 2026, citing rising artificial intelligence (AI) infrastructure costs, increased AI usage, and an uncertain software market.
Zoho co-founder and chief scientist Sridhar Vembu shared the decision on October 13, explaining that the company had also reduced its marketing budget and was trying to avoid mass layoffs. He said Zoho had not increased its employee count for 18 months.
The announcement highlights a wider challenge facing India's software-as-a-service (SaaS) industry: while AI offers opportunities to improve productivity, it is also increasing operating costs and changing how businesses develop, sell, and deliver software.
According to Mint, financial results from several Indian SaaS companies indicate that profitability remains a concern across parts of the sector.
Why Is Zoho Freezing Salary Hikes?
Vembu cited several factors behind the decision, including higher server prices, growing expenditure on AI services, and geopolitical uncertainty.
AI models require computing resources to train and operate. As businesses introduce AI features into their products, they may face higher infrastructure expenses before those investments translate into additional revenue.
Zoho has also reduced marketing expenditure as part of its efforts to manage costs.
The company reported operating revenue of ₹12,313 crore and net profit of ₹3,191 crore in FY25. However, its net profit declined by 3% while employee costs increased by 29%, according to figures reported by Mint.
These figures illustrate the financial pressure that can arise when operating expenses increase faster than profits.
AI Is Changing India's SaaS Business Model
The impact extends beyond Zoho. AI tools can now automate tasks such as software testing, customer support, data analysis, and routine business processes.
For SaaS companies, this creates both opportunities and risks.
Opportunities
Automating repetitive internal operations.
Developing new AI-powered products and services.
Improving customer support and productivity.
Reducing the time required to develop and deploy software.
Challenges
Higher computing and infrastructure expenses.
Pressure to justify software subscription costs.
Increased competition from AI-powered alternatives.
Changing customer expectations around pricing and product value.
The central challenge is ensuring that the savings and new revenue created by AI outweigh the cost of implementing and maintaining it.
Freshworks, Darwinbox and Other SaaS Companies Face Similar Questions
Zoho is not the only company adapting to AI-related changes.
Freshworks announced workforce reductions in May 2026 as part of a restructuring aimed at adapting its operations to AI. Meanwhile, HR technology provider Darwinbox reported a wider net loss in FY25, and software testing company TestMu reported relatively flat revenue and profit during the same financial year.
LeadSquared showed a different trend, reporting 17% year-on-year revenue growth and reducing its losses by 39% in FY25, according to Mint's analysis.
These results demonstrate that AI is not affecting every software company in the same way. Business models, customer needs, operating costs, and the ability to monetise AI features all influence how companies perform.
What Does This Mean for Software Jobs in India?
The announcement raises questions about salary growth, hiring, and the skills employers will prioritise as AI adoption expands.
Companies may increasingly seek employees who can combine technical expertise with AI implementation, problem-solving, product development, cybersecurity, and business understanding.
Routine tasks may become more automated, while demand could grow for professionals who can build AI-enabled workflows, evaluate AI outputs, manage data, and integrate new technologies into existing systems.
However, the longer-term effect on employment remains uncertain. AI adoption does not automatically mean every software role will disappear, and the pace of change will vary across companies and job functions.
For professionals, continuing to develop relevant skills and learning how to use AI tools effectively can help them adapt to changing workplace expectations.
How SaaS Companies Can Respond
Software companies need to balance AI investment with sustainable business performance. Some practical priorities include:
Control infrastructure costs: Monitor model usage and optimise computing resources.
Focus on valuable AI features: Invest in capabilities that solve real customer problems and justify their cost.
Improve operational efficiency: Automate repetitive tasks while maintaining quality and security.
Strengthen customer retention: Demonstrate measurable value to reduce the risk of customers switching to alternatives.
Reskill employees: Help teams transition towards higher-value responsibilities.
Measure AI profitability: Track the cost of delivering AI features against the revenue and productivity gains they generate
