Zoho Salary Hike Freeze: Vembu Cites 4x Server Costs and AI

Zoho is the Indian software company that famously does not take outside money, does not go public and does not do layoffs. On 12 October 2026 its founder posted that the Zoho salary hike employees expect every year is not happening either. The reason he gave is the cost of AI, and the warning he attached to it is about every software job, not only the ones in Chennai.

Key points

• No annual pay increase at Zoho in 2026, announced by Sridhar Vembu on X and in an internal email reported by Business Today, who apologised for it.
• Server prices for data centres have risen fourfold, and AI usage is adding fast-growing costs; the marketing budget has been cut and headcount has not grown in 18 months.
• Vembu says the company will work hard to avoid mass layoffs, "but the outlook for software jobs in general is grim".

What Vembu said, and where

The public statement is a post on X. "We have cut down on our marketing budget," he wrote. "We have also told our employees that we cannot have our usual pay increase this year. I have apologised for not being able to avoid this." He described the business outlook for software as uncertain, said AI has "raised costs dramatically", and closed with "Please pray for us."

The internal email, as accessed by ET Now and reported by Business Today on 13 October, goes further. It says there is no compensation or annual appraisal review this year, and includes the line "I do not want to take your loyalty for granted and I do feel pain that I have let you down." It cites a "massive 4-fold increase in server prices which we need for data centers", rising AI usage driving much higher expenses, and a difficult geopolitical backdrop. On jobs: "We will work hard to avoid mass layoffs but the outlook for software jobs in general is grim."

The numbers behind the Zoho salary hike freeze

Per the email as reported, Zoho is still growing at 12%, but growth slowed more than expected in September, especially in new revenue and customer acquisition. Headcount has not grown for 18 months. Some customers, the email says, are switching from Zoho's software to alternatives built with AI through "vibe coding", which is the plainest statement yet from an incumbent that tools like Lovable, Bolt and Cursor are taking customers rather than only developers' time.

What was not disclosed: how many employees the decision affects, Zoho's total AI spending, or how much it has grown beyond the fourfold server figure. Vembu wrote that "the next 3-5 years will decide how our reinvention has worked", without describing the plan.

The AI warning inside the cost warning

Two of Vembu's points pull in opposite directions, and both are in the same message. The first is that AI is expensive: a company that runs its own data centres is paying four times more for servers and watching AI usage climb. The second is that AI is cheap for his customers: small businesses are replacing paid software with something they built from a prompt. Zoho is being squeezed from both sides, and the pay freeze is the squeeze made visible.

The third point is advice. Business Today reports that Vembu wants Zoho's engineers to use AI tools while having a full understanding of the code and taking responsibility for it. That is a narrower position than the industry's current one, where Anthropic reports merging 30,000 Claude-written changes a day and reviewing intent rather than lines, as our report on Scion replacing git describes. Vembu's version keeps the engineer accountable for every line, which costs more and is the point.

Context: the same month, the same voice

The pay post came days after Vembu's appeal to Indian engineers in the United States following the suspension of the PERM green-card process. "Let this be the birth pains of a bold new future. Come back, let's build India," he posted, per ThePrint. In August he told Moneycontrol that "the money that would have gone to new employees is now going to AI and data center costs". The October message is that warning arriving at his own payroll.

For Indian software workers the signal is unambiguous, and it comes from the one employer that had the least reason to send it. Zoho has no investors to please and no share price to defend. If it cannot fund a pay rise, the constraint is the cost of running AI, and that constraint applies to everyone else too. Our ranking of AI startups in India shows where the money went instead.

FAQ

Is Zoho laying off employees?

No layoffs were announced. Vembu wrote that Zoho "will work hard to avoid mass layoffs" while warning that the outlook for software jobs in general is grim. Headcount has not grown in 18 months.

Why is there no salary hike at Zoho in 2026?

Per Vembu's X post and the internal email reported by Business Today: a fourfold increase in server prices for Zoho's data centres, fast-rising AI usage costs, slower growth in September, and an uncertain geopolitical backdrop. The marketing budget was cut for the same reasons.

Is Zoho still growing?

Yes. The email reported by Business Today puts growth at 12%, with a slowdown in September in new revenue and customer acquisition, and notes some customers switching to AI-built alternatives.

What did Vembu say about using AI tools?

That engineers should use them with a full understanding of the code and responsibility for it, per Business Today. He has not said Zoho is cutting AI use; the message is that AI costs are the problem, not the tools.

Where did Vembu make the announcement?

On X on 12 October 2026, in a post that is this article's source, and in an internal email to employees that ET Now accessed and Business Today reported on 13 October.