Software and SaaS prices will come down, we are prepared for that world: Zoho CEO Sridhar Vembu

Sridhar Vembu, CEO of Zoho. (File photo)

The Software as a Service (SaaS) industry, both in India and globally, experienced a significant slowdown, driven by various factors, including macroeconomic challenges.

After years of rapid growth fueled by the digital transformation of businesses and the increasing adoption of cloud solutions, the industry is now facing disruptions from the rise of artificial intelligence (AI). Several enterprises are now looking at cost-efficient solutions that are built using generative AI that were earlier serviced by SaaS players as a product.

Despite the slowdown in the industry, bootstrapped SaaS firm Zoho managed to clock a revenue more than Rs 8,000 crores and profit of 2,800 crores in FY23. However, the firm's CEO Sridhar Vembu told Moneycontrol in an interaction that the slowdown will lead to a correction in Saas pricing going forward, adding that Zoho's affordable products will insulate it from the shift.

Zoho has also been expanding and diversifying. From software to semiconductors and now e-commerce, Zoho is placing big bets on the future. Vembu spoke about the company's new ONDC seller app, Vikra, and the large language models it is building and deploying.

Edited Excerpts:

How do you view the recent trend of enterprises moving away from SaaS providers, and how does Zoho plan to adapt to this shift?

So, yes, I saw the news that many enterprises are now moving away from SaaS players. This is a concerning trend, but it suggests that if you're a costly SaaS provider, you need to reconsider your pricing. That's why we've always focused on being affordable. I believe software and SaaS prices will drop—that's inevitable. We're prepared for that world, which is why we offer a full suite at reasonable rates. This trend actually favours us, though we must still monitor our business carefully. We're seeing many Salesforce migrations and expensive contracts ending, which is a positive sign for us.

How has Zoho navigated growth fluctuations this year, and what challenges do you foresee in the global economy with ongoing interest rate changes and market instability?

We saw growth rates dip earlier in the year, but now there's a recovery. The US Fed's interest rate cut may further boost that, particularly in developed countries. In India, growth has been fairly stable for us. However, the global economy is like an earthquake zone with tremors of extreme debt, which is why it's Fed-driven. When the Fed didn't lower rates, markets dropped. Japan's currency fluctuations also show this instability.

While we've built a strong foundation, we must be cautious in this tremor

-led global economy.

We are beginning with the seller side because many of the merchants are already our customers using our e-commerce, store point of sale, GST, and of course, our books and banking integration. It's a natural extension to offer Vikra to help sellers onboard onto the Open Network for Digital Commerce (ONDC). ONDC is critical to our digital public infrastructure (DPI) and will help lower costs for merchants and consumers, much like UPI. This effort is gaining momentum, and we're excited to be a part of it. Vikra is our major announcement for the seller side, and we will expand to cover other areas over time.

Can you give us some updates on your semiconductor plant application?

We have applied, and it is in the pending stage. Given the nature of this technology, where, as I like to say, there are maybe 400 to 500 critical steps in manufacturing a semiconductor, there are really that many, with all of these different companies involved. Most of the technologies, unfortunately, cannot be sourced in India; we have to get them from abroad. The nature of those companies and their health all have to be critically examined. That's what our ISM (Indian Semiconductor Mission) committees are examining. Our application is pending. It is too premature to speculate, first, whether our application will be the one that is approved or among those that are approved. That's not guaranteed by any means. So speculating about location is still premature.

You speak about expanding Zoho to the North and setting up rural tech hubs, creating jobs across India, especially in the North. What are your plans in that regard? Will we see a Tenkasi model of Zoho offices in Uttar Pradesh soon?

We are currently in the process of scouting for a location. We have hired a team to do this. We also have employees who have volunteered and are from the region and want to go back. They are already based in Chennai and want to go back home. So we have a team in place. Once we find the location, we'll announce it. The team is already working, but they are working kind of in Chennai and other places. But we'll then move there, and maybe we'll conduct a press event from there.

What are your plans for leveraging AI, you have been speaking about India’s role in building models. Where exactly are we? Can you tell us about the models that Zoho is working on? 

So, I like to say that, particularly regarding our notion of AI, there are multiple layers. First, we want AI to be an invisible agent empowering our customers with a better experience and more insights, helping them do a better job in their daily work. That could be in a word processor or in a CRM assisting the salesperson. It could be AI assisting the support person by automatically generating a response based on an analysis of the customer question, as well as our documentation and previously answered questions. All of this is a very appropriate domain for smaller models, which are those below 5 to 10 billion parameters. We are also talking about large models, which are a few hundred to 400-500 billion parameters. We are deploying a lot of those smaller models; they are already in production, helping customers today, and expanding as we speak.

The second aspect is AI for software development itself, and we are seeing software productivity gains. We are working in that area, so we’ll see some announcements, maybe next year, on AI for software development—better tools and better technologies for software development and security. Security is another area where AI can play a role, particularly in software security. So, these are all the areas we are investing in.

Definitely, our country needs to invest in our own foundational models, but that is a massive investment. We are also looking for alternatives to lower the cost. In other words, we want to invest in this, but we don’t want to spend the billions that others are investing. We don’t have the billions, so how do we go about this in a more creative way? That is what we are looking at.

Do you think the government should fund these AI efforts, like what UAE and some countries do? 

I'm always very reluctant to say the government should do this or that, because the government has so many priorities that are critical for our citizens. I don't know that funding LLM development is an appropriate responsibility for the government, but it can offer other kinds of support. For example, our CSIR and all those labs, along with institutions like IIT and IISC, have many smart people. More collaborative work can be done.

The government already has scientists working on it, and we could work with them.

Zoho recently secured an NBFC license. Can you share with us your plans regarding that. Will you also get into lending and other payment related businesses? 

Actually, that NBFC license is directed toward our rural efforts, particularly among our poorest people. Even today, there is priority sector lending by banks, but to qualify for that, we need some minimal requirements, such as credit history and more. We see ourselves as the player who can help people even before they can go to a public sector bank, NABARD, or anything else. We aim to prepare them with some business coaching, some amount of capital, and everything else to jumpstart themselves and bootstrap themselves first. That is what we are focused on right now. It is much more of a philanthropic effort than a money-making one. To be very honest, I don't want to make money from that. I'm very opposed to that being purely a finance player. So, this is to enable our poorest citizens to get on their feet as entrepreneurs. That is the goal.

Every year we see Zoho get into some adjacencies. Like payments, NBFCs or recently ONDC seller app. What are your key focus areas for 2025? Some places where you will invest a lot? 

So, we are investing heavily in security and compliance. That's a hot topic now. You saw the CrowdStrike and all of that. We have already made huge investments. You'll see this both in terms of our own compliance efforts and in products that help other companies comply with security regulations. That's an investment. You saw the IoT announcement; we are deepening that.

Our whole finance suite is broadening as well, with all the payments and the Vikra today— all of that. So, we have a lot more coming. Also, regarding AI, we are focused on truthful AI and ensuring that AI can be truthful. That requires some fundamental, I would say, technological, even scientific, or even mathematical breakthroughs. We have been working on it. The nature of that work is that you cannot guarantee what the outcome will be, but we are working on it.