The tech industry is experiencing significant challenges, and Zoho is no exception. Sridhar Vembu, the founder of Zoho, has acknowledged the difficulties the company faces in managing costs, particularly due to escalating prices associated with artificial intelligence (AI). In light of these challenges, Vembu has announced the cancellation of employee appraisals for the current year.

On the social media platform X, Vembu disclosed that Zoho has been actively seeking ways to reduce expenses across various sectors, including marketing. He expressed regret to employees for the absence of appraisals this year, stating, “We have cut down on our marketing budget. We have also told our employees that we cannot have our usual pay increase this year.”

Vembu’s comments reflect a broader trend within the tech sector, where numerous companies have laid off thousands of workers in recent months. According to layoffs.fyi, over 1,31,000 tech employees have lost their jobs in 2026 alone, highlighting the precarious nature of employment in the industry.

Reasons Behind the Cancellation of Appraisals

Despite the challenges, Zoho has seen a rise in popularity, particularly with its Arattai messaging application. However, the company is grappling with the financial implications of rising AI costs. Vembu elaborated on the situation, noting that the business environment for software companies has become increasingly difficult. He stated, “The business outlook for software is uncertain and AI has raised costs dramatically.”

Vembu cited two primary factors contributing to the rising costs: a four-fold increase in server prices necessary for data centres and the rapid escalation of expenses associated with AI usage. He also mentioned the impact of a challenging geopolitical landscape, which further complicates the situation for tech firms.

In response to the no-appraisal decision, Vembu expressed gratitude towards employees who have shown understanding of the circumstances. “Most of our employees understand the situation. I am thankful to them,” he remarked, acknowledging the difficult position in which the company finds itself.

Zoho’s Future Outlook

Sridhar Vembu indicated that the challenges posed by rising costs may not be temporary for Zoho. He suggested that the company is in the process of reinventing itself to better navigate the current landscape. However, he cautioned that it may take time before the company sees any tangible results from these efforts.

Vembu stated, “We are in the middle of reinventing ourselves. The next three to five years will decide how our reinvention has worked.” He appealed to his followers for support, saying, “Please pray for us,” indicating the seriousness of the situation and the hope for a successful turnaround. This is not the first instance where Vembu has highlighted the operational difficulties faced by Zoho due to the evolving tech environment.

In August, he noted that memory prices had surged by as much as 500 per cent over the past year, further complicating the company’s business model. He remarked, “We have held back from raising prices but it is becoming hard,” underscoring the ongoing pressures that Zoho and similar companies are experiencing in the tech sector.

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