Rising AI Infrastructure Costs Squeeze SaaS Margins, Warns Zoho's Vembu

16 Oct 2026, 6:06 pm · 4h ago · 1 min read · Inc42

Zoho cofounder Sridhar Vembu has warned of surging operational expenses in building software as server costs rise 4-5X annually alongside escalating AI token usage. To manage unit economics, Zoho will freeze headcount for 18 months, pause salary hikes this year, and trim marketing budgets. AI features are lowering traditional SaaS gross margins from the 80% benchmark down to roughly 52%, according to industry data from ICONIQ. Vembu noted that despite AI-driven coding speedups, comprehensive product development gains remain limited to 25% to 50% due to ongoing human verification requirements.