Zoho founder Sridhar Vembu says SaaS faced problems even before AI — and now AI is speeding up changes

Sridhar Vembu, the founder of Zoho Corporation, has stated that the Software-as-a-Service (SaaS) industry has long had structural weaknesses, and those issues existed even before the rise of artificial intelligence (AI).

In a post on X (formerly Twitter), Vembu explained that financial markets are becoming increasingly pessimistic about SaaS companies in the era of AI-assisted coding tools. He added that he has “long believed the SaaS sector was ripe for consolidation,” meaning many companies may be forced to merge or disappear.

According to him, one major problem with traditional SaaS business models is their heavy reliance on sales and marketing spending, instead of focusing more on engineering and building strong products. This imbalance, he said, made the sector vulnerable even before AI began changing the landscape.

Vembu described the years of venture capital investment and stock market enthusiasm as having created an unsustainable environment for many SaaS firms. He likened AI to a pin that is now bursting the inflated SaaS bubble by exposing those flaws and accelerating the industry’s correction.

While Vembu acknowledged the growing pressure on SaaS companies, he also spoke about Zoho’s own future in this changing era. He said that Zoho’s ability to survive the wave of AI disruption depends on the company’s willingness to adapt constantly — even encouraging employees to think fearlessly about the possibility of failure as a motivator to improve.