Zoho's Vembu warns SaaS players of slowdown; sees growth, hiring decline

Zoho Corporation founder and Chief Executive Officer Sridhar Vembu is of the view that the software-as-a-service (SaaS) ecosystem should be on its toes to combat a reprise of the global financial crisis of 2008 for the next two to three years.

“The rerun of the financial crisis of 2008 will be in a different flavour, but with equal severity. Our ecosystem has to be prepared. For a couple of years, funding will dry up and markets will be dull. We will have to be ready for this,” Vembu told Business Standard on the sidelines of the 15th edition of TiE Chennai’s flagship event — TiECON Chennai 2022.

“(But) we are still optimistic. The SaaS industry is healthy and there are customers,” he added.

“We have seen a definite slowdown. Compared to last year, our growth rate has dropped. We are seeing 8-10 per cent reduction in it. I expect it to come down further. Not just the US, Europe and Japan, too, are in a sorry state and the bubble has burst in China,” he added. 

According to media reports, the company’s revenues from operations were seen up 22.33 per cent in 2020-21 (FY21), while its profit climbed 139.45 per cent.

The company posted a profit of Rs 1,918 crore in FY21, against Rs 800.8 crore in 2019-20. For Zoho, the major revenue drivers are sales through Cloud software suite licences and software subscription fees.

There are reports that Indian information technology companies’ hiring on campus and at entry level may be 20 per cent lower in 2023-24. In step with this, Zoho said it was hiring at a slower pace because recruitment had been high over the past one and a half years.

“We used to grow (hiring) at 20-25 per cent per year, but it has come down to 10 per cent now,” said Vembu.

The company is betting big on tier II and tier III cities because it says a big part of the talent pool comes from there. As advice to growing SaaS companies, Vembu said such players should focus on survival rather than growth in preparing to tide over the global crisis.

“When central banks do not control inflation, we could see a 1970 situation of stagflation — with inflation and economic stagnation. That also is possible. Central banks have put us in a tough situation and I blame them for this,” he added.