Whalesbook
Zoho Corp is spearheading a high-stakes internal initiative to counter the dominance of global AI models. Founder and Chief Scientist Sridhar Vembu leads a team from Tenkasi aiming to make current leading AI models less relevant. He describes this endeavor as "the toughest fight of my professional life," signaling a strategic pivot from passive adoption to proactive development. Zoho is developing its own proprietary Large Language Model (LLM), the Zia LLM, as part of a multi-layered AI strategy emphasizing privacy, efficiency, and relevance for business tasks. The company has reported over 16 billion AI API calls in the first half of 2025, showing significant customer adoption of its AI capabilities. This approach contrasts with simply integrating third-party AI, positioning Zoho to offer alternatives to tech giants like OpenAI and Anthropic, which are increasingly competing in traditional software services. Vembu previously advised India to focus on smaller, more efficient AI models rather than the capital-intensive race for massive LLMs, urging the nation to leverage "brain power" over scarce resources.
India's Talent Exodus and Economic Impact
The "brain drain" remains a critical concern, with an estimated 18 million people leaving India annually, a number nearly double that of any other nation, significantly impacting the tech sector. A third of top graduates from prestigious Indian Institutes of Technology emigrate, creating a substantial talent gap. While Indian professionals abroad contribute over $111 billion annually through remittances, this reliance creates long-term dependencies, with India bearing the training costs while the U.S. reaps the benefits. The success of the Indian diaspora in the U.S. is undeniable, yet it is increasingly met with societal friction, fueling resentment amidst economic anxieties and political rhetoric. This visibility, while a testament to their achievements, can provoke adverse reactions, making India's own economic strength vital for the diaspora's position abroad.
AI's Impact on Indian IT Sector
The broader Indian IT sector faces a potential 30% loss in market share due to AI automation. Companies like OpenAI are now directly entering the software services market, bypassing traditional IT outsourcers for AI tool deployment. This shift is redefining the industry's operational model from "labor arbitrage" to "intelligence arbitrage," where AI enables growth with fewer personnel. While AI accelerates early development, Vembu and others point out that human judgment remains critical for testing, refinement, compliance, and maintenance. The reduction in demand for junior engineers, as AI makes senior architects more productive, raises questions about future talent development pipelines. Despite ongoing transformation, the sector is also witnessing layoffs, sometimes framed as "AI washing" for cost-cutting. Major players like TCS and Infosys have already experienced headcount reductions.
Risks in Zoho's AI Strategy
Zoho's strategy, while bold, carries significant risks. As a largely bootstrapped company, its ability to scale rapidly against VC-funded global competitors with immense AI R&D budgets is constrained. Vembu's personal mission to challenge existing AI models is an audacious, high-risk gambit; failure could undermine Zoho's position. The sheer scale of competition from AI-native giants like OpenAI and Anthropic presents a formidable challenge to Zoho's market share and business model. Furthermore, the broader Indian IT sector's persistent "brain drain" continues to hollow out its talent pool, even as it seeks to leverage AI for growth. The societal complexities surrounding the Indian diaspora's success also add a layer of geopolitical sensitivity that could indirectly impact global perceptions and opportunities for Indian talent. The reliance on internal funding, while ensuring independence, may also limit aggressive expansion compared to deeply financed rivals.
Future Outlook: India and Zoho in the AI Era
Despite the challenges, India is positioned to potentially outpace the U.S. in AI adoption due to its young, optimistic population. However, sustainable growth will require strategic focus, possibly on specialized AI applications rather than head-on competition in the expensive LLM arena. Zoho's emphasis on privacy, efficiency, and building integrated, secure platforms for mid-market and enterprise clients offers a differentiated approach. The company's future hinges on its ability to successfully execute its internal AI development while navigating the complex economic and societal currents of global talent migration and the accelerating AI revolution.