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While AI is not yet causing large-scale job losses, it is beginning to disrupt traditional hiring models, Vembu noted. Many IT projects rely on repetitive and formulaic coding tasks, which AI can now handle efficiently.
Zoho founder and chief scientist Sridhar Vembu has raised concerns about the current challenges in the software job market, attributing them to systemic inefficiencies rather than the direct impact of artificial intelligence (AI). Taking to X, Vembu, who has been in the software industry for three decades, highlighted how excessive venture capital, private equity, and IPO-driven funding have artificially inflated the sector, leading to inefficiencies and unsustainable growth.
Software industry's overcapitalisation and inefficiencies:According to Vembu, the software industry has become bloated over the years due to aggressive funding, which led to an oversaturation of duplicated IT systems, excessive hiring, and misplaced priorities. He pointed out that marketing tactics employed by software vendors played a key role in fueling unnecessary IT expenditures, creating a cycle where companies invested heavily in software solutions that did not necessarily enhance efficiency.
"Software vendors applied liberal doses of marketing spending to spread Fear (of missing out) and Uncertainty ("tech is changing, you need us") and Doubt ("are you confused? trust us") among corporate customers, and the result was ever-growing IT spending," Vembu wrote.
He observed that large enterprises, particularly in Western markets, found themselves trapped in an ongoing cycle of software acquisitions, leading to the maintenance of complex and costly IT infrastructures. These inefficiencies, instead of streamlining operations, became long-term financial burdens, requiring significant human resources just to sustain them.
India's role in outsourced IT market:A substantial portion of these inefficiencies was then outsourced to IT service firms in India, Vembu noted. As Western enterprises sought to optimize their IT budgets, they transferred work offshore, inadvertently amplifying inefficiencies. For processes that required five people in the West, Indian IT firms often deployed three to four times as many workers, ensuring maximum billable hours. This, he argued, led to a software job market in India that was more reliant on inefficiencies rather than genuine productivity gains.
Interestingly, Vembu contrasted this with Indian banks and financial institutions, which he claimed achieved greater IT efficiency with significantly lower budgets compared to their Western counterparts. The lack of excessive funding, he said, forced these institutions to develop cost-effective and lean solutions, making them more resilient.
Structural challenges in IT services:Another major flaw in the software industry, according to Vembu, is the absence of incentives for efficiency. He explained that IT services firms operate on a billing model that charges based on staff hours rather than actual results. This has discouraged companies from streamlining processes or reducing workforce sizes. Instead, the industry has expanded its headcount to sustain revenues, further entrenching inefficiencies in the system.
AI's impact on software jobs:While AI is not yet causing large-scale job losses, it is beginning to disrupt traditional hiring models, Vembu noted. Many IT projects rely on repetitive and formulaic coding tasks, which AI can now handle efficiently. He estimated that AI could improve productivity by 10-20%, which, while not yet revolutionary, is enough to expose the deeply embedded inefficiencies in the software industry.
This reckoning, he said, is not new. The global financial crisis of 2008-09 had nearly forced the industry to confront these inefficiencies, but central banks’ liquidity injections sustained the sector artificially. Similarly, the COVID-19 pandemic led to another influx of capital, as companies rushed to digitize operations. However, those financial safety nets are no longer available, Vembu warned.
The future of software jobs:Vembu expressed pessimism about the future of software jobs, not just due to AI, but because the industry’s unsustainable business model is now being exposed. Without the financial buffers that previously masked inefficiencies, he believes the software sector is entering a difficult phase.
“Those floods are now history, and we have a serious drought. That is why I am pessimistic about the software job market, even before accounting for AI,” he concluded.
Sridhar Vembu, an alumnus of IIT Madras, earned his MS and PhD from Princeton University. He started his career at Qualcomm in the US before founding AdventNet in 1996, which was later rebranded as Zoho Corporation in 2009.
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