At $52 per month, Zoho’s customer-relationship-management tool costs just over one-sixth of its larger rival Salesforce’s offering. It’s not just a pricing strategy. It’s how Zoho is opting out of the cloud-AI industrial complex.

Earlier in July, the Chennai-based software-as-a-service (SaaS) firm rolled out a series of homegrown large language models (LLMs), titled Zia. That was an attempt to avoid what its peers have accepted as a fact of life: cloud and AI tax.

Since all SaaS companies’ businesses are run on cloud, they are dependent on cloud-service providers—the likes of Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP). “They have no choice but to pay one of the three players,” said Krupesh Bhat, founder and chief executive of regulatory-technology SaaS company Signdesk. “About 10–12% of their expenses reliably go to them every month.”

Here comes the additional blow. The cloud-service providers further integrate LLMs from leading AI labs—the likes of OpenAI, Anthropic, and Meta—into their hosting capabilities. And that means companies availing of their services have to pay extra for the AI-computing power.

By developing a homegrown LLM, Zoho’s idea is to sidestep this additional cost.

“It has always tried to make its product available at a fraction of the cost of the market leader,” said a product manager at the US-based Salesforce. Rigorous cost control, he added, is in its DNA. “It means building its own products and services, too.”

It works because the company mainly caters to a group of small and medium enterprises, which collectively make an extremely price-sensitive market. Competition exists, from the likes of Hubspot and Freshworks, said a former Zoho employee. But Zoho’s products, even if not the best in class, provide good value for money, he added.

That works for the company, too. Zoho has never reported losses, the ex-employee said, adding that its recent profit margins have improved to 25–30% from 7–10% in the Covid years. In 2024, Zoho’s revenue from over 150,000 customers in India grewMSNZoho's $20-mn AI bet: why the SaaS giant built the homegrown LLM from scratch by about 32%. Its rival Freshworks, meanwhile, reported an overall 21% growth in FY24.

By completely bypassing the triopoly in cloud services, Zoho is directly at odds with the rest of the market.