“Companies must accept both the possibility of failure and success during such technological shifts,” he said speaking at the 43rd weekly meeting of the Rotary Club of Madras in Chennai.
Vembu said the AI race is no longer limited to Silicon Valley, with Chinese companies also emerging strongly in coding models.
On India’s position in the technology sector, he noted that the country has the engineering talent required to build globally competitive technology companies.
Referring to “Made in India” products, Vembu said India’s international visibility has improved in recent years.
He also criticised excessive focus on financial market metrics and venture capital-driven growth models, recalling how Zoho chose not to take outside investment and remain bootstrapped.
“The money is in code,” Vembu said, while arguing that artificial intelligence will derive its biggest economic value from code generation rather than from images or videos.
He noted that the current AI coding systems are still unable to reliably build large-scale, production-quality enterprise software, despite rapid advances in AI-assisted programming.
AI tools can generate prototypes but continue to face limitations in developing full-scale Enterprise Resource Planning (ERP) and insurance software systems with the required quality and reliability, Vembu said.
Pointing out to the rapid growth of AI companies focused on coding models, he said that one such company’s revenue is expected to grow nearly 30 times this year compared to the previous year.
Vembu also pointed to sharp increases in valuations in the AI sector, with some firms moving from valuations of a few hundred million dollars to around USD 3 billion within a short span.
“Software is eating the world, and AI is eating software,” he said.
Vembu noted that the central question facing the software industry is whether AI can significantly improve programmer productivity.
The industry must determine how technology can make programmers five times, ten times or even fifty times more productive, he said.
Describing software development as a “digital cottage industry,” programmers still “hand-stitch code together”, Vembu added.
India faces a significant technology deficit, which is described as ‘existential’ due to its impact on the rupee and implications for national technology security. This deficit persists despite India having a large pool of engineers, he said.
Vembu noted that a key aspect of this deficit is that critical technologies purchased by the Indian government are often invented by Indian talent, specifically individuals trained in institutions such as IIT Madras, IIT Delhi, IIT Kanpur, or IIT Bombay.
However, these technologies are then sold back to India by foreign companies at prices that can be 100 times the market value. This situation is likened to the historical East India Company, suggesting a loss of economic control, he added.
The Zoho founder highlights the risk of foreign technology being weaponized, citing examples like potential for services like Microsoft Exchange, Gmail, and Android phones to be shut off by executive orders, posing a national security threat.
On talent migration, 40 per cent of the code running globally is produced by Indian brainpower. However, this talent, after contributing to foreign companies, results in technology being sold back to India at significantly inflated prices, potentially 100x, 200x, or even 500x the cost, Vembu pointed out.
Furthermore, the latest military-grade models from companies like Anthropic, which have Indian individuals among their creators, are not being shared with India, including the Indian government, because they are considered too sensitive, he said.
Vembu also said Zoho has been hiring PhDs and investing in AI-related research for the past five years, while exploring alternative approaches to software development using AI.
He added that his move into the role of chief scientist reflected a deeper focus on technology and AI-related work.
Vembu was honoured with a Lifetime Achievement Award at the event.