Freshworks repurposing staff as AI automates low-value tasks, says CEO
This, however, may not lead to large-scale layoffs as the company is seeing a steadily increasing number of its clients adopting AI tools and services, according to chief executive Dennis Woodside. The uptake of cutting-edge tools and services will likely see the company continuing to hire, with its focus on higher-value employees instead of freshers and entry-level engineers.
Woodside, who took over from founder Girish Mathrubootham in May last year, told Mint that Freshworks' hiring strategy is 'definitely shifting."
"We're using AI in our own business to reduce the need for humans to do some of the more mundane stuff. We're repurposing those team members to higher-value, more proactive services," said Woodside.
'We have over 73,000 customers, who ask a lot of questions. Most of those can be answered by AI, so we've reduced employees who were once engaged in reactive support and employed them in proactive customer outreach," the CEO said. 'This directly impacts our revenue, and is more rewarding. We're definitely hiring differently from how we did before the AI wave."
AI adoption among clients has changed the pattern of demand for information technology services providers, promoting a shift in hiring strategies. On 27 July, Tata Consultancy Services (TCS), India's largest tech services company by market cap, announced that it will lay off nearly 12,000 employees—about 2% of its global workforce. K Krithivasan, chief executive of TCS, attributed the layoffs to "strategic initiatives on multiple fronts, including investing in new-tech areas, entering new markets, deploying AI at scale... and realigning (its) workforce model."
While not all companies have commenced such layoffs, industry stakeholders expect a muted hiring market for India's tech-facing talent.
'Changes in hiring strategy will happen across organizations, even if that doesn't immediately mean blanket layoffs or hiring freeze periods. The true impact of AI, which remains to be a work in progress around the world, is yet to be seen," said Sunil Chemmankotil, India country manager at talent solutions firm Adecco.
'While mundane jobs are being automated, most other fields are still experimenting with how to handle the technology," said Chemmankotil. 'This has made companies cautious in hiring and expansions, and most are looking to balance their existing workforce by upskilling them—to see how they suit incoming customer demand."
On Tuesday, during Freshworks' Q2FY25 earnings call, Woodside told analysts that the company is currently seeing about 7% of its client base—about 5,000 out of 73,000-odd enterprises—paying specifically for the company's AI software. This helped it generate $20 million in revenue during the June quarter, accounting for just under 3% of its annual revenue of $804 million.
With this, San Mateo-based Freshworks, which makes software for companies' internal operations, including customer service and internal communication, becomes one of the first homegrown IT companies to disclose revenue from generative AI. So far, Accenture Plc is among the only large IT firms to report revenue from generative AI deals. Accenture secured $1.5 billion in new generative AI bookings, and revenue of $700 million from generative AI projects. Since September 2023, the company has generated orders linked to generative AI worth $7.1 billion.
'The extent of spending on AI among companies is widely varied. Most IT teams of enterprises have limited budgets, and many of them are allocating more money into AI because they anticipate increasing value from adopting AI. We are seeing increasing budgets being allocated toward AI software, which is benefiting us," Woodside said.
Industry experts expect AI spending to rise, but remain cautious in the near term.
"We're currently in the first wave of AI adoption, which is seeing generative tools being experimented with for productivity and assistance. This includes automation of customer support, email summarization and the likes," said Jayanth Kolla, partner at tech consultancy firm Convergence Catalyst.
'The second wave of AI adoption will be fuelled by companies looking to optimize cost of operations, which is likely to happen before the end of this fiscal," said Kolla. 'It is only after this that full-scale revenue enhancement will start being realized by AI service providers—for this, mainstream AI adoption is likely to take until FY28."
Kolla added that for a start, seeing generative AI revenue contributing 2-3% of a company's top line "is very good, and shows an extremely progressive technology push".
Freshworks, founded by executive chairman Mathrubootham in Chennai in 2010, reported Q2FY25 revenue of $204.7 million, up 4.3% sequentially. The company follows a January to December cycle of financial reporting, and counts American Express, Bridgestone, Databricks and Sony among its large clients. In comparison with Indian tech service providers, Freshworks is roughly at the same size as Firstsource Solutions Ltd. The company has guided for a 14-15% jump in revenue to $823-829 million by end-FY25.
Freshworks listing on Nasdaq in the US in September 2021, making it India's first SaaS company to go public in America. Since then, the company's stock has taken a beating on slower-than-expected growth—falling from just over $50 per share shortly after listing to around $11 by June 2022. It has since traded around its all-time low, and closed at $13.91 apiece on Tuesday.
The software company laid off 13% of its global headcount last year, many of whom were based out of India. This cost the company between $11 million and $13 million in separation-related payments last year. Woodside joined the company amid its restructuring last year.
Freshworks also considers Zoho Corp, the country's largest privately-held tech firm, among its competitors. While Zoho reported more than $1 billion in FY23 revenue, it has not yet disclosed its FY24 and FY25 revenue figures. While Woodside said Freshworks is "on track" to achieve its $1 billion revenue milestone, he did not commit to a timeline to achieve this.
Freshworks gets 47% of its business from the US, its largest market, followed by 39% from Europe, the Middle East, and Africa.
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