Enter AI, Exit ‘G’: Freshworks After Girish Mathrubootham

In August 2024, Freshworks cofounder Girish Mathrubootham popularly known as ‘G’ said, “Five or six years ago, we asked our team a critical question: What could disrupt Freshworks? The answer was AI. That’s when we began investing in Freddy AI. But the ChatGPT demo was a game-changer—it revealed the immense potential of AI. AI is the future, and the world is on the brink of a massive transformation.”

It’s hardly a secret that AI is being hailed as the biggest tech revolution since the internet—and rightfully so. It has already transformed industry titans and our daily lives in profound ways. 

Tech giants like Google, Microsoft, Facebook, Apple, and Amazon have made AI the cornerstone of their product strategies, while the likes of OpenAI and Anthropic have become the new AI native giants of the world. 

More than any other sector, AI has transformed SaaS like no other inflection point before it — the likes of Freshworks, Zoho and Salesforce risk embracing AI or fading into irrelevance if they fail to do so, as Mathrubootham hinted at.

According to the Inc42 SaaS Report 2024, AI has significantly permeated the Indian SaaS landscape, with 85% of SaaS startups infusing AI into their products and services in some shape or form. The SaaS and GenAI sectors in India are poised to unlock market opportunities worth $70 Bn and $17 Bn, respectively, by 2030.

But Freshworks, the AI revolution represents a paradigm shift — not just from the point of view of product development and operation, but also when it comes to leadership. In fact, Freshworks’ example is just one of the many ways in which AI is transforming software giants and a sign of things to come.

It began in May 2024, when Mathrubootham announced his resignation as CEO, just a few weeks before he made that above claim in a podcast. The company’s president Dennis Woodside has been named as his successor as Freshworks steps into the AI era.

His departure marked the beginning of significant leadership changes at Freshworks. Since then, the company has seen a complete overhaul of its top management, including the chief technology officer (CTO), chief product officer (CPO), chief revenue officer (CRO), and even the India head.

Simply speaking, by the end of 2024, Freshworks is no longer the same company it was one year ago. Mathrubootham has transitioned into the role of executive chairman at Freshworks, but behind the scenes, everything is changing too.

Speaking to Inc42, Shelton Rego, the new VP for sales in India, remarked, “I often compare AI to electricity—it takes time to fully integrate and show its impact across applications. Girish foresaw this as early as 2019, laying the groundwork long before AI became a buzzword. Today, we’re already seeing tangible value for customers across employee experience (EX), customer experience (CX), and AI. These three pillars will continue to shape our strategy for the next two to three years, with substantial innovation happening in both EX and CX.”

Freshworks In The Post-G Era

Beyond leadership changes, AI has resulted in a restructuring of the India business. 

A senior employee revealed that Freshworks recently laid off 660 employees from its nearly 5,000-strong workforce. This rejig has particularly impacted the India operations, and positions the company to execute much of the AI-led transformation, the employee noted.

Before the layoffs, around 4,100 of Freshworks’ employees were based in India (as of December 2023), making it the company’s largest operations hub.“India is our biggest contributor on the supply side, while the US, home to our headquarters, drives demand,” the senior employee added.

Indeed, North America accounts for over 55% of Freshworks’ revenue, underscoring the importance of the US market. However, the Indian and US entities are dual engines that Freshworks needs for growth. With AI coming into the picture, the focus for Freshworks is efficiency on the supply side to maximise the outcomes on the demand side. 

This was the sentiment behind Mathrubootham stepping down in some ways. 

“If I wanted, I could have held onto the CEO title at Freshworks. But the question is: where can I add the most value? Long-term, true long-term value. Investors often ask about the market perception of Freshworks—whether AI will impact or whether AI will disrupt customer service. That’s been the talk of the town. We’ve been working on this for five years,” he said in the same podcast mentioned above.  

Citing the Java wave and the SaaS waves of the past, Mathrubootham claimed that the AI wave is truly a monster wave, and that he’s excited about riding this one, just like Freshworks did in the past. 

Rego, who was appointed as VP in September 2024, expanded on this notion, “For the last 40 years humans needed to learn machine languages such as Java, C and so on, to understand machines. Now, machines understand human languages. Machines can understand our feelings, when we are happy or sad. So, now humans don’t have to change.”

But does it mean Freshworks has to change to become an AI-first company?

AI Or SaaS: Freshworks’ Future? 

Rego claims that Freshworks does not see itself as an AI company, but one that uses AI in applications to help its customers. “In fact, our mission is to provide AI-first software which is easy to use. So, focus is definitely on AI but we are still a software company,” he told Inc42. 

The focus is on innovation and development in the SaaS application layer to drive meaningful value for its customers. He added that AI is already being practically implemented at enterprise customers that Freshworks caters to. 

Here’s an example that he cited: With the help of GenAI, Freshworks’ conversation summarisation function helped clients reduce turnaround time by 57%, thanks to actionable insights and recommendations.  

Indeed, the application layer has emerged as the most accessible way for consumers to adopt AI effectively, so that’s where Freshworks’ current focus is, and that of its competitors, even though some have looked to get into the infrastructure layer as well. 

Like Zoho, India’s largest SaaS company, which is developing its own LLMs. Once the LLMs are built and deployed, they will be available to Zoho’s 700K customers across ManageEngine and Zoho.com globally. 

Is Freshworks also building its own LLMs in order to complete the AI stack? Rego neither confirmed nor denied it, but said that there are numerous large language models (LLMs) available today, and Freshworks does not intend to limit customers to just one or two options. The company’s goal is to offer a wide array of services that enable customers to achieve their objectives seamlessly.

While Freshworks has not commented on whether it is developing its own LLM, the organization actively leverages existing LLMs to power Freddy AI, its AI-driven platform. Freddy’s core functionalities—such as the AI agent, co-pilot, and insights—are built on these LLMs, which serve as the foundation for its advanced capabilities.

“When it comes to the approach we adopt for different industry segments, we follow a clear, tiered strategy. For smaller businesses and digital-first customers, we offer a seamless onboarding experience through our website, enabling them to quickly adopt our services independently. On the other hand, we dedicate significant efforts to serving larger conglomerates—like the Tata Group, Mahindra Group, and Godrej Group—that require comprehensive, enterprise-grade solutions,” the VP explained.

Freshworks’ focus in India will be on large-scale enterprises and conglomerates BFSI, media and traditional manufacturing sectors. Rego believes that these are the sectors that have been integral to Freshworks’ growth in India, which are also seeking the productivity and efficiency boost that AI brings.

Will AI Change India SaaS Adoption? 

But is generative AI the solution to all SaaS challenges? Not quite. In fact, in India, the impact of AI on SaaS revenue is yet to be clearly ascertained. These are still early days and even those adopting AI-infused SaaS are doing so cautiously.

According to various reports, despite a brief resurgence in industry revenue in 2021, median revenue growth rates for public SaaS companies returned to a decade-long downward trend. In 2023, 42% of SaaS companies reported a decline in ARPU (average revenue per user), while 8.2% saw a drop in ACV (annual contract value). As of October, 2024, B2B SaaS growth fell to 3.1% CAGR, while B2C growth dropped to 3.3% CAGR

Even Freshworks, an early adopter of AI, has not been immune to these pressures. Despite promising early results from its latest innovations, 2024 has proven to be a difficult year for the company. 

Following its Q1 2024 earnings call in May, Freshworks shares dropped by 27%, and while in Q3 2024 losses shrank to $29 Mn on a YoY basis, this was still higher than the previous quarter. 

The sharp decline was attributed to several major developments, including the announcement of a CEO transition, the acquisition of agentless IT solutions company Device42, and a downward revision of the company’s revenue guidance for the year.

However, infusing AI into SaaS products does not come cheap. Gartner estimates that organisations may spend between $5 Mn and $20 Mn on embedding or customising AI models, or building GenAI applications for their products.

While Rego didn’t comment on the financials and the timeline pertaining to the path to profitability, the India VP added that currently the Indian market is ripe for SaaS innovation, as a whole lot of new customers will be using AI for the first time. 

Like the pandemic four years ago, there is another digital transformation wave afoot, but this time, businesses are waking up to how deeply transformative AI is as opposed to just adopting SaaS. As Rego added, “For us, the big challenge would be helping our customers with the transformation and this is not going to be easy.”

[Edited by Nikhil Subramaniam]