Freshworks doubles down on a combined AI and software model

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Freshworks' AI and software strategy

Highlights

Freshworks shifted its product portfolio focus in 2024, placing AI at the center of its engineering, sales, and marketing efforts while discontinuing lower-impact products.
Freshworks' revenue model has expanded from per-seat pricing to include usage-based and value-based pricing, resulting in a blended platform-based model.
More than 7,000 customers are paying for AI products, and the rate of AI-based inquiry resolution has more than doubled over the past few quarters.

This article was translated from the original. Read the original version by our correspondent here.

Portfolio focus and AI strategy

In an interview with Forbes India, Freshworks CEO Dennis Woodside said that since taking charge in 2024, his priority has been to concentrate resources on the company's strongest products and embed AI across the portfolio. According to him, Freshservice was already growing at a 30-40% rate and had reached several hundred million dollars in ARR, so a large share of engineering, sales, and marketing resources was directed toward it.

Woodside said the company scaled back work on smaller, lower-impact products, discontinued some offerings, and increased its focus on products capable of generating revenue at scale. Acquisitions such as Device42, FireHydrant, and more recently Torii have expanded its capabilities, while AI has been deeply integrated into coding, product development, and customer use cases.

According to him, the notion that SaaS is over was driven by market sentiment, while customers still need software that can reliably handle defined workflows, IT operations, and tasks such as anomaly detection. He said software and AI will work side by side going forward, as not every business process can be left solely to probabilistic AI responses.

Pricing, competition, and impact on employment

Woodside said Freshworks' revenue model is still primarily based on per-seat pricing, but the company is also expanding usage-based and value-based models. For example, some modules are priced based on the number of managed assets, some on the resolution of IT incidents, and some on actual AI usage, giving rise to a blended platform-based model.

On competition, he said Freshworks targets "agile enterprise" customers that need enterprise-grade software but also want a lower total cost of ownership and greater flexibility. Compared with larger rivals such as Salesforce and ServiceNow, the company uses different AI models and selects models based on specific use cases rather than relying on a single provider, helping balance both cost and performance.

On the relationship between employment and AI, Woodside said understanding products, customer context, and creativity now matter more than writing basic code. He cited an AI agent such as Knowledge Curator, which updates outdated knowledge-base content based on customers' latest questions and answers.

On AI revenue, he said the company charges directly for some products, such as Copilot, while many AI capabilities are offered as part of a bundle. According to him, more than 7,000 customers are paying for AI products, the volume of inquiries resolved through AI conversations has more than doubled over the past few quarters, and the pace of adoption is as important to the company as direct revenue.

Our previous report on the hype surrounding LLMs and generative AI noted that businesses should move beyond the hype and conduct a robust assessment of costs, reliability, security, and operational risks. The article advocated investing in affordable, regulated AI solutions focused on local needs, rather than building expensive “sovereign LLMs” for India, while also highlighting the potential impact on jobs and long-term sustainability.

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