1674917727 Big Techs layoffs are a problem the industry itself created

Big Tech’s layoffs are a problem the industry itself created: Morning Brief

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The tech industry is suffering from a seemingly non-stop parade of layoffs in Silicon Valley and beyond.

And we’re not talking about small numbers either.

Meta (META) started the mass layoffs and cut 11,000 jobs in November. Then, on January 4th, Amazon (AMZN) followed suit and laid off 18,000 employees. Two weeks later, Microsoft (MSFT) laid off 10,000 employees and two days later, on January 20, Alphabet (GOOG, GOOGL) laid off 12,000 employees.

And those are just the main announcements.

Tech companies have shed 240,000 jobs since the beginning of 2021, according to Layoffs.fyi. Since early 2023? 68,149 jobs have been lost in the industry.

And there’s no sign the bleeding will stop anytime soon. Just this week, IBM laid off 3,900 employees, while SAP announced it would cut 3,000 jobs.

But the number of jobs lost isn’t the whole story.

The tech layoffs that have rocked the industry for the past two years are a disaster of the tech companies themselves. From overstaffing to believing the post-pandemic world would stay online forever, the industry is struggling with its own misperceptions.

And now, the employees who pinned their future on these strategic misfires must deal with the fallout.

So how did we get here? The simple answer is that as the world began to pull out of the pandemic, the economy turned sour. Inflation rose, the Federal Reserve raised interest rates, and that was it. At least that’s what the tech executives say.

NEW YORK, NEW YORK - JANUARY 25: A man walks a walk near Google offices on January 25, 2023 in New York City.  The US Department of Justice and an eight-state group are suing Google for illegally abusing a monopoly over the technology that powers online advertising.  (Photo by Leonardo Munoz/VIEWpress)

NEW YORK, NEW YORK – JANUARY 25: A man walks a walk near Google offices on January 25, 2023 in New York City. The US Department of Justice and an eight-state group are suing Google for illegally abusing a monopoly over the technology that powers online advertising. (Photo by Leonardo Munoz/VIEWpress)

Microsoft’s Satya Nadella told employees that consumers now want to do more with less after spending so much during the pandemic. Google’s Sundar Pichai told employees the company increased staff during the pandemic, but the economic situation has changed. And Amazon’s Andy Jassy said the uncertain economy and the decision to hire so many workers during the pandemic are the reason the company is moving forward with layoffs.

The story goes on

The reality is that companies were hired for a world where they thought the growth experienced during the pandemic was permanent. We would all stay indoors, ordering goods online and streaming content.

Or to use analyst and investor parlance, the pandemic appeared to dramatically increase the TAM — or Total Addressable Market — that these companies were tracking. Following this logic, growing into a larger-than-expected market at any cost was not only sensible, but also necessary to remain competitive.

From Q4 2019 to Q3 2022, Microsoft increased its headcount by 53.5%, while Google hired 57% more employees. Amazon and Meta brought in 93.5% and 94.3% more employees, respectively.

With revenue skyrocketing and stock prices soaring, Big Tech was looking for a way to keep the party going, and hiring more employees seemed like the best way to do it.

And now that someone — read: Jay Powell — turned on the lights and turned off the music, those same tech companies must reckon with their bad decisions. And expect a sea change in the way the industry will measure success going forward.

As Coinbase CEO Brian Armstrong wrote when announcing his own company’s decision to cut 20% of its team earlier this month, “Over the past 10 years, along with most tech companies, we’ve focused too much on… Increasing the number of employees as a measure of success. In this economic environment in particular, it is important to keep our focus on operational efficiency.”

We can recall even before the pandemic that meta-platforms — then known as Facebook — touted the investments they would need to hire staff to take advantage of an ever-growing opportunity that seemed to be opening up.

Those times are obviously over for the time being.

But it’s not just workers that Big Tech is cutting.

Companies like Amazon, Microsoft and Google are reassessing their product portfolios to see what can stay and what can go. Amazon, which has dramatically expanded its storage space during the pandemic, is looking at ways to sublet some of its storage space to third parties.

Google just shut down its game streaming service Stadia, although that’s been in the works for some time. For its part, Meta has cut parts of its experimental product division, according to Platformer.

Despite these layoffs and moves, friend of Yahoo Finance Sam Ro points this out The tech industry accounts for just 2.8% of total US employment. In addition, the US economy added 223,000 jobs in December and 4.5 million jobs last year.

And while the big tech companies are shedding jobs, other industries are coming along.

Chipotle this week announced plans to hire 15,000 employees as part of continued expansion plans. And Boeing said it will hire 10,000 workers in 2023 when production ramps up.

So while tech giants seem to have stepped on their skis to extrapolate short-term trends into the future, other industries see the current economic climate as a call for expansion.

Which side of this divide turns out to be right over the long term could have major implications for the economy in the years to come. Or maybe both positions will be correct.

Do you have a tip? Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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