The online music platform Spotify announced this Monday that it would lay off around 6% of its workforce. Considering that the Swedish multinational employs around 9,800 workers worldwide, the move means the exodus of around 600 workers. The downsizing has already been disclosed to the US regulator (SEC) and also to all company employees who have received a communication from CEO Daniel Ek.
In the message, shared by the company on its website, Ek admits miscalculations and believes the good times the company enjoyed during the pandemic, when restrictions gave a big boost to its business, could continue once restrictions are eased. “Like many other executives, I hoped to weather the strong tailwinds of the pandemic and believed that our vast global business and reduced risk of the impact of an advertising slowdown would isolate us,” he said. The reality is it wasn’t, and as Ek himself acknowledges, it’s time to retire. “In hindsight, I was too ambitious to invest before our income grew. For this reason, we are reducing our employee base company-wide by around 6% today. I take full responsibility for the steps that have brought us here today. My goal now is to make sure that all employees are treated fairly when they leave,” he says.
Those who are laid off will receive about five months’ severance pay, they will be compensated for unused vacation time, they will keep their health insurance for a while, they will have the opportunity to be promoted, and if their immigration status depends on their employment, they will receive advice from Human Resources.
According to the memo sent to the SEC, the departure of these hundreds of employees will cost the company between €35 million and €45 million. And it’s not the only change afoot. Spotify’s reorganization includes the departure of Dawn Ostroff, previously responsible for content and advertising, who will serve as an advisor during the transition. “Thanks to their work, Spotify was able to innovate the ad format and more than double our advertising revenue to €1.5 billion,” said Ek.
Additionally, Alex Norstrom, head of the freemium business, and Gustav Söderstrom, responsible for research and development, will assume new roles and be appointed co-chairs of the company, working directly with the CEO at the top of the pyramid. The first focuses on the commercial side and revisits part of the work carried out by Ostroff, and the second brings together everything related to product improvement.
Ek doesn’t just blame the exits for their own mistakes. Amid the interest rate hike by the US Federal Reserve and a still looming recession, he speaks of “a challenging economic environment” in which efficiency and cost control “are becoming more important”.
Following the announcement, Spotify shares are valued more than 5% on Wall Street in pre-market moves. Investors are rewarding the company for trying to cut spending, especially when results for the quarter, which ran between July and September, showed a loss of €166 million. A hole that faces the good development of new users: the company added 23 million this quarter, reaching 456 million, up 20% year-on-year, but it is unable to make them profitable.
The Spotify case is the latest in a long line of companies linked to the tech sector making massive layoffs. According to website Layoffs.fyi, which chronicles each cut in detail, 158,951 workers were laid off in 2022 and 55,970 in 2023. That means more than 200,000 employees have left the technology companies. But that doesn’t mean their combined workforce has shrunk compared to pre-pandemic times. The top five tech companies have grown from 926,000 employees in 2017 to more than 2 million in 2022, so it’s more of a resizing process after, as Daniel Ek pointed out, they sinned from excessive optimism when proposing growth plans that could shift now prove unrealistic.
Spotify’s top executive believes they risk being left behind if they become complacent and don’t adapt to change. “To truly become the go-to developer destination, we must continue to improve our tools and technology, explore new ways to help developers connect with their audiences, advance their careers, and monetize their work.”
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