Big Tech Layoffs: Has the Bubble Burst?

by Flora Tucker

January 27, 2023

2023 has seen the global trend of Big Tech layoffs that began in 2022 continue. On Monday, Spotify announced its decision to lay off 6% of its staff (approximately 600 employees). 

This has come as part of a huge cutting of jobs in the tech industry since the pandemic.According to data compiled by Roger Lee through his start-up Layoffs.fyi, the biggest layoff was that by Alphabet, Google’s parent company, on Saturday. The company announced it would reduce its workforce by approximately 120,000 employees, or 6%.

The second biggest layoff was that by Meta, parent company of Facebook, Instagram, and Whatsapp. In November, Meta announced a reduction of 13% of the company, or 11,000 employees. 

Third was Microsoft, who announced its plans to let 10,000 employees go on Thursday. 

Amazon held fourth and fifth places for its layoffs announced on November 16 and January 5. Combined, these layoffs amount to 18,000 jobs lost. 

Other notable layoffs in 2023 and the latter half of 2022 include those by Salesforce (10%, Jan 4), Philips (4000 positions, October 24), Twitter (approximately 50%, November 4), and Snap (20%, August 31). 

So why is this happening? 

Many of these firms’ CEOs give a similar reason for the large scale of layoffs: over-hiring during the pandemic as the tech industry rapidly expanded. 

The stock market value of an equally-weighted portfolio of five tech companies especially favoured during the pandemic, including Netflix, Peloton, Robinhood, Shopify, and Zoomincreased by 320% from the start of the pandemic to its peak in August 2021. 

However, by September 2022 it had fallen more than 80% from its peak. 

These peaks and troughs far outweigh the peaks and troughs of the wider market, with NASDAQ rising 88% before falling by 18%. 

However, this is not the case for all technologies. Cloud-computing and, in its wake, cyber-security are expected to continue to grow. 

Daniel Ek, Spotify’s CEO, told employees that, “Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic… In hindsight, I was too ambitious in investing ahead of our revenue growth.” 

It’s a message that’s echoed across many of the tech companies. Sundar Pichai, CEO of Alphabet and Google, said “Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today.”

Amazon, Salesforce, and Meta also all addressed the rapid hiring rates during the pandemic that have not matched the post-pandemic demand for online services. 

The loss of advertising revenue is also a major blow to tech companies. Advertising comprises the majority of profit for companies like Meta, for whom it made up 98% of the company’s revenue between July and September 2022. 

However, as a third of the world is expected to enter into recession in 2023, one major cost-saving initiative for businesses will be in advertising budgets. 

Changing government and corporate guidelines about data privacy will also impact this. 

Both Meta and TikTok have had recent inquiries launched into their data usage by the Irish Data Protection Commission, concerning breaches of the General Data Protection Regulation(GDPR) that the European Union (EU) implemented in 2018. 

Furthermore, in 2021, Apple’s changing privacy policy, that allowed users to opt out of data tracking for advertisers, meant a huge blow to their ad sales revenue. 

Following Apple’s changed privacy policy, stock dropped by 26% for Meta, 18% for Snap, 11% for Pinterest, and 8% for Twitter. 

Meanwhile TikTok has undercut advertising prices, offering cheaper adverts on a rapidly expanding platform. But this has not insulated Bytedance, TikTok’s parent company, who have laid off hundreds of employees in China since September 2022. 

Part of the problem for tech companies is the lasting impact of Covid-19 in China. 

For example, following a lockdown-related disruption to iPhone production in China, Apple’s share price fell by 27%.

Tesla has also been facing problems in China, which is both the world’s largest electric vehicle market and the source of 40% of Tesla’s sales. 

Tesla has been forced to lower prices of its Model 3 and Model Y there, as deliveries of Teslas made in the country hit a five-month low this December. A weaker consumer environment and increased competition are serious concerns for the electric car manufacturer. 

In June last year Tesla implemented a hiring freeze, and laid off 10% of its workforce. This triggered Tesla stock to fall 8.5%. Tesla then quickly reversed the freeze, and began growing its hiring again in the second half of the year. 

However, Tesla is expected to make significant layoffs again in the first quarter of this year. 

Despite the fact that Apple is not immune to the shrinking of the tech economy, they have managed so far to avoid mass layoffs. 

This is in part because Apple did not experience the same growth spurt as their competitors throughout the pandemic, with a steady hiring-rate to match. In fact, their hiring rates have followed the same general trend since 2016. 

Although Apple’s privacy-forward branding has undercut other advertisers, Apple has emerged onto the advertising market, reportedly looking to double their digital advertising team in September last year. 

This month, Apple faced a rare GDPR-related fine of €8 million given by France, concerning personalised advertising in the App Store. 

In part, Apple may also have avoided tech layoffs so far through CEO Tim Cook taking a voluntary pay cut of $40 million in 2023. 

The Exception of Twitter

Twitter has also faced mass layoffs, however, a huge factor in this is the platform’s acquisition by Elon Musk in October 2022. Musk’s handling of the platform eventually resulted in the EU threatening sanctions, and the UN condemning the platform’s suspension of journalists’ accounts. 

Following his $44bn acquisition, Musk immediately fired 3750 members of staff, seemingly to rectify the fact that Twitter has made a loss for 10 of the past 12 years. Musk also hinted at overhiring, stating there were too many managers. 

Many of those let go by Twitter are facing exceptionally poor severance deals, with heavy strings attached; if they accept the severance deals, they cannot take part in any legal action against the company. 

Twitter also has huge debts, after $13bn of borrowing, which will cost more than $1bn a year to service. 

Advertising, which accounted for 90% of Twitter’s 2021 revenue, has dropped significantly since Musk’s acquisition. It is currently 40% lower than this time last year. 

Twitter is hoping to avoid the advertising crash by following in the footsteps of platforms like Spotify, offering an ad-free paid subscription. Musk aims for “half of [Twitter’s] revenue to be subscription,” according to a company-wide email, which also stated that  “Without significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn.” 

Is the bubble bursting or coming back down to earth? 

The huge scale of tech layoffs is likely to continue, whether it’s unavoidable, or simply CEOs copying each other as some suggest. But is it a sign of the times? 

Many people have drawn similarities between the current tech “crash,” and the bursting of the dot com bubble in the 00s. Indeed, these tech layoffs appear to come as less of a shock to those who were in the industry the first time round, and so have prepared for the eventuality as they built their technical careers. 

Many of the younger generation have gotten accustomed to viewing tech jobs with big Silicon Valley companies as lifestyles – jobs that come with laundry, free coffees, and gym memberships. 

This move might mean that the younger generation of tech industry workers re-evaluate their expectations from a job in tech to be a more straightforward career, rather than bestowing a certain lifestyle. 

The dot com crash supplied the raw materials for the next twenty years of technology – and this one could well do the same. There’s no denying it’s a shifting marketplace, as seen recently when Google issued a “code red” in the face of OpenAI’s latest software, ChatGPT. 

These layoffs seem less to be the precursor to thousands of techies being completely out of work, and more a redistribution of talent. 

Many of those affected by the layoffs seem to be finding openings in the market overall, as tech becomes a larger part of the interface of most companies. 

Overall, the Big Tech layoffs are awe-inspiring in their sheer scale, but ultimately don’t sign absolute doom for the wider tech industry or for the broader economy, although this is undeniably in dire straits for other reasons. 

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Rather, there is a significant redistribution of workers and talent into smaller and next level companies, or into non-traditional tech companies like healthcare, defence, and mortgage documentation. It is, though, a jarring and unwelcome reminder to thousands that their careers are not as secure as they previously may have seemed. 

This article was originally published on IMPAKTER. Read the original article.