Belt tightening has become a new priority in the tech industry. Joining the mass layoff club, tech juggernaut, IBM has announced laying off 3,900 employees. A disturbing trend is visible in 210 tech companies that laid off 67,268 employees in January 2023 at an average of 2,500 employees per day.
For Silicon Valley, 2022 was a year of retrenchment for much of the tech industry. It was a major deviance from the perpetual boom sector big behemoths underwent as they ferociously staffed up their empires. Yet, even as companies faced regulatory scrutiny, they established themselves as job creators.
The tumbling economic environment has led the tech industry to introspect and focus on its core strengths. But that wasn't all; smaller companies bore similar consequences: Kraken, the cryptocurrency exchange, laid off 1,100 employees; Noom, the health and fitness app, axed 1,095 people; and payments company Stripe also laid off 1,050 employees.
The Digital Clock Strikes Midnight
Layoffs have been steadily on the rise since the 1970s. For example, in 1979, less than 5% of Fortune 100 companies laid off their employees, according to McMaster University sociology professor Art Budros, but in 1994 around 45% did the same.
A McKinsey report of 2,000 U.S. companies revealed that during the Recession and its aftermath, between 2008 and 2011, 65% chose to let go of their employees as the best option. The layoff phenomenon has become a default response, and there are several reasons for it, according to these companies.
German software giant SAP recently announced axing 3000 employees as it looks to cut costs and focus on its cloud business. Moreover, tech companies were especially prone to overhiring as the economy was recovering from the impact of the pandemic. According to Axios, Microsoft, Meta, and Alphabet (Google's parent) expanded their staff by 20% in the 12 months that ended September 30, 2022.
According to Reuters, Marc Benioff, the co-Chief Executive of Salesforce, wrote a letter explaining the current turbulence in the industry and taking responsibility for the “economic downturn the company is facing”.
Microsoft, the software giant, also confirmed that it would lay off 10,000 employees in FY 2023. In the letter to employees after the announcement of layoffs, Satya Nadela mentioned a possible recession as the reason. Spotify also planned to cut 6% of its workforce citing the same logic.
Several new investment initiatives by Silicon Valley's tech titans are unprofitable. For example, Amazon's robotics division, Microsoft's virtual reality and metaverse division ‘AltspaceVR’, and Meta's Substack competitor called ‘Bulletin’ are all verticals that are futuristic to a certain degree and require a lot of investments but also burn a lot of money. The cash burn has also been why companies are trying to cut costs.
Fund managers and early investors in big tech companies are also pushing the company management to make quick decisions to counter the company growth slowdown.
In October last year, Meta's founder and CEO, Mark Zuckerberg, received a letter from Altimeter Capital Chair and Chief Executive Brad Gerstner, who advised job cuts and streamlining operations.
Expect the Unexpected
With dozens of companies trying to find ways to stay afloat in the sinking economy, the majority of the laid-off employees are left with a list of questions about who to approach.
In The Disposable American, a New York Times journalist and author, Louis Uchitelle, argued that the working world need not be so cruel. Drawing a comparison, he said layoffs should come with a warning label like cigarettes. The scare of job losses should shift from workers to the executives, who see human suffering as the unfortunate cost of doing business.
'Sorry, we have to let you go' might have been the most dreaded phrase of 2022, and experts anticipate the number of pink slips handed to not dial down anytime soon in 2023. The number has already surpassed the Great Recession the world went through, which began with Lehman Brothers collapse in 2008–2009.
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