Known for sky-high salaries, frequent hirings, bonuses, stock ownership plans, generous perks, and lavish workspaces, technology companies and their employees have been living like there’s no tomorrow. That party, however, seems to have come to an end, with the flow of money into the sector drying up in the face of the ongoing economic slowdown.
For tech company founders, the influx of money resulted in indiscriminate spending triggered by investors happy to shove billions of dollars into their hands because the industry seemed invincible, recession-proof, and fail-safe, ready to succeed even as other industries crumbled. Now that that stream is gone, those same tech founders are inflicting massive layoffs on their employees.
In 2022 alone, tech companies like cloud software provider Salesforce, ride hailer Lyft, payment processor Stripe, real estate aggregator Zillow, Microsoft, content aggregator Flipboard, social media firm Snap, Apple, Netflix, platform provider to build communication tool Twilio, subscription based content creator platform Patreon, and Google have laid off employees.
After 13 years, as the tech sector’s dream bull run draws to a halt, Silicon Valley’s honeymoon with wealth is ending. That is why it becomes ThePrint’s Newsmaker of the Week.
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A year full of tech lay-offs
Spurred by macroeconomic conditions, Meta, the parent company of Facebook, Whatsapp, and Instagram, laid off 11,000 employees this week across its apps division, recruiting team, and Reality Labs unit focusing on research and making hardware and software for augmented reality and virtual reality experiences.
Note that this was a company that generated billions of dollars seemingly effortlessly.
Since Elon Musk took over Twitter in late October, he has fired about half the company’s 7,500-strong staff. Musk, who also heads Tesla, had reportedly said in June that he wants to pause hiring and cut the employee count by 10 per cent because he has a “super bad feeling” about the economy.
Amazon, too, is also reportedly looking to pare back on businesses that haven’t been profitable.
This is a significant downturn in fortune for tech firms with a Midas touch. In 2021, Facebook was the fastest company in history to breach the $1 trillion market valuation mark. That same year, Tesla became the second fastest.
Funding is drying up for tech startups in India too. Until now, a tech startup could attract billions of dollars in venture capital funding. The internet and data were a goldmine.
There was license to hire indiscriminately, experiment with building new products, marketing, discounts, and cashback bonanzas. The name of the game was ‘burn as much money as you want to attain customers, profits be damned’, since investors were only too happy to pump in more billions of dollars.
For example, edtech firm Byju’s is valued at $22 billion, but is essentially a loss-making business that was hit by a Rs 4,588 crore hole in FY2021. Despite reports of those losses coming out in September this year, Byju’s still managed to get another $250 million from investors in October.
But winter is coming. Byju’s will be firing 2,500 employees to try and become profitable by March 2023. Startup news site Inc42 says that 15,708 employees have been laid off by 44 startups in India this year.
Like funding for Indian startups has reduced, venture capital – used for investing in risky ventures like unproven, unknown startups – is drying up globally.
Venture funding in 2022’s third quarter was $81 billion, a $90 billion drop compared to a year ago, according to startup investment insight provider Crunchbase news.
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Why is this happening?
Blame it on macroeconomic conditions and investor sentiment, and also on tech founders who have never been impacted by large-scale financial hits.
The book The Psychology of Money quotes Bill Gates as saying, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Companies like Meta and its chief Mark Zuckerberg have only known unparalleled success and have even weathered controversies around mishandling user data without sustained hits to their stock price. Maybe this made them complacent.
In the statement announcing Meta’s layoffs, Zuckerberg said, “At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition…have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that.”
Former Twitter CEO and co-founder Jack Dorsey also apologised for spending on growing the company too fast, and hiring too many people, many of whom Musk has now fired. “I own the responsibility for why everyone is in this situation: I grew the company size too quickly. I apologize for that,” Dorsey tweeted.
Global inflation and the US Federal Reserve’s interest rate hikes have had a global and negative impact on investor sentiment.
“Policy operates with a lag, and we have yet to feel its full economic impact… investors should avoid big changes to asset allocations that differ from long-term risk-based targets,” according to a Morgan Stanley blog post on the Federal Reserve’s 75-basis-point interest rate hike in November. “Instead, look to deploy cash opportunistically to investments that demonstrate positive after-inflation cash flow and growth at a reasonable price.”
Add to that the market uncertainties created by Vladimir Putin leading Russia into war with Ukraine. The inflation the war has triggered on goods the two countries export has trickled its way to discourage businesses away from frivolous digital ad spends.
So, even tech firms have to reel in their ostentatious ways and do the unthinkable like share desks, as Zuckerberg suggested.
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(Edited by Prashant)