Technologies have been reduced – Hi-Tech – Kommersant

American technology companies in the face of a difficult macroeconomic situation and a downturn in the online advertising market are actively laying off employees and looking for ways to reduce other costs. According to some experts, this is a kind of work on the bugs. Others believe that by actively hiring specialists in good years, corporations acted perfectly rationally.

What’s happening

On Wednesday, the founder and CEO of Meta (recognized as extremist in the Russian Federation and banned) Mark Zuckerberg announced about the largest reduction of employees in the history of the corporation. 11 thousand people will be fired – about 13% of all employees. Meta’s problems continue for more than the first quarter, and on its plans to cut employees wrote American media a few months. However, it is not only Meta that is laying off employees this year, but many other American technology companies as well.

Before Elon Musk finally acquired Twitter, the media wrote that he would cut a significant part of the service’s employees – from 25% to 75%. As a result, Mr. Musk decided to cut half of Twitter employees, i.e. 3.7 thousand people. The same reduction in employees – 3.7 thousand – was reported in May by the online taxi service Uber.

Large reductions since the beginning of the year were reported by Better.com real estate price comparison service (3.7 thousand employees), Groupon discount service and Peloton, a manufacturer of smart exercise machines and other equipment for home fitness (2.8 thousand each). Other companies laying off employees in 2022 include Microsoft Corporation, streaming service Netflix, fintech companies Stripe and Coinbase, and online taxi service Lyft.

According to the service Layoffs.fyi, which analyzes tech cuts, has laid off workers at more than 770 companies this year, from small start-ups to giants like Meta. In total, the reductions affected more than 119 thousand employees. Some companies are also freezing new hires, including Amazon and Apple.

Previously, many companies invested in experimental developments and new directions – now they have to close.

So, Snap messenger in August informed not only about laying off about a thousand employees, but also about the intention to gradually phase out the service he bought a few years ago, the location-sharing service Zenly and the Voisey music application.

As I wrote on Thursday, citing sources The Wall Street Journal, Amazon is exploring which unprofitable divisions it can close to cut costs, such divisions include the development and production of its own gadgets, including the Alexa smart speaker. In August, the company has already closed the telemedicine service Amazon Care.

Why hi-tech cuts

Of course, every company has its own reasons for layoffs. So, the difficulties of Meta began last year: its financial results worsened, revenue growth slowed down, and in the second quarter of this year it fell for the first time in the history of the company. The situation was not improved by Mr. Zuckerberg’s ambitious project to create a metaverse announced last year. It requires large expenses, while at least in the short term it does not bring any positive impact on the business.

Large-scale reductions in Twitter were provoked by a subjective factor – the purchase of the service by Elon Musk. The billionaire is known for sudden decisions and drastic changes in his companies.

However, the general trend of massive layoffs in the industry is indicative of deeper problems for the entire sector.

One of the main challenges is the tougher competition in the online advertising market while many companies are cutting advertising budgets. But for many technology companies, online advertising is the main source of income.

The macroeconomic situation itself also influences. Many companies in letters of dismissal of employees specifically mention inflation, an increase in the key rate, a “possible recession” or “macroeconomic downturn” among the reasons. In such conditions, high-tech companies are very unsuccessful report back per quarter, and their shares fall.

“We are facing an unusual macroeconomic environment and want to balance hiring and investment given the economics,” said Amazon HR director Beth Galetti, announcing the company’s hiring freeze.

The macroeconomic situation also affects the sales of gadgets and PCs, especially since they were bought very actively during the pandemic. “In the past two years, so many PCs have been bought that now there is simply no demand for them. In addition, in many places hiring is frozen, so the business does not need new PCs, ”said Mikako Kitagawa, an analyst at Gartner research company.

The reductions are also due to the fact that technology companies are very actively, and according to some experts, even too actively, hired employees.

This has continued throughout the previous ten years, which have been remarkably successful for technology corporations. Earnings and stocks soared. Even the COVID-19 pandemic has been good for the high-tech sector.

Hiring employees during this period took place in conditions of fierce competition. In the course were a variety of benefits and privileges. Valuable employees were attracted not only by high salaries and bonuses, but also, say, by free massages in the office and canteenswhich prepared well-known chefs at the level of good restaurants.

The number of Meta employees has doubled over the past three years, to 87.3 thousand people. The investor app Robinhood, which has skyrocketed in popularity during the pandemic, has grown six-fold in 2020 and 2021 to 3,800 people. The company also had to lay off several hundred employees this year.

“During fat times, there were surpluses that led to over-hiring and optimism… Too much money led to too much hiring,”— thinks Josh Wolfe of Lux Capital investment fund.

“The bubble has burst,” he quotes Financial Times an unnamed ex-Meta employee. According to another fired, the company had “a lot of unnecessary teams and unknown products.” No wonder they had to be abandoned.

However, not all experts believe that corporations behaved irrationally.

According to Firsthand Funds CEO Kevin Landis, active hiring was a smart tactic. “By hiring engineers, they were ‘taking territory,'” he says. “They certainly knew they were being wasteful, and of course they knew they were doing the right thing.”

As some experts note, the point here is not only in the desire to hire talented specialists as quickly as possible, but also in very specific goals to attract investment. “The pressure is that you have to spend money fast enough so that you can grow fast enough to justify the kinds of investments that VCs want to make,” says Eric Rachlin, co-founder of Body Labs, a startup bought by Amazon.

What will happen next

According to Wedbush Securities analyst Daniel Ives, the current cost-cutting policy will continue. “These companies spent like the rock stars of the 1980s, and in a bleaker economic climate they have to make some difficult cuts. This is just the first step in how these companies are rationalizing their cost structure,” he said.

Some experts point out that, in fact, cuts do not reduce the staff of high-tech companies that much.

“Meta’s layoff of 11,000 employees brings it back to December 2011 levels. Wait, no, December 2021,” jokes independent technology expert Benedict Evans, pointing out that, in fact, the company has laid off as many employees as it has hired since just the end of last year.

Furthermore. The current difficulties of technology companies do not mean that things in the sector are really bad. Various sectors of the economy are not going to reduce investment in technology.

“CEOs and CFOs have no intentions to cut spending on technology,”— notes John-David Lovelock, director of forecasts at Gartner. In his opinion, more traditional technology companies, such as software developers, can seriously slow down, while other areas, including cloud services, will continue to grow rapidly.

At the same time, the current reductions and closures of projects are most likely not the last ones.

“We have a lot of work to do. The reset is late,” said technology consultant Steve Milunovich, commenting on the situation in the online advertising market and in the technology sector as a whole.

Yana Rozhdestvenskaya