Tech industry reversal intensifies with new rounds of layoffs


Dana Mattioli | Updated Jan 8, 2023 05:30 AM EST

Companies that grew rapidly during the pandemic are now cutting spending and headcount.

The reassessment of the tech industry is intensifying as a new wave of layoffs signal that management is pivoting from a growth-first mindset to protecting revenue.

After a bruising 2022 that put the brakes on expansion for companies ranging from small start-ups to tech giants, some of the biggest players in the space are at the beginning of an era of austerity, with spending scrutinized. It has been scrutinized and indicates that the Moonshot project has been abandoned. Both Amazon.com Inc. and Salesforce Inc. announced plans for layoffs last week.

Amazon’s layoffs, the largest in the technology sector to date, affect more than 18,000 employees, mostly in the retail, recruiting and device industries. Devices is an area that CEO Andy Jassy scrutinizes.

“I really believe in the device business,” Jassy said. It’s big enough to justify the cost,” he told The Wall Street Journal last month.

For years, the tech sector has been the most aggressive in expanding. Companies competed for talent by offering lucrative salary packages and investing heavily in new endeavors. When Covid-19 began, the hiring rush heated up as tech companies sought to capitalize on the surge in demand.

But over the past few months, several tech companies have shifted from temporary hiring to cutting thousands of positions in the next few months as the business environment deteriorated due to factors such as accelerating inflation and Russia’s invasion of Ukraine. . The experience has been humbling for some of America’s most famous corporate executives.

At Salesforce, which said it would cut its staff by 10%, co-CEO Marc Benioff said he was responsible for hiring so many employees as revenue surged early in the pandemic. Meta Platforms boss Mark Zuckerberg and Twitter co-founder and former CEO Jack Dorsey have also voiced executive guilt about overhiring among tech leaders in recent months. ing.

“The 2022 bull market was humble,” said Rich Wong, partner at venture capital firm Accel.

Redfin Corp. CEO Glenn Kelman said he has some regrets about how the real estate tech company dealt with the rapid pandemic growth as demand for housing surged. Redfin continued to recruit, but laid off most of its employees as the market cooled.

“On an emotional level, I think we all knew the music would stop,” Kellman said. We kept pushing our chips to the middle of the table. ”

Kellman, who led Redfin into areas such as Homeflip during the pandemic, closed the business unit as economic conditions deteriorated and interest rates soared.

“If I could jump in a time machine and go back 18 months, the easiest way to build a profitable company would not be to come up with a brilliant idea for a new way to please customers. I can say that,” Kelman said. “Stop being stupid.”

Video technology company Vimeo Inc., which laid off 11% of its workforce last week, said it was moving to keep its focus on profitability. “We also have a better understanding of where post-pandemic demand will settle,” CEO Anjali Sudd said in an open memo.

Snapchat’s owner, social media company Snap Inc., said last year it was shelving its drone project and cutting 20% ​​of its rank.

More than 1,000 tech companies have laid off more than 150,000 employees since the beginning of last year, according to Layoffs.fyi, a website that tracks job cuts that surface in media reports and company releases.

For the first time since April 2020, more startup employees left than were laid off by choice, according to data compiled by Carta, which provides software for managing employee and shareholder equity. Many of those who were laid off quickly found new jobs, and the overall U.S. unemployment rate remains low.

The reshaping of the past year is perhaps the most notable course reversal for technology since the end of the last recession that laid the groundwork for a long boom. From the end of 2008 to November 2021, the tech-focused Nasdaq Composite maintained its gains of more than 10x due to the rise of big tech companies. That growth ended last year with a 33% decline, the worst year since 2008.

The pandemic continued the protracted upturn. Hiring of tech workers skyrocketed as homebound people adopted all kinds of new digital goods and services. Existing business lines had few license constraints to grow, and new business ideas quickly got the green light.

Some tech executives involved in these decisions say they sowed the seeds of today’s pain. That recognition did not come immediately. Unlike the outbreak of the pandemic, which caused boards of directors across the country to take stock of the situation and adjust plans, the realization that the situation had worsened unfolded over months rather than weeks.

Uber Technologies Inc. CEO Dara Khosrowshahi was among the first to issue warnings last spring, telling employees the company would cut marketing spending and hiring.

“We serve a multi-trillion dollar market, but it doesn’t matter how big the market is if it’s not profitable,” Khosrowshahi wrote in an email to employees.

Shortly thereafter, venture capital firm Sequoia Capital called the recession a “testing moment,” telling its portfolio companies to quickly cut costs and save cash.

Allan Thygesen, CEO of e-signature company DocuSign Inc., said in an interview, “I think every senior leader going into the second half of 2022 wishes they had acted sooner.

DocuSign was one of the biggest beneficiaries of the pandemic, but Mr. Tigesen’s predecessor resigned in June after the stock price plummeted. Thygesen accepted the job and immediately approved DocuSign to cut 9% of his workforce by his October start date.

Others in the tech industry, such as Alphabet’s Google, have yet to cut as deep as their peers. Alphabet surprised investors in its third-quarter earnings report in October, saying it added about 12,800 total employees in three months, the largest increase ever.

Google employees began pressuring executives about possible layoffs. At an all-hands meeting in December, CEO Sundar Pichai said he could not make any positive promises. Google is “trying to streamline as much as it can so that it’s ready to weather the storm well, regardless of what comes next,” he added.

Few companies have experienced the pandemic boom and recent depression more than Amazon. The online retail giant has benefited from customers flocking to shop online and businesses taking advantage of cloud computing services. To meet demand, Amazon doubled its logistics network and added hundreds of thousands of employees.

The company turned around when demand began to wane. In the spring and summer, we started cutting some businesses. Jassy reviewed Amazon’s costs for a month, the WSJ reported. In mid-November, Amazon announced layoffs.

“It’s become much clearer that we need to cut costs,” Mr. Jassy said. We’re just trying to find ways we can stop it, but ultimately we believe it’s the right decision for the current company, so we have to do it. ”

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