Google, Microsoft, Amazon: 5 reasons why big tech companies are laying off employees

Silicon Valley's big tech companies, Google, Microsoft, Amazon, Meta, Twitter, Salesforce, Cisco, Snap, and others have collectively laid off over 1,00,000 employees in the past few months and many believe more layoffs are yet to come. But why are the world's biggest tech companies laying off employees and how many more jobs will be impacted?

COVID over-hiring

The COVID-19 pandemic had caused tech companies to hire more people as the product needs had evolved overnight in the world which was under lockdown. 

For example, during the pandemic Google made rapid changes to its video conferencing platform Google Meet to accommodate more participants, similar changes were made by Meta to WhatsApp’s video conferencing product. Such rapid changes required seasoned manpower including Product Managers, Developers, UI/UX Designers etc., and hence companies went on to hire more people. Since then, the products have matured and steep changes are not required at the moment, hence companies are trying to reduce their headcount to adjust to the present times. 

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Sundar Pichai pointed towards this in the letter he sent to employees after announcing termination of 12,000 people. He 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.”

Pressure from investors

Fund managers and early investors in big tech companies like Google, Meta, Amazon, Twitter, etc. are pushing company management to make quick decisions to counter the slowdown in growth in the companies.

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 of operations.

The letter read, “Like many other companies in a zero-rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes.”

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Furthermore, Christopher Hohn, founder, and CEO of TCI Fund Management, wrote to Sundar Pichai calling for further downsizing at the company. The letter read, “I believe the management should aim to reduce headcount to around 150,000, which is in line with Alphabet's headcount at the end of 2021. This would require a total headcount reduction in the order of 20 per cent.”

Tech sector maturing

The tech sector grew rapidly over the past three decades and experts believe that the recent job cuts are an indication of maturing of the tech sector after hypergrowth.

Dan Ives, MD of Wedbush Securities, an investment firm managing funds over $4 billion dollars, told Business Today, “We're seeing at Amazon, Apple, Microsoft, and others that the clock struck midnight for hypergrowth and now they are making cuts across the board. This is a rationalisation of cost structure to brace for slower growth times.”

Satya Nadela also agreed to this in the letter he sent to employees after announcing layoffs of 10,000 people at Microsoft. The letter read, “We’re living through times of significant change, and as I meet with customers and partners, a few things are clear. First, as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.”

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Negative cash flows in new investments

Several new investment initiatives by Silicon Valley’s tech titans are unprofitable. Amazon’s robotics division, Microsoft’s virtual reality and metaverse division AltspaceVR, Meta’s Substack competetor called Bulletin, these are all verticals that are in a way futuristic and required a lot of investments but burned a lot of money. The cash burn has also been a reason why companies are trying to cut costs.

Ray Dalio, seasoned investor and CIO of Bridgewater Associateds explains this as, “What's happening is that a number of these investments by nig techs have negative cash flows. That means they didn't have earnings that will support those prices. And in many cases, they didn't have earnings. And they relied on either borrowing money to make up the gap or raising venture capital or private equity money.”

Anticipating a recession

As per management commentary, the top management of big tech companies are anticipating a recession in the coming times.

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In the letter to employees after announcement of layoffs, Satya Nadela said, “We’re also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one.”

Will the layoffs increase?

Experts believe that more layoffs are yet to come, especially in light of the economic downturn. 

Ives said, “Big Tech has been having fun up to this point but clearly they are going to see significant cost cuts, head count cuts as well. I think over the next six to nine months as the recessions is at the doorstep, time will get tough. I think this dark storm will pass but you cannot think of these tech companies as isolated from this. I think there'll be a massive rip in them as well.”

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