What is common to layoffs at Microsoft, Google and Facebook?

Massive layoffs are one of the most painful consequences of a looming economic downturn, and the high-flying, well-funded tech industry is not immune.

Microsoft Corp. on Monday provided a harbinger of what was to come, when he confirmed that he had cut jobs in several divisions, including his Xbox unit, numbering less than 1,000 people. The pullback follows news last week that Intel Corp. predicted thousands of job cuts in the face of a drop in PC sales.

Similarly, Facebook’s parent company, Meta Platforms Inc., will be “smaller” by the end of 2023, chief executive Mark Zuckerberg recently told staff, when he shared ambitious plans to revamp teams. of the company and downsizing for the very first time. stock prices, Netflix Inc. and Snap Inc. laid off workers this summer.

Expect other companies to follow. A deteriorating economic outlook means tech companies will look for ways to cut costs while signaling to investors that they are ready to rein in their sometimes lavish ways in the face of changing conditions.

But a larger question hangs over the tech industry: whether the nascent pullback is a normal and justified response to the slowing economy or whether some of the biggest players in the sector are entering a new, more frugal era.

It’s not just the slowdown, but the range of challenges that individual businesses face, including threats to the advertising-dependent business model. Meta in particular faced a privacy update from Apple that cost it more than $10 billion in lost ad revenue. Meta has spent an additional $10 billion creating products and services for the Metaverse in hopes that a global dive into the virtual world will anchor the company’s second act.

Google’s advertising business is, like Meta’s, vulnerable to an economic downturn, as companies often cut costs like advertising in times of austerity. The company has a few buffers that put it in a stronger position than Meta. YouTube Inc. makes billions of dollars in revenue each year from the growth of its premium subscription product, and advertisers tend to increase their search ad spend during downturns.

The very idea of ​​layoffs in the tech sector could be difficult for engineers, marketers and product managers in the industry to grasp. It is, after all, the industry that has set the bar high for attractive perks, high salaries, and perks like office massages and catered meals.

Not to mention that overall, the tech industry has managed to make big profits during the pandemic. Stock prices soared as businesses and consumers turned to tools like Zoom Video Communications, Slack Technologies and Netflix, and spent more time on social media and the internet in general. Hiring continued at a steady pace and, in some cases, even increased.

At the same time, thousands of startups have benefited from an outpouring of new venture capital, with venture capital funding in 2020 up 14% from 2019. There has even been an increase in megarounds – transactions over $100 million – during the pandemic.

But as the world returns to the office amid rising prices and higher interest rates, companies are looking to course-correct. Earnings results from Apple, Meta and Google next week should paint a clearer picture of how deep each company might need to cut.

As painful as it is, restructuring can lead to greater efficiency and spending discipline, especially among young startups, for whom the better capitalized ones will now benefit from a richer talent pool.

Tom Stafford, a venture capital partner at late-stage internet investment firm DST Global, said at Bloomberg’s Tech Summit last month that thousands of startups need to go out of business by 2023. Too many bad ideas had been funded. Over the past three years, he said, “almost every idea has been able to make money. This will change. … Not every business will succeed and we should accept failure.”

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Parmy Olson is a Bloomberg Opinion columnist covering technology. A former journalist for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous”.

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