Big tech is in trouble. For the first time in their history, giant US technology firms are either announcing massive layoffs or pulling thousands of new job offers from the market. The latest news comes from the offices of Meta.
Mark Zuckerberg, Chief Executive of Meta, told hundreds of executives on Tuesday that layoffs are to begin early Wednesday. And they did – Meta announced that more than 11,000 of its employees, about 13%, are being let go. Layoffs at Meta are the largest cuts in the tech sector to date.
“I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted,” Zuckerberg said in a blog post.
The trend of layoffs and hiring freezes signals that the good times in Big Tech are over – for now and for various reasons, such as obvious overstaffing and the need to cut costs in the shadow of possible global recession, even if the latter is not yet a given.
Meta is only the latest company making drastic changes. Twitter’s new owner Elon Musk already initiated the sacking of 3700 workers, around half of its workforce, Microsoft shed under 1,000 employees this week, Stripe, a fintech firm, is cutting its headcount by about 14%. Peloton, Lyft, RobinHood are among others letting people go.
"I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted,"Mark Zuckerbeg
According to Crunchbase, as of late October, more than 52,000 workers in the US tech sector alone have been laid off – and now add Meta numbers to that.
Although this represents less than 1% of the nearly six million people employed by American technology companies, firms that are not initiating layoffs – Amazon, Apple – are still pausing almost all hiring.
No luxury to not act
As the Wall Street Journal reported, Zuckerberg appeared downcast in Tuesday’s meeting with executives and said he alone was responsible for Meta’s missteps and his overoptimism about growth. This has led to overhiring.
Specific employees losing their jobs are being informed on Wednesday morning. They will be provided with at least four months of salary as severance pay, Zuckerberg said.
At the end of September, Meta reported more than 87,000 employees. The layoffs are the first broad reductions to occur in the company’s 18-year history.
How did Meta reach this point? In fact, forget Meta. As The Economist reported last week, Silicon Valley’s five big tech giants – Alphabet, Amazon, Apple, Meta, and Microsoft – saw their market capitalization collectively drop by 37% this year, and simply had to act.
Meta’s case is quite unique, though. It’s obvious now that Meta expanded too aggressively during the pandemic: it increased its workforce by nearly 60% in 2020 and 2021.
Now, as people have less time to spare on social media and focus on working and saving cash in order to resist inflationary pressures, revenues have been impacted. Simply put, time has come to cut costs.
“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,” Zuckerberg said in a blog post.
Metaverse or Zuckerverse?
“I believe we are deeply underestimated as a company today. Billions of people use our services to connect, and our communities keep growing,” he added.
But Zuckerberg and his ways of doing business actually deserve a closer look. His decision to dive into – and spend a ton of money on – the so-called metaverse has been widely criticised this year.
The costly virtual world, Horizon Worlds, is not attracting enough users, besides, even Meta’s employees are less than enthused about the project which looks more like Zuckerberg’s personal idea than a cohesive plan.
And while Zuckerberg is busy with the metaverse, Facebook is losing users. According to StreetAccount, the number of daily active users in the US and Canada – the social network’s most important markets – shrank from 198 million in mid-2020 to 197 million in the second quarter of this year.
Of course, new users keep popping up in other countries, but they’re not as well financially positioned to attract advertisers who then reduce spending, and growth stops.
And the problem is Zuckerberg can afford to just not let go, and continue on his current path. The key is the structure of the company, wildly favorable to the Chief Executive Officer.
Investors can beg for Meta to focus again on social media and attracting ads all they want. But Zuckerberg has 54% of the company’s voting rights, and has been able to ignore any pleas – and now Meta has to sack thousands of staff.
The price of growing up
Alphabet, the owner of Google, is performing better, but its founders, Larry Page and Sergey Brin, also retain more than 50% of its voting rights. So if any larger problem arises in the future, they alone will decide how to solve it.
Then again, all these problems for techies who are, by the way, only now starting to compete with one another, might simply be natural.
As technology companies have been growing, it was inevitable for them to become tied to the economic cycle, when one quite often realizes growth is simply impossible in one area, and moves to another – after slashing costs and creating some space to possibly fail.
Besides, not all layoffs mean trouble for companies. For instance, Snap, a social media firm is letting go 20% of staff, but is making cuts to a non-vital experimental division making augmented-reality hardware and to its advertisement-sales team.
Finally, it’s only natural for companies initiating hiring freezes or layoffs to slim down recruiting teams – for now, they can be smaller.
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