If we track online sales as a proportion of all sales over the last 20 years, there's a pretty stable trend of increase. Then COVID hit, lockdowns, and we saw a 5-6 year jump ahead. Big question: How much of this is temporary, and how much is permanent? Maybe people discover that grocery delivery is way better than going to the store and never stop.
Imagine if you bet against it being permanent, and you were wrong? Your company just lost out on a massive opportunity- a CEO that does that would be worried for their job. And if you bet for it being all permanent and are wrong, well, you just have to lay off a few people.
They all bet that this was a permanent 5-year jump-ahead. They were wrong, there was no jump-ahead. Now there's a looming recession. Everyone has too much headcount. And for publicly traded companies, there are shareholders who will demand that something be done to prove you're not going to bankrupt the company.
To minimize the PR hit, everyone quietly announces their layoffs just after someone bigger than them does, so that they aren't the headline in the news tomorrow.
Facebook, Amazon, Alphabet, Apple, Microsoft have an insane volume of cash reserves to the tune of hundreds of billions each company.
Unless their are predicting a decade long crisis there is no way this is the real reason staff is getting trimmed, feels more like an excuse rather than a justificatíon at this point.
You will also sometimes see people referring to "bets that didn't pan out", but the more accurate term for the situation of having TENS OF THOUSANDS OF PEOPLE as "bets that didn't pan out" is gross mismanagement and active negligence.
Every one of these CEOs should be out as a result.
Investors may indeed be predicting a recession, and it's probably true that many of these firms overhired. But there's no specific fiscal reason for most of these companies to cut staff--5% the cost of their workforce is not standing in the way of billion-dollar deals (e.g. MSFT/Blizzard) or long-term R&D spending (Meta, whatever you want to say about their Metaverse project).
Bluntly: cutting staff is the new stock buyback.
Long answer: many people naively think that it's all about the money a company has, and these companies have a ton of money, so why are they laying off people when they could weather through the storm.
While this feels like it should be the case, the answer is that it's a bit more complicated than that. Whether it should be more complicated or not is besides the point, sadly. Business health tends to be measured more in terms of cash flow, and in simple terms, more going out than is coming in is bad, even if you could deal with that for many years.
There's also the difficulty for many of these big multinational companies that their cash reserves might not be in the right place, and moving them might incur significant taxes.
Investors are theoretically investing for the prospect of future returns, and while with growth stocks this is in the form of increased share value, in the long term it's also about dividends which come from profit, and so investors want to see a long term profitable company.
Also worth noting is that while, yes, CEOs are largely compensated in stock and therefore interested in seeing it go up, this is also good for the business in a general sense, as it makes it easier for them to raise money for things by selling stock.
I don't necessarily agree with all of this, I have problems with the taxation issues, and I also think it's a bad thing for many employees, but my general point is that this is complicated and there are reasons for it, even if we might not understand or agree with them.
But really you can also ask: Why did tech companies hire like 3-4x the amount they are laying off in the last 2-3 years? Why are they mass hiring? The inverse reason is usually why there are mass layoffs.
Fast forward to today. Credit is drying up. Devs feel entitled to WFH, and shorter work days (via WFH) and managers are nervous. Their products have regressed, they are actually worse than 10 years ago. Foreign firms like TikTok are now serious competitors.
Perhaps most disturbing to the C-Suite, once they strip away all of the covid #'s, they can tell growth is or will be declining. It's not just about being revenue positive, it's about the derivative. In this situation it's standard procedure to reign in costs and send a message both to investors and the organization that they want the org to become leaner and meaner. They're not just copying each other, all of these companies are in the same position and this is how execs are trained to act in this situation.
1) Are capable of "doing more with less"
2) Have too much headcount
2) Overpay engineers by 2-3x
These views are not unique to Wallstreet shareholders; they are shared by a growing number of tech VCs and "thought leaders" (most notable a16z). The next phase will likely be longer hours for less pay.
The halcyon days are over.
This was even reinforced in the pandemic. Instead of worrying about all the fragilities exposed in society, the streched supply chains etc, this dramatic event was even turned into a tech positive (remote working etc). The tech sector was the only official speculative game in town (unofficially we also had crypto bubble) and management could get away with everything.
What happened since is not so much a recession but the invasion of Ukraine and the further disruption of global trade, inflation, simmering geopolitical tensions, acceptance of climate risk etc. Basically the virtual reality of tech got discounted in markets and people focus now on formerly unfashionable bricks and mortars.
So nothing personal or technically relevant, just stock prices, executive remuneration and incentives.
[0] https://www.marketwatch.com/investing/index/comp?mod=market-...
Don’t blame them. If it were my company I’d do the same thing.
In reality they could cut a lot more and be fine. Elon/Twitter is the extreme example.
Imagine for a moment you are the CEO and someone who may ultimately decide your pay or tenure asks “The future looks uncertain, what do you think?”. You’re very likely to think “I have no idea. I’ll ask the folks working for me.” and you do. You may get a mix of answers, a minority will be thoughtful but the majority will reflect the natural human tendency for self preservation, thinking along the lines of “Since the question was asked, it means I need to confirm the unstated assumption”, and be the one safe thing to say “We should cut spending”.
It’s just people being people.
But if they did that, they wouldn't be growing. The stock price would go down. The investors and executives would lose a lot of their own net worth. The executives don't have some magical button they can press to magically increase revenues instantly. Most non-labor costs also can't be cut. They don't have much control over the prices of the material goods and resources the company needs to operate. The only easy and instant action they can take is to lay people off. To simply stop spending money on work that isn't generating immediate revenues.
And what do you know, GOOG is up 4% today as of the time of this posting.
At Google, for reference
The signal is out that growth is slowing so they chop people. The culture in the Western world especially in USA is that "layoffs" are necessary. USA is one of the only countries in the world with "At Will" employment. In most other countries these level of layoffs would sink a company easily.
USA is a rather ruthless work environment where workers rights are basically non existent.
Trump's policies during COVID had the same effect, and many foreign workers returned to their home country either by choice or because of visa bans.
All of this seems overly shortsighted for the U.S. to throw away top foreign talent.
Shows the power hierarchy I suppose. Wild world.