For the first time in history, big tech companies like Meta, Twitter, or Amazon are simultaneously laying off tens of thousands of workers. Amid the wave of euphoria over their success during the pandemic, many Silicon Valley companies increased new hires and expanded their growth plans this year with the idea that the wind would continue to be in their favor.
“I was wrong and I take responsibility,” Mark Zuckerberg, president and CEO of Meta, owner of Facebook, Instagram and WhatsApp, wrote a few days ago to justify the cut in 11,000 jobs, 13% of its workforce.
The disappointing financial results of the technology sector in recent months made it clear that things did not work out as many expected.
Meta has seen its market valuation drop by hundreds of billions of dollars, since hitting a record $1 trillion in 2021.
Twitter, under the new direction of Elon Musk, cut 50% of the workforce and Amazon this week began to implement a layoff plan that could affect some 10,000 employees.
Although each for their own reasons, the list of tech companies that have pulled out the scissors to cut payrolls also includes Stripe, Snap, Netflix, Coinbase, Robinhood, Peloton, Lyft and many others that have been part of the boom in technology companies, which reached its climax during the pandemic after years of extraordinary prosperity.
Calculations suggest that in recent weeks the titans of Silicon Valley have eliminated more than 20,000 jobsa figure that may grow rapidly if Amazon layoffs continue to escalate.
After the party comes the hangover
“Whether it’s overeating, overdrinking, or overcontracting, eventually comes the unpleasant morning of the next day And that’s where we are.”
This is how Lise Buyer, an analyst in the technology sector, explains the crisis that many companies in Silicon Valley are going through.
Excess money thrown piecework investors to technology firms to continue growing, regardless of the profitability of the business, was one of the many causes that caused excessive valuations of the market price of many companies with an unbridled growth rate in recent years, he says in dialogue with BBC World.
The same ones that are now getting rid of thousands of employees in a very difficult economic moment, with inflation in the United States that It was the highest in the last 40 years. and a rise in interest rates that have made credit more expensive globally.
This is the time to buckle down and recognize that a company’s potential profitability “really matters,” Buyer says.
From their perspective, we are not looking at a bubble bursting like the dotcom crisis of the early 2000s.
At that time, in the midst of the tech frenzy, many companies disappeared completely from the map because their market valuations and stock prices collapsed.
Now we are not facing a chain collapse of companies without any intrinsic value. So, he argues, The big technology bubble has not burst.
What we have seen, he points out, is that there was a bubble in relation to valuations and the message that investors gave to startups in the sense that the only important thing was growth, that is, the expansion of the firm even when they recorded losses.
“The market value was ridiculous”Buyer says. The problem is that investors ventured into putting up more and more venture capital, thinking that when the firm went public, other investors would pay even more to buy its shares. A kind of chain reaction with billions of dollars at stake.
“This is not the end of an era. What is winding down, for now, is the wild enthusiasm” that has characterized the tech industry in recent years.
It should not be forgotten, he adds, that “Silicon Valley is cyclical” and so we are currently going through the bottom of the cycle, but as is often the case, at some point the pendulum will swing the other way.
“Stupidity has become apparent”
For a couple of decades the technology industry occupied a privileged place on Wall Street. Now, in a few weeks, the shine has faded with the tens of thousands of layoffs that are showing the cracks of a system that, according to many experts, was projected as invincible.
A characteristic hallmark of the technological boom of the last 20 years has been the public protagonism of billionaires such as Mark Zuckerberg, Elon Musk, Kack Dorsey or Jeff Bezos who have navigated the wave of wealth generated by the so-called “big tech”.
Stephen Mihm, a professor of history at the University of Georgia in the United States, wrote in an opinion piece arguing that these leaders are not really the “21st century visionaries”“, as many times have been portrayed.
“Far from cutting-edge, these layoffs mark a revival of long-discredited corporate strategies. If the trend continues, history suggests these tech leaders will leave their companies severely crippled, at best.”
“The stupidity of these movements has become evident”said the co-author of the book Crisis Economics: A Crash Course on the Future of Finance, after Elon Musk annulled some of the layoffs announced a few days ago.
Since Elon Musk bought out and took over as CEO of the firm, Twitter has entered a spiral of conflict.
Following the announcement of the job cuts, employees who are still working received a surprise message this Friday warning them that the company’s offices were temporarily closed with immediate effect.
Twitter did not give any reason for this decision and did not immediately respond to a BBC request for comment.
The announcement comes amid reports that a large number of staff were quitting their jobs when Musk asked his employees to prepare to work long hours at “high intensity” or leave the company.
For analysts like Parmy Olson, a Bloomberg opinion columnist, this remains the worst moment in Big Tech history since the dotcom debacle 20 years ago.
“It should be a humbling moment for the biggest players in the industry and hopefully it will score the end of the age of visionary and autocratic tech founders“, wrote.
Other analysts do not share the vision of Olson or Mihm and assure that the wave of layoffs is simply related to a cost adjustment In an industry that has ups and downs.
“That there are layoffs does not necessarily mean that companies are in significant trouble,” Jo-Ellen Pozner, an academic at the Leavey School of Business at the University of Santa Clara, California, tells BBC Mundo.
“This is one resource rationalization to be in better tune with the economic environment, to be a little more conservative in terms of resource allocation and speculation”.
Where is the money?
Many forces have come into play in this maelstrom of big tech, experts say.
The first is that technology companies they hired many employees during the pandemicwhen sales rose amid lockdowns and a significant portion of the workforce began telecommuting.
While many firms went bankrupt, technology companies rose like foam.
And as the stock markets quickly recovered after the first economic blow of the health crisis, in the second part of 2020 and throughout the past year, Wall Street was celebrating and the shares of many technology companies were once again at the center of the party. .
Until it’s over. When inflation was rising war came in ukraine and all economic forecasts had to adapt to the new reality.
The second reason is directly related to the current global economic crisis that has skyrocketed inflation to levels not seen in decades and has many of the major economies in deep trouble.
Is about the deep and rapid rise in rates of interest in the United States and many other countries to try to control the historical increase in the cost of living.
Higher rates have made credit more expensive, ending the era of cheap money for high-risk investors and businesses.
“Interest rates are rising, which puts pressure on tech companies because it makes it harder for them to raise more investment,” says William Quinn, an academic at Queen’s University Belfast.
“Some solid and profitable companies are making quite reasonable cuts, but others are in trouble,” he tells BBC Mundo. Is that “when the tide goes out you can see who was swimming naked“.
And the last cause is that the ad streamthe main source of income from social networks, has fallen substantially.
However, not all technology firms have gone through the same hardships.
Technological empires such as Apple, Alphabet (Google), Microsoft or Intel have so far not announced plans for mass layoffs, despite the difficulties posed by the global economic environment.
“Each set of layoffs is unique, but I think we’ll see much less activity in the technology sector in the futureQuinn says.
Whatever the industry evolves in the coming months, it’s clear that mass layoffs are rocking the tech industry.
While for some it is just a cost adjustment, for others the mass layoffs are the symbol of the end of a cycle of frenetic growth for big tech, when money flowed through the streets of Silicon Valley like rivers through the mountains.
Time will tell us how this story ends.