Layoffs of tech giants are a problem of their own making

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The tech industry is suffering from a seemingly constant supply of layoffs across Silicon Valley and beyond.

And we’re not talking about small numbers either.

meta (meta) The mass layoff train has begun, cutting 11,000 jobs in November. Then, on January 4, Amazon (AMZN) accumulated by the layoffs of 18,000 employees. Two weeks later, Microsoft (MSFT(10,000 workers left, and two days later, on January 20, Alphabet)The GoogleAnd The Google) laid off 12,000 employees.

And these are just the main ads.

According to Layoffs.fyiTechnology companies have cut 240,000 jobs since the beginning of 2021. Since the beginning of 2023? 68,149 jobs were lost in the industry.

And there is no indication that the bleeding will stop anytime soon. Just this week, IBM laid off 3,900 employees, while SAP said it would cut 3,000 jobs.

But the numbers of lost jobs isn’t the whole story.

The tech layoffs that have roiled the industry over the past two years are a disaster of the tech companies’ own making. From over-staffing, to the belief that the world will remain permanently online after a pandemic, the industry is grappling with its own miscalculations.

And now the employees who hung their futures on these strategic mistakes are left to deal with the fallout.

How did we get here then? The easy answer is that the economy soured as the world began to pull back from the pandemic. Inflation rose, the Federal Reserve raised interest rates, and that was it. At least that’s how tech managers tell it.

NEW YORK, NY – JANUARY 25: A man walks near the Google offices on January 25, 2023 in New York City. The US Department of Justice and a group of eight states have sued Google, accusing it of illegally misusing a monopoly on technology that powers online advertising. (Photo by Leonardo Munoz/VIEWpress)

Satya Nadella from Microsoft Tell employees that consumers are looking to do more with less now that they’ve spent so much during the pandemic. Sundar Pichai from Google Tell employees that the company was operating during the pandemic, but the economic situation has changed. And Andy Jassy from Amazon He said the uncertain economy and its decision to hire so many people during the pandemic is why the company is moving forward with layoffs.

The truth is, companies renting to a world where they thought the growth that occurred during the pandemic was permanent. We will all stay indoors, order goods online, and stream content.

Or to use the parlance of analysts and investors, the pandemic appears to have led to a significant increase in the TAM — or Total Addressable Market — that these companies have been chasing. Using this reasoning, growing at any cost to a larger-than-expected market was not only reasonable, but essential to staying competitive.

From the fourth quarter of 2019 to the third quarter of 2022, Microsoft increased its headcount by 53.5%, while Google added 57% more employees. Amazon and Meta brought in 93.5% and 94.3% more employees, respectively.

With revenue growing in leaps and bounds, and stock prices soaring, Big Tech has been looking for a way to keep the party going, and adding more workers seems like the best way to do it.

And now that someone — read: Jay Powell — has turned the lights on and turned off the music, tech companies themselves are having to reckon with their own shoddy decisions. And calculate a radical change in how the industry measures success in the future.

Coinbase CEO Brian Armstrong also wrote when Disclosure of his company’s decision To cut 20% of her team earlier this month: “Over the past 10 years, we, along with most technology companies, have become too focused on headcount as a measure of success. Especially in this economic environment, it’s important to shift our focus to operational efficiency.”

Even before the pandemic, we can remember Meta Platforms — then known as Facebook — talking about The investment you will need for employment to seize the growing opportunity that appeared before them.

Those days are clearly over now.

But it’s not just workers that Big Tech is cutting back, either.

Companies like Amazon, Microsoft and Google are re-evaluating their product portfolios to see what stays and what goes. As for Amazon, which has greatly expanded its warehouse range during the pandemic, it is looking for ways to do so Sublease some warehouse space to third parties.

Google just shut down its game streaming service Stadia, though that’s been in the works for quite some time. Meta, for its part, has cut parts of its experimental products division, According to Platformer.

Despite these hairdos and moves, friend Yahoo Finance Sam Rowe points out The technology industry makes up only 2.8% of all employment in the United States. Moreover, the US economy It added 223,000 jobs in December And 4.5 million jobs last year.

And while big-name tech companies may be cutting jobs, other industries are adding.

Chipotle announced This week it plans to hire 15,000 workers With ongoing expansion plans. and Boeing He said It will employ 10,000 workers in 2023 while increasing production.

So while the tech giants seem to be stepping on their heels basing themselves on short-term trends in the future, other industries see the current economic bottom line as calling for expansion.

Whichever side of this gap proves to be true over the long term could have major ramifications for the economy in the years ahead. Or perhaps both positions are true.

Did you get a tip? Email Daniel Howley at Follow him on Twitter at @tweet.

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