Tech Layoffs: Did Twitter Cut Too Much?

Hi Everyone,

Wall Street is praising Big Tech's cost cuts (read: layoffs) and you'll hear a lot about it over earnings this week. But I want to make a point: You can cut too much. And it appears Twitter has.

Twitter, I found in my reporting, has cut so many salespeople that it's struggling to keep up with advertiser interest. Now, some clients have pulled their spending completely and the company's revenue may well contract in 2023. In the fourth quarter, it already dropped 35%.

So, cost cutting doesn't come without cost. Something to think about amid the headlines this week.

In this week's Big Story, I dig into the Twitter layoffs. We also talk about it — and plenty more — in Big Technology Podcast's most recent news recap edition:

You can listen on Apple Podcasts, Spotify, or your podcast app of choice.

“Ghosted.” Twitter’s Advertisers Pull Back Spending After Laid-Off Reps Disappear.

The narrative that post-layoff Twitter is doing fine isn’t totally right. The sales operation is struggling badly.

When Elon Musk trimmed?Twitter’s 7,500-person workforce to 2,300, most tech executives took note. If Musk could keep the service running with one-third of the staff, they could probably trim generously as well. Quietly and?not so quietly, these leaders spoke encouragingly of Twitter’s post-layoff performance. They even coined a term for the ousted employees: “Surplus Elites.”

But while Twitter’s service has held up well, its revenue operation is in crisis. Laid-off sales reps have disappeared on their advertisers —?”ghosted,” as one put it — leading many to pull spending or pause completely. In the fourth quarter, Twitter felt the drawback. Its revenue?dropped 35%?over the previous year. And given its current staffing levels, the company’s struggles appear likely to continue.

“Getting a Twitter rep to respond on advertising was always difficult,” said David Herrmann, a social media ad buyer. “But lately our emails have been falling into the abyss.”

Of the half dozen Twitter advertisers I interviewed for this story, nearly all experienced a meaningful decline in service after the company’s layoffs. “We had a couple of Twitter reps and they were like, ‘nothing’s changed,’” said one auto advertiser. “A few weeks later, there was another round of layoffs and they were gone.”

In place of standard communication from Twitter sales reps, advertisers have been sending emails into the void — including to laid-off employees’ inboxes — hoping someone will answer. Sometimes replies come, but often after long waits. The lack of responsiveness has left risk-averse advertisers feeling vulnerable, and some have decided it just isn’t worth it. “We’ve pulled out of Twitter for all our paid media,” said the advertiser. “It was never a big part of the spending plans but now it’s a zero part.”

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Given that Twitter’s ad systems are largely automated, its sales reps play a crucial role in answering advertiser queries about ad delivery, bugs, and new products. This interaction is a fundamental reason why Twitter makes money, especially given its limited audience and technical capabilities. “You want to have that line of communication open,” said Eric Seufert, an investor whose companies advertise on Twitter.?

Twitter’s ad reps also sell the company against Google and Facebook, a task that takes heavy lifting. The two tech giants have such finely honed systems that advertisers can comfortably spend knowing their dollars will turn into revenue, but this isn’t the case at Twitter. “At Google, you could not show up and the money would still fly through the vents,” said one ex-Twitter executive. “We had to come up with more creative ideas in order to earn our fair share or more.”

Advertisers are also sensitive to appearing next to ”unsafe” content, and Musk’s commitment to relax moderation standards has made many nervous. Typically, the company’s sales reps would smooth over these concerns. Facebook and YouTube have weathered countless content scandals that caused shortlived ad boycotts. But in Twitter’s case, the reps are not there and the brands remain wary.

Ultimately, Twitter may come out of this year okay. Musk may recognize his sales division’s struggles and work to rectify the issues. He’s already hired some laid-off employees back. And some forecasts, such as Insider Intelligence’s, still expect Twitter’s ad revenue to grow this year. But it will be a challenge. “Twitter's ad business has deteriorated even more rapidly than we expected,” said Jasmine Enberg, Insider Intelligence’s principal social media analyst.?“We'll update our forecast again in March, and you can expect another downgrade to Twitter's ad revenues.”