Why are so many tech companies laying off employees?

There seemed to be a new round of layoffs in the IT industry every week. It began earlier in the year with smaller, growth-oriented companies that needed to keep a tight check on their ongoing expenditures and has now spread to industry titans like Meta and Amazon.

This week, it was reported that 亚马逊 would lay off 10,000 employees. This comes on the heels of Facebook laying off 11,000 employees last week and Elon Musk's constant turnover at Twitter.

It might be easier to list the companies that have not laid off employees this year, but the ones that have to be included are Uber , Airbnb , Zillow , Coinbase , Netflix , Spotify , Peloton, Shopify , Stripe , and Robinhood , among others.

However, why is this occurring? Why are so many tech companies, especially ones that are still making a lot of money, firing so many workers?

Obviously, the causes may vary from firm to firm, but there are a few major trends that are affecting Silicon Valley and beyond.

Crazy Hiring in Pandemic

In many ways, this massive round of layoffs is correcting an earlier error. During the years of the pandemic, our online lives were our own existence. There was no driving to work, no Saturday night drinking, and no pickup basketball games or dance recitals.

We were all compelled to remain at home and spend significantly more time online. Online shopping has evolved from a rising retail outlet to the sole retail outlet available. Netflix, Amazon Prime, and a bunch of other streaming services have taken the place of movies, restaurants, work lunch breaks, and even date nights.

Despite the global crisis, this increase in internet activity benefited technology companies. They made record sales, which led to record profits and a hiring frenzy that paid engineers, developers, and other tech workers well and gave them a lot of perks.

Numerous tech firms assumed that this marked the beginning of a new normal. With nearly every office worker in the world now working from home, our way of life has changed dramatically.

Since they anticipated that this transformation would be permanent, technology corporations hired accordingly. They increased their workforce, created new positions, and expanded rapidly. This was exacerbated by the fact that large businesses must incorporate redundancy.

If a Meta team needs 25 people to keep the application developing, operating, and running smoothly, it's likely that the team will need 30 or more actual personnel. Not because there is sufficient everyday work for 30 engineers, but to protect the organization in the event that a number of critical employees leave.

It happens often in the tech industry, and it's likely that many of these companies hired even more people than they had planned to support a higher level of use.

Since the world has returned to (very much) normal, it is evident that Mark Zuckerberg and Brian Armstrong's (of Coinbase) visions of the future were off the mark.

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The Post-Covid Reality

Yes, working from home has become increasingly accepted. As part of their permanent employment agreements, working from home is now a perk for many office workers.

However, hybrid works have also grown in popularity. Many employees (and employers) desire time in the office to interact, share ideas, and cultivate a cohesive company culture.

While technologies like Zoom and Google Meet are still widely used, the days when every meeting was automatically held online are long gone.

Outside of the workplace, the situation is even more dire. In many ways, life outside of the workplace is nearly identical to how it was before the pandemic. Once again, bars and restaurants are packed, weekend sports have returned, and vacations have resumed.

After two long years of sobriety, people are frequently even more interested in these topics.

The conclusion? The tech industry employed too many employees. These are highly experienced software engineers and developers who make between $60,000 and $90,000 a year. They are not $10-an-hour administrative assistants.

In addition to the substantial perks, facilities, and even stock options included in the package, Some level of overstaffing for redundancy is required, but it is evident that it has gone too far in many companies.

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The Current Economic Situation and a Potential Recession

Now, if tech's development prospects were positive, this predicament wouldn't necessarily be a cause for alarm. If you recruit too many people too early, it's not a problem that you've hired too many.

If you intend to be hiring for those positions in 6 to 12 months regardless, putting them on the books a year early won't break the bank for companies like Meta or Alphabet.

The problem is that the near future does not look particularly bright. We've been hearing for months that the United States appears to be entering a recession. In recent months, Coinbase CEO Brian Armstrong was among the first to call it out, with Elon Musk, Mark Zuckerberg, Jeff Bezos, and many others following suit.

A recession would reduce consumer spending and, most significantly for many technology companies, advertising expenditures. On their most recent Q3 earnings call, Meta specifically mentioned that they expect Q4 and early 2023 advertising revenue to be lower than it has been.

With these impending headwinds, tech companies must rein in their spending to ensure a safe passage through this turbulent period.

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What impact do tech layoffs have on investors?

How has the market reacted to the news of all these layoffs? In the case of Meta and Amazon, quite well, in fact.

There is a significant distinction between laying off employees due to concerns about the company's viability and laying off employees in order to maintain shareholder satisfaction. For the largest corporations, a large payroll does not raise concerns about the company's ability to exist but rather about its profit margin.

For startups and enterprises in the growth phase, massive layoffs may indicate that the company is in peril. Companies such as Peloton and Groupon are examples of companies that tilt more toward this end of the spectrum.

It implies that negotiating tech investment is more difficult than ever. It is hard to tell the difference between businesses that are downsizing as a normal part of the business cycle and those that are having serious business problems.

Thought by - Chitransh Rahul Saxena