Recession could end golden age for tech workers

For the past decade, Silicon Valley and its workers were big winners in a world of haves and have nots. But the economic shock caused by the coronavirus is accelerating a tech-industry shift from prioritising growth to profitability, meaning rank-and-file workers will no longer be immune to the forces confronting so many workers throughout America. In short, there will be no V-shaped recovery for tech workers.

Tech workers made out so well in the 2010s for two main reasons: Not only were so many companies growing quickly, but investors were willing to tolerate bottom-line losses in the belief that in a winner-take-all era companies had to get big as quickly as possible to survive.

But it was the latter that dynamic really yielded outsized compensation to tech workers. The aspirational model was a company like Amazon. Famously focused on growth over profitability, Amazon proved that investors were willing to be forgiving indefinitely as long as it continued to grow and innovate. The same was true of Netflix and Tesla, two other tech companies that have yet to show much in the way of profits. In all cases, the view is that someday down the road these companies will have dominant market shares and have pricing power and profits to justify years, even decades, of investment in the business.

All of that growth required companies to hire as quickly as possible. In cities such as San Francisco and Seattle, tight labour markets and limited housing and office space pushed up salaries, rents and home prices.

Last year, the growth-at-all-costs model started to unravel. Closely held companies that were founded after the Great Recession were trying to complete initial public offerings, and public market investors were starting to sour on profitless growth. Uber and Lyft completed their IPOs, but quickly saw their share prices drop. WeWork couldn’t complete its offering. It now was clear that investors wanted assurances from managers that there was a concrete plan to pivot to profitably.

What we’ve seen this week is that this timetable has been accelerated. Lyft is laying off 1,000 workers, or nearly 17% of its staff. Uber is mulling a similar decision. Startups that thought they might be the next Uber or Lyft, such as scooter company Lime, probably won’t be given the same breathing room from investors and are doing layoffs now.

Even profitable giants aren’t immune from the dynamic. Although Google and Facebook are in no danger of losing their dominant market positions, the decline in ad revenue since midMarch means that if they’re going to keep increasing profits and stock prices, they might have to get there through spending discipline rather than revenue growth. Google is slowing its hiring plans and looking for other areas to cut costs. Facebook mentioned on its earnings call earlier this week that it planned to slow hiring and reduce capital expenditures this year. Meanwhile, Amazon yesterday said that its bottomline was squeezed in the latest quarter, and the company is prioritising coronavirus-related safety spending over profits in this quarter.

And this may be just the beginning. We are still in the acute phase of this crisis and companies are just beginning to assess the damage and reevaluate their longer-term plans.

Coming out of this crisis, we could see the acceleration of three different trends pertaining to tech workers, all of which were underway even before Covid-19 spread to the US. The first is a sharp reduction in the number of startups and growth companies burning cash for years in the hopes of someday gaining dominant market share and a lofty valuation. Second, leading, profitable tech companies will begin to act like normal large companies, trying to increase profits, boost share prices, cut costs and financial engineer rather than invest in continued revenue growth. And third, companies will seek to move employees from high-cost to lower-cost regions, whether in the US or abroad. A large amount of remote work may figure in the mix.

This path for tech companies is not that different from the one Wall Street has gone down over the past generation. Yes, for certain key roles such as engineers working on profitable cloudcomputing services the good times might roll on. But for rank-and-file tech workers the golden era might be over.

‘‘ Companies are just beginning to assess the damage and reevaluate their longer-term plans.