Mollycoddled tech workers get a rude awakening

As the technology downturn continues and activist investors push for savings, the era of Silicon Valley excess is coming to an end

Half the workforce has been shown the door, thousands of contractors reportedly fired too. Advertisers are running for the hills, and Elon Musk himself has admitted that bankruptcy is a real possibility.

In a world where Twitter appears to be unravelling at turbo-speed, the closure of the media platform’s canteen probably seems like a non-event, even if those that have managed to dodge the jobs bullet are outraged at this perceived effrontery.

In response to one employee’s outrage at the plans, Musk claimed that Twitter spent $13m (£11m) a year on free staff lunches despite records showing average occupancy was less than 10pc. “There are more people preparing breakfast than eating breakfast,” Musk tweeted.

A mere tremor, perhaps – but one that is part of a much larger earthquake shaking Silicon Valley’s cosseted existence of self-driving cars, space exploration and endless perks to its foundations.

The latest, and surely more significant, reverberation comes in the form of Sir Christopher Hohn’s attack on Google’s decadent employee spending. In a world that has largely escaped the scrutiny of unsentimental activist investors, the noisy intervention of Hohn’s TCI hedge fund is a rude awakening for mollycoddled tech workers.

It surely wasn’t what Sundar Pichai, the shy and bookish boss of Google parent Alphabet, had in mind when he told investors last month that the company had begun “realigning resources to invest in our biggest growth opportunities” and recruitment would be significantly lower in the fourth quarter.

However, it will almost certainly have encouraged Hohn to launch his campaign for a thorough shake-up of the $1.3trillion goliath.

Pichai’s warning came after Google reported a fifth consecutive quarter of slowing sales growth and the first recorded annual fall in advertising sales on its Youtube video streaming service amid intensifying competition from Tiktok.

News of the setback wiped roughly $13bn off Google’s share price in a single day of trading, leaving it more than a third lower than at the start of the year. After a decade of at times obscene growth in which Apple became the first $1 trillion company, before hitting the $2 trillion and $3 trillion marks shortly afterwards, the tech boom is well and truly over.

Some have compared it to the dotcom bust of the early 2000s but that is rash. When the dotcom boom ended, scores of overpriced tech companies with little-to-no intrinsic value vanished in a puff of smoke.

True, the so-called “tech wreck” has been astonishing in its size and speed – the techdominant Nasdaq Composite Index has plunged 30pc from its November peak, meaning it has shrunk by $8trillion in just one year.

Meanwhile, obscene amounts of venture capital and private equity money have been poured into some big technology companies at ridiculous valuations, and with laughably over-exaggerated prospects, only for those valuations to evaporate in the space of just months.

But while the tech giants of today aren’t going anywhere, their best days look to now be behind them. Years of uninterrupted growth have been brought to a sudden end, initially by rapid monetary tightening but further exacerbated by consumers and businesses reining in spending.

This in turn has prompted investors to shine an unflattering spotlight on runaway costs, which reached epically silly proportions in some parts of Silicon Valley as the tech industry sought to capitalise on what many mistakenly assumed was a permanent shift in customer behaviour.

The days of blind shareholder faith are now over, even at Google it seems, which initially looked as though it might escape the worst of the slowdown until a steep fall in advertising eventually caught up with it.

TCI is a force to be reckoned with, having spearheaded high-profile campaigns against some of the world’s largest companies but with a $6bn stake equivalent to less than 0.5pc of Alphabet’s total stock market value, forcing change at Google will be a challenge.

Founders Sergey Brin and Larry Page are further cocooned from shareholder pressure by a special class of shares, which means despite owning less than 12pc of the equity, they control 51pc of the votes. Still, TCI’S decision to go public with its demands look well-timed. In the same month that Musk axed half of Twitter’s workforce, Facebook said it would axe roughly 11,000 jobs and Amazon announced plans to lay-off 10,000 employees, the hedge fund has called for “aggressive action” on costs.

It wants to see employee numbers dramatically reduced, salaries reined in and investment in heavily loss-making, speculative ventures such as self-driving cars pared back. Though TCI accuses “all of Silicon Valley” of “having over-hired and overcompensated people”, “longstanding excessive and bloated cost growth” is “out of control” at Alphabet, it says.

Hohn lambasted the company for hiring more than 36,000 workers in the past 12 months, even as advertising revenue slowed sharply, and for allowing median salaries to reach $300,000, two thirds higher than Microsoft’s. But his greatest opprobrium appeared to be reserved for its more explorative endeavours. In the last five years, Google had lost $20bn on its so-called “other bets” segment. Most of that had been sunk into driverless cars unit Waymo, which had been “a failure”, he said.

After an era of drunken excess for the tech giants, Hohn has called time at the bar.

‘Tech giants aren’t going anywhere, but their best days now look to be behind them’