It’s about time the bloated tech industry grew up
If nothing else, at least they should know how to search for “job vacancies”. Alphabet, the parent company of Google, announced on Friday it was laying off 12,000 staff, or 6pc of its total workforce. It follows a round of redundancies at Microsoft, Amazon, Meta (the owner of Facebook and WhatsApp) and most dramatically of all, at Twitter. Anyone who makes a living from coding, creating cloud systems or from setting an algorithm, could be forgiven for feeling a little nervous right now. Their jobs, their huge paychecks and the perks lavished upon them are more threatened than at any time since the dotcom crash two decades ago.
The wave of Silicon Valley lay-offs will no doubt be portrayed as the final proof of the heartlessness and greed of the tech tycoons and their backers in the venture capital industry. Nothing could be further from the truth. The tech industry had grown massively bloated during the pandemic. It badly needs to shake itself up, and slim down – and the resulting cash bonanza that unleashes for shareholders may even be enough to turn the stock market around.
The redundancies are stacking up with every day that passes. Last week, Google became the latest of the tech giants to start laying off its staff. “As an almost 25-year-old company, we are bound to go through difficult economic cycles,” its chief executive Sunar Pichai told staff. Redundancies will be spread across recruitment, engineering and product teams. It is unlikely that anyone will be safe.
It is far from alone. On Wednesday, Microsoft, which has been on a huge resurgence over the past few years, said it was making 10,000 people redundant, taking the headcount reduction up to 5pc of its staff, and with the lay-offs lasting until the spring. A day earlier, Amazon, a company that only ever seemed to get bigger and bigger, started sending out emails to 18,000 people who will be let go from the company. Likewise, Meta has already announced 11,000 jobs cuts as it pours its remaining resources into the metaverse – whatever that might be – and the software giant Salesforce announced it was laying off 8,000 people, or 10pc of the total staff. And of course, Elon Musk started the whole process when he took control of Twitter last year. He has already slashed the workforce in half, and it may not stop there.
It would be easy to portray that as an illustration of ruthless hire-and-fire capitalism run by a handful of billionaires who care nothing for the people who work for them. But the tech industry has become one of the most bloated in the world.
Google increased its staff numbers by 30pc over the past five years, even though as far as anyone can tell its products were much the same as they had been for the past five years. Meta went from 35,000 staff in 2018 to more than 70,000 by 2021, even though, as a casual user, it seems unlikely that WhatsApp really needs tons of people to operate it, and Facebook’s content is all written by the users. In the past 10 years Amazon went from 56,000 staff to 1.6m – making it one of the largest private sector employers in the world. The list goes on and on. It was one of the greatest hiring booms of all time.
The spending on those people was often lavish. When it emerged this week that Netflix was offering more than $300,000 (£242,000) a year for a flight attendant on its private jet it would have hardly surprised anyone in Silicon Valley. In the UK, Google’s average salary was £385,000 over 18 months on the most recent figures.
The perks were legendary. At Google, staff were offered free food throughout the day, fitness classes and even decompression capsules for anyone who wanted to relieve their stress. At Meta, staff were offered a free laundry service, so they didn’t have to stress out over washing and ironing their own clothes – assuming a hoodie needs to be ironed, that is – while at one point Facebook and Apple were offering to freeze the embryos of female staff, presumably so they could concentrate on their work and leave worrying about becoming a parent until later in life. All that was great for anyone lucky enough to be on the payroll. But the costs were huge.
The experience of Twitter suggests the over-manning was on a scale that even Aslef, the train drivers’ union, might have felt embarrassed about. Musk has halved the workforce – and although there were lots of predictions that the site would collapse within days, so far it still seems to be churning out the same meaningless angry drivel (sorry, important political debate) that it has been specialising in for years. In the years of rapid expansion, and especially during the pandemic, tech companies over-expanded. That is now coming to an end.
That will have two consequences. It will create a cash bonanza for shareholders, as all the money saved drops straight to the bottom line. Share prices of all the main tech companies have dropped by 30pc to 40pc over the past year, but if lay-offs improve profitability, they will bounce back, and that may be enough to turn the whole stock market around.
More importantly, it will create healthier, fitter companies. The tech industry has been slow to figure it out, but it needed to grow up one day, and start operating like a normal business. Waste and extravagance might be fun for a while. But in the long term they don’t benefit anyone – even if the tech workers getting redundancy notices might not feel like that right now.
‘Jobs, huge paychecks and perks lavished on them are now under threat’