Spoilt over the last 2 or 3 years by free money and record demand for their products and services during the pandemic, Big Tech companies went on a spending spree buying up workers and office space. Now reality is setting in.
Over the last couple of months, many Big Tech, crypto, media and start up companies have announced large layoffs. Amongst the biggest ones: Alphabet, Meta, Microsoft, Amazon, Salesforce, Cisco, HP, Twitter, IBM; hundreds of companies, and quite a few of them announcing layoffs above 10,000.
This is the result of a hiring binge over the past few years. And that hiring binge came with an office-leasing spree going back a decade. All of this to prepare for a future that never quite arrived.
Elon Musk fired half of Twitter’s employees and thousands of contractors in one swoop when he took the company private, and he told other employees to get lost if they didn’t like it, and many did. Under his leadership, Twitter is now defaulting on some of its leased office space and is getting sued for not paying rent. And getting sued by suppliers that have not been paid. And yet, Twitter’s services appear to still be running ok.
In a message to his employees Alphabet CEO, Sundar Pichai, announced that the company would axe 12,000 people globally. “Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today.”
CEOs in the tech and media space realise that with higher rates, a broad economic slowdown and rising uncertainty ahead, now is a good time to “right-size” businesses. In general, the market reaction has been positive. The layoffs don’t signal that Big Tech is in trouble, but rather that it is becoming more disciplined about costs and more focused on margins and profits. For shareholders, that is not a bad thing.
The impact on the jobs market will not be severe because there remain millions of unfilled jobs in the US, with unemployment still at decade lows. However, commercial real estate will require a period of adjustment, especially in certain areas like Silicon Valley and San Francisco, where lease arrangements and property prices were bid up to bubble levels.
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