Between 2020 and 2021, it seemed tech companies would be the engine of post-pandemic recovery: Their growth appeared unstoppable, and their leadership made ambitious plans to expand. Tech services and products across the board saw skyrocketing demand, with US tech giants– Facebook, Amazon, Apple, Netflix and Google, collectively known as FAANG – benefitting from a meteoric rise in share prices. India’s consumer tech platforms all clocked impressive growth too: grocery platform BigBasket recorded a 73% increase in operating revenue, food delivery platforms Swiggy and Zomato both onboarded hundreds of thousands of new users – especially from Tier 2 cities – with record-breaking order volumes to close the year.
And then the tides turned. Starting in the second quarter of 2022, layoffs have been rippling through the tech sector: 16 lakh employees were laid off in 2022, and a further 10 lakh have already been laid off this year. We have all seen the headlines: Google laid off 6% of its workforce last month, Twitter has cut an estimated 50% of its staff, and Meta slashed its headcount by 13 percent. In India, 21,532 employees were let go by 67 startups, including unicorns like BYJU’S, Ola, OYO, Unacademy and Vedantu. “It was,” one expert says, “the third-worst year for tech after 2008 and the bursting of the dot-com bubble in 2000.”
What is behind this precipitous fall? 2022 was a perfect storm: a looming recession which has made investors jittery, inflation, supply chain issues, semiconductor shortages, among others have played a part. For companies like Uber, BYJU’s, Zomato, which operate in the red, these system-wide problems have made their growth unsustainable. Ad revenues were down as well: Meta for instance lost USD 10 billion in ad revenue last year. FAANG stocks (or MAMAA, courtesy some tech giant rebrands and market valuation changes) have been sure shot investments for years, but most market analysts see the current downward trend likely continuing in the near term.
A substantial portion of layoffs are affecting the relatively new hires who were brought on board during the pandemic, translating into sunk costs and a loss of valuable talent, which can negatively impact a company's ability to innovate.
Generally speaking, layoffs in and of themselves are not all good nor all bad. Layoffs can help companies reduce costs, potentially help them grow by becoming more competitive in their markets. On the other hand, layoffs add to long-term costs: tech companies recruit talent with substantial sign-on bonuses. A substantial portion of layoffs are affecting the relatively new hires who were brought on board during the pandemic, translating into sunk costs and a loss of valuable talent, which can negatively impact a company's ability to innovate. Layoffs can also create uncertainty among employees, which can lead to a lack of trust in the company's leadership and stability. Finally, and perhaps most damaging of these effects is the reputational costs: as news of layoffs can spread quickly, it may make it more difficult for the company to attract new talent or retain existing employees.
There is no need to panic and sell all your stocks though. The tech giants will continue to grow, and as cliché as “too big to fail” is, experts see their long term outlook as generally positive, and the current downsizing, both in terms of personnel and valuation, is a rejigging that brings them closer to the current realities of post-pandemic growth. Most companies went on a hiring spree as they saw demand burgeoning during the pandemic, and valuations were similarly inflated. The current layoffs, even as we balk at the numbers, still leave most tech companies larger than they were before the pandemic.
Tech layoffs, and our reaction to them, are not a sign but a symptom. Big tech companies have become some of the wealthiest corporations in the world, eclipsing the Gross Domestic Products of entire countries. This has given them enormous influence over the economy, politics, and societies. An entire ecosystem of suppliers, small businesses, and entrepreneurs have flourished around them: Apple’s supply chain, for instance, s 52 countries, with an estimated three million employees.
Big tech companies have become some of the wealthiest corporations in the world, eclipsing the Gross Domestic Products of entire countries.
Even as tech permeates our lives, there is a mushrooming techlash— a sense of skepticism about tech giants in particular and technology solutions in general, and the layoffs lend a human face to this palpable shift in sentiment. For years, we valorised the “move fast and break things” Silicon Valley culture, till we realised the sheer power of these companies, and just how much could be broken. So even as layoffs reverberate through the tech industry, the debate is not whether this is the end of big tech (it is not), but whether we have permitted these companies to hold sway for far too long over how we work, interact and live.
This commentary originally appeared in Hindustan Times.
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