Thus far, this year hasn’t been a banner start for most tech companies. Like a nasty hangover from late 2022 that won’t go away, Big Tech job cuts are continuing to make the headlines. And this time, it’s audio streaming giant Spotify that’s making the announcements. This past week, the company stated it would be letting 6% of its workforce go, the equivalent of 600 employees. As such, Spotify is simply among the latest tech layoffs that began around the middle of last year. They too now join the ranks of Alphabet, Meta, Microsoft, and Amazon in their approach to cut costs and boost revenues.
(What’s going on with Amazon and its layoffs? Read all about it in this Bold story.)
While it might be nice to attribute all of these Big Tech job cuts to a single factor, that’s simply not the case. The underlying reasons for these latest tech layoffs are much more complex than attributing job cuts to overzealous tech companies. Instead, it’s a confluence of factors, of which mimicry and follow-the-leader can be added to the mix. Spotify’s addition to major tech companies adopting a contraction strategy can serve to highlight many of these variables. And while the current spin suggests tech companies are shrinking, the bigger picture could reflect something completely different long term.
“As you are well aware, over the last few months we’ve made a considerable effort to rein in costs, but it simply hasn’t been enough. I was too ambitious in investing ahead of our revenue growth.” – Daniel Ek, CEO, Spotify
Factor #1 – A Pandemic Bubble
One reason why there are so many Big Tech job cuts today relates to a misinterpretation of the pandemic economy. Many tech companies believed pandemic shifts into streaming and online commerce would persist even after the pandemic was over. In this regard, the pandemic was seen as a catalyst that moved technology use into a lasting future. And because of this perspective, such businesses invested heavily in growth, adding thousands to their payroll. But as COVID faded into the background, consumers didn’t maintain their pandemic habits. Instead, they are reverting back to the way things were prior, including in-store shopping.
(Bookstores are coming back! Read about it in this Bold story!)
In this regard, the latest tech layoffs reflect errors in reading pandemic shifts. Like other economic bubbles, the pandemic introduced changes in consumers behaviors for a temporary period of time. But once the bubble burst, a readjustment inevitably occurred, leaving tech businesses with a surplus of staff and expenses. Given this, it shouldn’t be surprising that Big Tech job cuts are on the rise. Those that saw pandemic shifts as a lasting future were too aggressive in growth pursuits. And now, they are having to readjust to a reality that they didn’t believe would happen.
Factor #2 – Overreliance on Advertising Dollars
Another major reason for the latest tech layoffs has to do with changes in advertiser behaviors. With recessionary and inflation pressures, companies are allocating fewer dollars to their marketing campaigns. This is especially true when it comes to social media. But even Google Ads and other Internet-based ad revenues have taken a hit. Given that many tech companies are highly reliant on these revenue streams, it’s not surprising pressure to cut costs exist. Thus, Big Tech job cuts can also be explained based on these shifts as well.
Some companies are at greater risk than others when it comes to reductions in advertising revenues. Meta/Facebook has certainly seen a significant decline in ad income, and as a result, has shifted their advertising strategies. But even companies that depend on consumer subscriptions as much as ads have taken a hit. This certainly pertains to companies like Spotify. There is little doubt that the latest tech layoffs are at least in part due to declining ad dollars. This is another reason Big Tech job cuts are on the rise.
“[Last year] was a rough year for the advertising market that saw massive pandemic-era growth come to a screeching halt. [Marketers cut budgets] in response to a mix of actual financial struggles and anticipated future struggles until, by the end of the holidays, there was hardly any money being spent at all.” – Analyst Report, MoffettNathanson, A media and tech research firm
Factor #3 – Interest Rates and Investor Shifts
Rising interest rates and inflation have affected advertisers to a great extent in cutting back on their expenditures. But economic shifts have also triggered changes in investor behaviors as well. Instead of pursuing long-term investments in growth, many currently prefer investing in companies with proven revenues. For many tech companies, past trends have focused more in future growth over current profits. Thus, in order to attract needed investments, they have had to change their strategies. One such strategy naturally involves cutting expenses. This also accounts for the latest tech layoffs and Big Tech job cuts.
It’s worth noting as well that the latest tech layoffs are being supported by investors. When Spotify announced its recent planned Big Tech job cuts, share prices increased by 5%. The same thing occurred earlier this year when Google and Wayfair announced their latest tech layoffs. These boosts in share prices provide increasing revenues, which is also why tech companies seem to be mimicking each other. Cutting costs through shrinking human resource talent pools appeals to investors looking for short term wins.
A Longer Term View
The current landscape certainly indicates a change for many tech companies. Big tech job cuts are occurring across the board, which raises some concerns. Many still remember the dot.com bust in the early 2000s and wonder if history is repeating itself. But in all likelihood, the latest tech layoffs represent more of an adjustment than a major overhaul. To put things in perspective, Alphabet added 30,000 jobs in 2022 while only cutting 12,000 since. Likewise, Microsoft hired 40,000 tech positions last year while only letting 10,000 go. A pandemic catalyst effect doesn’t appear to be lasting, and economic shifts encourage some level of contraction. But the latest tech layoffs are not profound enough to indicate an all-out collapse. In this regard, expect Big Tech job cuts to be short-lived and of limited duration.
New York is trying to take away your whipped cream–read about it in this Bold story.
