Explained: Why are tech companies laying off thousands of employees
- Silicon Valley companies made a lot of money during the pandemic years
- Tech companies went on a hiring spree during the pandemic
- Hiked interest rates and regulated tech investments are making companies cautious
Big Tech companies are cutting jobs at alarming rates at a time when the world economy is struggling to pick up in the aftermath of the COVID-19 pandemic and inflation has seen a marked increase.
More than 22,000 employees in the tech and startup sector have lost their jobs so far in 2022, and we’re just halfway through the year. India is faring no better, as startups there have laid off 12,000 employees. And that’s not the worst of it. According to the report, by the end of the year, more than 60,000 Indian employees, most of them in ed-tech and e-commerce, can expect to be cut.
Just last week, Byju’s, sitting at an evaluation of $22 billion, the world’s highest for an ed-tech platform, laid off over 2,500 employees. The company cut jobs across Toppr, WhiteHatJr as well as members from operations, content and design, sales and marketing, according to a Moneycontrol report.
In June, Elon Musk, Chief Executive Officer of Tesla, announced that the electric carmakers would be cutting 10% of jobs. While Musk said that the job cuts would target salaried employees, the company cut 200 of its hourly workers as it closed a plant in California. Substack, the newsletter platform, cut 13% of its employees as the company decided to bunker down in the face of economic headwinds. Even Meta, the parent company of Facebook, is going to be cutting down its workforce. Mark Zuckerberg, the CEO of Meta said that the company would be cutting its hiring targets from 10,000 engineers to around 7,000 or less. And these are just some of the biggest names in Silicon Valley.
The common thread
Many of Silicon Valley’s company spokespersons or emails say the same thing, that they’re all bracing for recession.
Last week, Zuckerberg said that his company was preparing for the “worst economic downturn in history.” Netflix told USA Today that they were adjusting so that their costs were in “line with their slower revenue growth.” Chris Best, CEO of substack, said that they were laying off members of their team to maintain a “strong financial foundation” and that “market conditions” led him to make the decision.
The unfortunate side effect for tech employees has been born from the COVID-19 pandemic, in a way. Between 2020 and 2022, the tech industry exploded as the prime sellers of commodities everyone wanted: ad space and software. When the pandemic hit, companies that transitioned to online work modes ended up buying from the likes of Amazon, Google and Apple, amongst others.
But the two-year growth spurt is coming back to bite tech companies as people move back to offices. But it is not just that, the spending sprees that happened in the pandemic years are no longer looking feasible. Spending came in the form of new hires, as some companies grew from a few dozen to a few hundred in a matter of weeks. A decline in hiring was inevitable, but as Angelo Zino, an analyst at CFRA, a research firm told USA Today, concerns about the economy helped to “speed up the process.”
Worldwide, governments have been hiking their interest rates as well as regulating tech investment more carefully, not to mention inflation that has hit a high not seen in the last few decades. In that regard, Silicon Valley has decided to pull back. Even though startups aren’t expected to be minting money in their first few years, investors will be cautious about spending and will respond accordingly.