Ask HN: Why are big tech companies having mass layoffs?
Amazon, Google and Microsoft are clipping 10,000+ people each from their roster. Can someone explain why is this happening?
If we track online sales as a proportion of all sales over the last 20 years, there's a pretty stable trend of increase. Then COVID hit, lockdowns, and we saw a 5-6 year jump ahead. Big question: How much of this is temporary, and how much is permanent? Maybe people discover that grocery delivery is way better than going to the store and never stop.
Imagine if you bet against it being permanent, and you were wrong? Your company just lost out on a massive opportunity- a CEO that does that would be worried for their job. And if you bet for it being all permanent and are wrong, well, you just have to lay off a few people.
They all bet that this was a permanent 5-year jump-ahead. They were wrong, there was no jump-ahead. Now there's a looming recession. Everyone has too much headcount. And for publicly traded companies, there are shareholders who will demand that something be done to prove you're not going to bankrupt the company.
To minimize the PR hit, everyone quietly announces their layoffs just after someone bigger than them does, so that they aren't the headline in the news tomorrow.
This is the part that really needs explanation. How was every CEO of every major tech company wrong?
Why aren't we having a big tech CEO layoff for massive wrongness?
It certainly feels like there's a lot of groupthink here in any case.
The Google severance looks pretty generous? That plus the last couple years of overhiring is going to end up being pretty costly for the company. These were expensive mistakes.
https://fortune.com/2022/03/31/us-companies-record-profits-2....
Everyone saw an opportunity to make MORE money during the pandemic, and instead of focusing on long term health, focused on quarterly profits. This lead to massive expansion.
The second answer is that these companies have mass layoffs every year. Are these really that abnormal, given the context of their mass hiring's the year before? Facebooks headcount went absolutely bonkers, they are still up over a two year period.
I think saying they were wrong is a mistake. It was more of a hedge on a bet, a bet they could afford to lose, but not afford to miss taking. It was akin to a game of chicken or mutually assured destruction, where if somebody else was expanding, you had to as well, defensively.
Now if they all balloon back up to the same headcount in the next year, but with lower salaries, then we will see if the real motive was to lower salaries. Someone had posted on another thread that the federal reserve stated that the goal of recent policy changes was to lower salaries. It's much easier to layoff and rehire, than it is to give out paycuts.
Maybe they thought it was only 5% likely, but still worth the risk and expenditure
There just aren't systems in place to evaluate CEO performance with anything remotely resembling objectivity. The job has become a way for rich people (on boards) to give their rich friends and colleagues another way to get richer and exercise unwarranted power.
Like, it's reasonable for unprofitable companies to do layoffs. I can see investor pressure causing something similar in large public companies like Google and Amazon, even if they're profitable. But profitable private companies should be snapping up all the best talent now.
Even if you "knew" a recession was coming and that you were overhiring/overspending, you get far less flak overall for riding the gravy train to the end, then making cuts along with everyone else, than for appearing to be overly conservative and not growing as fast as you could during the boom.
Taking the money and spending it while you can is the equivalent of buying IBM. No one else in your circle will fault you for it when things go south, because they all did the same.
Bet on permanent growth - growth is permanent: You're a hero - growth is temporary: Sucks, but you just do some layoffs
Bet on temporary growth - growth is permanent: You're fired - growth is temporary: You're righ! But so what?
> Imagine if you bet against it being permanent, and you were wrong? Your company just lost out on a massive opportunity- a CEO that does that would be worried for their job. And if you bet for it being all permanent and are wrong, well, you just have to lay off a few people.
CEOs answer to shareholders, not employees. From the shareholders' perspective, the risk of losing out on market share was much greater than the risk of having to pay a few months' severance for the 5-10% of the workforce you trimmed.
The only job of the board of directors is to decide when to fire the CEO. (Waiting for Tesla's board to do their job..., but I digress)
Sure, capital is represented on the board, but what about labor? No representation, so a round of layoffs is not going to be a reason for this to happen.
When the hiring slowed, there was not as must work to do hiring and onboarding new employees. This is why so many companies are including “HR” in their layoffs.
The other piece is even if they didn’t over-hire, they over-paid. I believe these mass layoffs are a natural way for salaries to go back down to pre-pandemic-ish levels.
Facebook, Amazon, Alphabet, Apple, Microsoft have an insane volume of cash reserves to the tune of hundreds of billions each company.
Unless their are predicting a decade long crisis there is no way this is the real reason staff is getting trimmed, feels more like an excuse rather than a justificatíon at this point.
They can't normally fire as many people as they want to fire, without looking bad / "appearing weak" and therefore losing stock value.
But if "everyone's doing it", then they won't look bad/weak.
See also: raising prices. If one company does it, they just lose market-share. But if they do it because "everyone is doing it", then margins can go up vertical-wide without anyone having to explicitly collude in an anti-trust sense.
While big tech companies can technically afford to over hire they are seeing slowing growth and a hit to their margins which investors have not and will not view favourably if unaddressed - just take a look at Facebook (META)'s stock.
With the exception of Apple the big tech companies make most of their money from ads and cloud services. A lot of those ad dollars come from smaller business who are now struggling with higher rates and higher costs. Equally cloud services is taking a hit with many of the smaller tech companies who use their services cutting back in light of higher costs of capital and declining market valuations.
While they might all have the cash to weather the storm, why would they when they can just cut some of the fat? I don't like seeing these layoff announcements, but I think if we're honest companies like Facebook and Google have been over hiring for years and have accumulated teams and employees who aren't adding much productive value.
Twitter probably isn't the exception in tech. I'd guess most tech companies could cut 50% of their workforce without much of an impact. And even in the average software development team I'd guess that 20% of the workers are contributing 50% of the value.
If there's no incentive to keep these people around anymore, why would they?
I sure as hell am not applying to anywhere that had layoffs - I don't want to reward those places with my labor.
The reality is most of the big tech companies have had to staff under pretty unfavorable conditions over the past few years. That's meant either scraping the bottom of the barrel in terms of the less talented. Or ballooning TC packages. If you think that all of a sudden it's going to become a buyer's market for employers, then you probably want to free up some spots today. Especially among your weakest performers or your most overpaid.
Good talent is hard to hire. These company have more cash than brains or ideas. So even if there's a recession, a few months/quarters means nothing considering their war chest. And it's not worth firing people in January if you need them again in October.
You will also sometimes see people referring to "bets that didn't pan out", but the more accurate term for the situation of having TENS OF THOUSANDS OF PEOPLE as "bets that didn't pan out" is gross mismanagement and active negligence.
Every one of these CEOs should be out as a result.
WHY they're laying off thousands isn't as important as HOW they're able to do that and still function. The reason tech companies are able to layoff all of these people is because they were so overly bloated and had too much deadweight.
When you can layoff tens of thousands of people and not miss a beat, maybe those people weren't adding much value to the company to begin with..?
So we just keep peeling away layers of the onion until we get to the abuses of proxy voting by large fund managers (e.g. Larry Fink of Blackrock), who unfortunately seem to be accountable to nobody.
Doesn't matter. Investors care about the next quarter.
Investors may indeed be predicting a recession, and it's probably true that many of these firms overhired. But there's no specific fiscal reason for most of these companies to cut staff--5% the cost of their workforce is not standing in the way of billion-dollar deals (e.g. MSFT/Blizzard) or long-term R&D spending (Meta, whatever you want to say about their Metaverse project).
Bluntly: cutting staff is the new stock buyback.
Long answer: many people naively think that it's all about the money a company has, and these companies have a ton of money, so why are they laying off people when they could weather through the storm.
While this feels like it should be the case, the answer is that it's a bit more complicated than that. Whether it should be more complicated or not is besides the point, sadly. Business health tends to be measured more in terms of cash flow, and in simple terms, more going out than is coming in is bad, even if you could deal with that for many years.
There's also the difficulty for many of these big multinational companies that their cash reserves might not be in the right place, and moving them might incur significant taxes.
Investors are theoretically investing for the prospect of future returns, and while with growth stocks this is in the form of increased share value, in the long term it's also about dividends which come from profit, and so investors want to see a long term profitable company.
Also worth noting is that while, yes, CEOs are largely compensated in stock and therefore interested in seeing it go up, this is also good for the business in a general sense, as it makes it easier for them to raise money for things by selling stock.
I don't necessarily agree with all of this, I have problems with the taxation issues, and I also think it's a bad thing for many employees, but my general point is that this is complicated and there are reasons for it, even if we might not understand or agree with them.
https://www.cnbc.com/2023/01/18/apple-had-slower-headcount-g...
Most grew 15-30%/year the past few years... probably since money was "cheap".
But really you can also ask: Why did tech companies hire like 3-4x the amount they are laying off in the last 2-3 years? Why are they mass hiring? The inverse reason is usually why there are mass layoffs.
Fast forward to today. Credit is drying up. Devs feel entitled to WFH, and shorter work days (via WFH) and managers are nervous. Their products have regressed, they are actually worse than 10 years ago. Foreign firms like TikTok are now serious competitors.
Perhaps most disturbing to the C-Suite, once they strip away all of the covid #'s, they can tell growth is or will be declining. It's not just about being revenue positive, it's about the derivative. In this situation it's standard procedure to reign in costs and send a message both to investors and the organization that they want the org to become leaner and meaner. They're not just copying each other, all of these companies are in the same position and this is how execs are trained to act in this situation.
_Shorter_ work days? If anything mine are longer, even considering time I no longer spend commuting.
Any Dev "entitled" to shorter work days seems unlikely to have a long tenure.
Source: Am manager, who codes 50% or more of my time. Nobody I work with feels "entitled" to work less.
1) Are capable of "doing more with less"
2) Have too much headcount
2) Overpay engineers by 2-3x
These views are not unique to Wallstreet shareholders; they are shared by a growing number of tech VCs and "thought leaders" (most notable a16z). The next phase will likely be longer hours for less pay.
The halcyon days are over.
On top of the end of cheap money, add increased operating cost due to Baby Boomers leaving the work force (~400k net loss of workers), passed-down costs of reshoring supply chains, and a burgeoning energy crunch due to the war in Eurasia.
Roughly speaking, "tech" investments are riding the tip of the bullwhip here. I expect that not-yet-profitable startups are the most vulnerable, but the sea change pervades anywhere that 2023 dollars are being spent chasing payoffs that are "many" years out and even mildly at risk.
This was even reinforced in the pandemic. Instead of worrying about all the fragilities exposed in society, the streched supply chains etc, this dramatic event was even turned into a tech positive (remote working etc). The tech sector was the only official speculative game in town (unofficially we also had crypto bubble) and management could get away with everything.
What happened since is not so much a recession but the invasion of Ukraine and the further disruption of global trade, inflation, simmering geopolitical tensions, acceptance of climate risk etc. Basically the virtual reality of tech got discounted in markets and people focus now on formerly unfashionable bricks and mortars.
So nothing personal or technically relevant, just stock prices, executive remuneration and incentives.
[0] https://www.marketwatch.com/investing/index/comp?mod=market-...
Don’t blame them. If it were my company I’d do the same thing.
In reality they could cut a lot more and be fine. Elon/Twitter is the extreme example.
Imagine for a moment you are the CEO and someone who may ultimately decide your pay or tenure asks “The future looks uncertain, what do you think?”. You’re very likely to think “I have no idea. I’ll ask the folks working for me.” and you do. You may get a mix of answers, a minority will be thoughtful but the majority will reflect the natural human tendency for self preservation, thinking along the lines of “Since the question was asked, it means I need to confirm the unstated assumption”, and be the one safe thing to say “We should cut spending”.
It’s just people being people.
But if they did that, they wouldn't be growing. The stock price would go down. The investors and executives would lose a lot of their own net worth. The executives don't have some magical button they can press to magically increase revenues instantly. Most non-labor costs also can't be cut. They don't have much control over the prices of the material goods and resources the company needs to operate. The only easy and instant action they can take is to lay people off. To simply stop spending money on work that isn't generating immediate revenues.
And what do you know, GOOG is up 4% today as of the time of this posting.
We don't have an AMA or Bar association gatekeeping entry, even.
[1]https://www.marxist.com/wage-differentials-under-lenin-and-t...
At Google, for reference
All these post and articles should also mention what is the % of laid off people not only the absolute value, it's misleading.
The signal is out that growth is slowing so they chop people. The culture in the Western world especially in USA is that "layoffs" are necessary. USA is one of the only countries in the world with "At Will" employment. In most other countries these level of layoffs would sink a company easily.
USA is a rather ruthless work environment where workers rights are basically non existent.
Trump's policies during COVID had the same effect, and many foreign workers returned to their home country either by choice or because of visa bans.
All of this seems overly shortsighted for the U.S. to throw away top foreign talent.
Shows the power hierarchy I suppose. Wild world.
That quote is from a neonazi who wanted to argue that jewish people secretly controlled the world because antisemitism is no longer socially acceptable in most circles.
> everyone being let go seems to be an engineer
An article about the most recent Amazon layoffs says "Amazon’s human resources and stores divisions are likely to be among the organizations most severely impacted by the job cuts."