Connect with us

Company News

Meta layoffs and the tech industry’s ‘all fall down’ moment

You must have seen little children holding hands and singing ‘Ring a Ring o Roses’ as they skip around in a circle, until ‘they all fall down.’ This seemingly innocent nursery rhyme is said to be about the Great Plague of 1665, which killed almost a sixth of the population of England. A similar song seems to be playing in the tech sector around the world these days, with its most successful companies—who were thought to be unassailable —rocking on their foundations. No sooner had Twitter shed half its workforce, Meta shocked the markets by laying off 11,000 people, coincidentally a sixth of its workforce. Amazon and Microsoft announced a hiring freeze, with the former also starting some quiet layoffs. The booming Indian tech startup sector, which was birthing a unicorn every other day, caught the same affliction with almost 50 of them firing large numbers of employees. As per an Inc42 tracker, 11,000 employees have been laid off by Indian tech startups, coincidentally the same that Meta did in one fell swoop. And the crypto sector facing its own dire Lehman moment, with Sam Bankman Fried’s FTX being the latest of many crypto stars to go belly-up, rendering thousands more jobless.

Did We See It Coming?
There definitely is a Great Plague sweeping the world of tech, but what is the cause of it—the bacterium infesting the companies which were supposedly building the future of the planet? In my view, there are certain common macro reasons which are afflicting every company, but there are also certain specific, bottom-up reasons which are plaguing each company in a unique way. A lot has been written about these big common reasons, with the world shifting dramatically in the last many months, too quickly even for the nimblest of companies to keep up. One big reason is geopolitics around Taiwan and the Ukraine invasion. This has caused supply-chain disruptions especially for semiconductor chips, an energy crisis which has squeezed economies, and a general feeling of uncertainty and fear both with consumers and markets. The second is the end of the pandemic—it is quite ironic that the pandemic resulted in boom times for the tech companies since they were the only game in town which could operate through lockdowns and social distancing, but the end of the sickness has felled them. Companies like Amazon and Zoom spent heavily to expand during the pandemic, and as demand plummeted after it ended, their returns are not justifying the spend. Added to this is the high inflation and the cost-of-living crisis in most parts of the world, leading to large swathes of consumers shifting their spending lower down Maslow’s hierarchy to food, shelter, and utilities.

“Happy families,” said Leo Tolstoy famously, “are all alike; every unhappy family is unhappy in its own way.” In boom times, tech was one big happy family—growing like gangbusters, hiring millions of people, and giving them free gourmet food and great salaries. In the meltdown now, each of them has its own reasons for the unhappiness. The Twitter story is well-documented, with a new sole billionaire owner with megalomanic instincts wanting to shape this latest toy in his own image leading to indiscriminate dismissals. Amazon, as I referred to earlier, is suffering from overinvesting in warehousing, supply chain and support staff and is now shedding them.

The malaise at Meta is quite different and runs much deeper. Its flagship property, Facebook, has stagnated for some time now with the millennials fleeing it in droves, leading to a flatlined advertising revenue. Its more attractive property, Instagram, is under almost existential threat from a resurgent TikTok, which is supplanting it as the most favoured social network for young people globally. Apple has enforced a strict data privacy mandate on its iOS Appstore, leading to diluting ad-targeting and further squeezing Meta’s advertising revenue. Finally, and perhaps most importantly, Zuckerberg is focused on the Metaverse, reportedly investing a whopping $13 billion in it, with nothing to show for it in terms of product or revenue. Facebook is down 70%, with investors and analysts now baying for Zuckerberg’s blood.

Ripples Felt in India
This tidal wave has led to ripples in the Indian startup landscape too. Tech startups, drunk on ‘free’ investor money, over expanded, and overspent in the boom years. Now that the chickens have come home to roost, they are forced to downsize as their untested business models are not bringing in enough cashflows to pay their employees. The biggest effect has probably been on edtech startups—the pandemic led to a rash of investments as students moved to online education, but as they returned to schools and colleges afterwards the model did not look as attractive. Crypto is another story, but the dominant reason here seems to be pure fraud and hoodwinking by pumped up crypto founders. “It’s only when the tide goes out that you learn who has been swimming naked,” said Warren Buffet, and most of the crypto world lies exposed.

It is not coincidental that the ring-a-ring-a-roses nursery rhyme talked about ‘a pocket full of posies’—the posies were the flowers that people kept with them to ward away the stench of the bubonic plague. For too long, most tech companies had an aroma of invincibility and prosperity around them, a harsh reality will now weed out the malodorous among them and the real businesses will emerge strong and stand tall. Bloomberg

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2024 Communications Today

error: Content is protected !!