Layoffs alone won’t solve the tech problem

Tech giants are tightening up on fringe benefits and getting their talent in the door. But much more remains to be done.

Freezing rent and cutting down on perks is the easy part. Now, fattened up on old business models and mired in sprawling bureaucracy, Silicon Valley’s biggest firms must innovate again. It means leading a change in culture away from protecting mini-vassals and getting ideas in motion and product out the door. This is an entirely new challenge for the stable, mostly technocrat leaders of big tech. Microsoft’s Satya Nadella, Meta’s Mark Zuckerberg and Google parent Alphabet’s Sundar Pichai have overseen massive, sustained growth while keeping things together.

When the pandemic hit, their steady growth accelerated. Amazon, Apple, Facebook, Google and Microsoft’s collective profits soared 55% in 2021, off an already shocking baseline. Their combined $1.4 trillion in sales would have made them the 13th largest economy in the world, overtaking Australia.

Now with shares and growth under pressure, Zuckerberg is talking about flattening his leadership structure and reducing middle management. Pichai wants to “re-engineer the company’s cost base in a sustainable way.” This will mean more layoffs because even the latest, painful cuts have not brought staffing levels anywhere near pre-pandemic levels.

Facebook hired nearly 30,000 new employees during the pandemic, while Alphabet swelled its ranks from 68,000 to 187,000 in an even bigger hiring spree. But Meta and Google have so far announced 11,000 and 12,000 job cuts, respectively. Microsoft, which hired 58,000 people in the two years following the start of the pandemic, said last month it was cutting 10,000 positions. The painful truth is that these companies will need to continue cutting through 2023 to earn market confidence in their promises for efficiency.

They need to continue making the most of their top talent, who may be less inclined to remain loyal to their employers now that they know their bosses can cut them loose at any time.

Changing tech’s management culture will be an equally difficult task. Just last year, months before the layoffs began, Zuckerberg and Pichai were telling employees they needed to work harder to come to the office more often, with “greater urgency,” in the words of the Alphabet chief executive.

Google especially needs to get better at executing new product features. For all the attention the company receives about its exciting moonshot projects, Google is notorious for releasing new products and services without much concern with its $150 billion search business or its lucrative ad-tech operations. does not want to be tampered with. , But the search business has come under threat from ChatGPT and other AI tools that generate conversational answers to any question.

Under pressure to respond, Google said Monday that it would soon release a ChatGPT competitor called Bard to the public. The service will be powered by LadMDA, Google’s highly sophisticated large language model. Google has rarely moved so quickly to develop a product, marking a risky new era for the company while at the same time trying to cut costs.

It’s much harder to do more with less than it seems for companies in Silicon Valley, which are used to throwing money at problems to make them go away. At least they know that needs to change. Andrew “Boz” Bosworth, Meta’s chief technology officer, said in an email to the company’s 18,000 Reality Labs employees who drive its metaverse efforts, that “we’ve solved a lot of problems by adding headcount.” Now Meta has to learn to solve problems by innovating and executing.

Zuckerberg used the word “efficient” or “efficiency” nearly 40 times in his earnings call with analysts last week. (By comparison, he mentioned “Metaverse” only seven times.) Investors liked that direction of travel so much that they soared Meta shares more than 20% after earnings day, despite missing profit estimates. .

A big question is how far all this talk of efficiency from the world’s biggest internet and software companies, Alphabet, Meta and Microsoft, will lead to real reform. And if it doesn’t, will investors care? Meta’s rally last week may be a sign that investors are looking for an excuse to resume their love affair with some of the most profitable companies in history. Who wants to agitate for efficiency from companies (excluding Amazon) with regular quarterly net margins of around 30%? Compare that to two other popular stocks, Walmart Inc. and Walt Disney Co., which have margins of 6% and 5%, respectively, according to Bloomberg data.

Still, the higher margins weren’t enough to keep big tech stocks from hurting the markets over the past year. Wall Street wants to see these companies lean and mean. Big Tech’s investor-friendly, tech operators will almost certainly follow suit.

Permi Olsson is a Bloomberg Opinion columnist covering technology. A former reporter for The Wall Street Journal and Forbes, she is the author of “We Are Anonymous”.