What is common for layoffs at Microsoft, Google and Facebook?

Microsoft Corp. provided an omen of what was to come on Monday, when it confirmed it had cut jobs across several divisions, including its Xbox unit, which numbers less than 1,000. That pullback follows news last week that Intel Corp. was planning to cut thousands of jobs due to declining PC sales.

Similarly, Facebook parent Meta Platforms Inc. will be “small” by the end of 2023, Chief Executive Officer Mark Zuckerberg recently told employees, when he shared broad plans to reorganize the company’s teams and reduce headcount for the first time. Did it? Stock prices, Netflix Inc. and Snap Inc. both laid off employees this summer.

Expect more companies to follow. A deteriorating economic outlook means that tech businesses will be looking for ways to reduce costs while also signaling to investors that they should keep their never-so-ever-so-ever in the face of changing circumstances. Willing to rein in ever-so-ever-ever-ever-ever-ever-ever-ever-ever-parts-way.

But a bigger question is looming over the tech industry, which is whether the initial pullback is a normal and warranted response to a slowing economy or if some of the biggest players in the sector are entering a new, frugal era.

Not only is the slowdown, but individual companies are facing challenges, particularly the threat to an advertising-dependent business model. Meta in particular has struggled with a privacy update from Apple that cost more than $10 billion in ad revenue. Meta has spent another $10 billion on building products and services for the Metaverse, in hopes that an all-encompassing plunge into the virtual world will anchor the company’s second act.

Google’s advertising business, like Meta, is in the grip of an economic downturn, as companies often cut costs such as advertising during times of austerity. The company has a few buffers that put it in a stronger position than Meta. YouTube Inc. It’s generating billions of dollars in revenue every year thanks to the growth of its premium subscription product, and advertisers increasing their spending on search ads during the recession.

The idea of ​​layoffs in technology can be daunting for industry engineers, marketing experts, and product managers. After all, it is the industry that has set the bar for lucrative benefits, high salaries and benefits such as in-office massages and catered meals.

Not to mention that by and large, the tech industry has managed to turn a profit well during the pandemic. As businesses and consumers turned to tools such as Zoom Video Communications, Slack Technologies and Netflix, share prices rose and spent more time on social media and the Internet in general. Recruitment continued to accelerate and in some cases even increased.

At the same time, thousands of startups benefited from new venture capital, a 14% increase in VC funding in 2020 from 2019. There was even a boom in megarounds – deals worth more than $100 million – during the pandemic.

But as the world heads back into the office amid rising prices and high interest rates, businesses are looking in the right direction. Next week’s earnings results from Apple, Meta and Google will paint a clear picture of how deep each company may need to cut.

As painful as it is, the restructuring could lead to greater efficiencies and spending discipline, especially among younger startups, for whom the better capitalized would now benefit from a thriving talent pool.

Tom Stafford, venture capital partner at late-stage Internet investment firm DST Global, told Bloomberg’s Technology Summit last month that thousands of startup businesses need to go out of business between now and 2023. Too many bad ideas were funded. Over the past three years, he said, “almost all ideas can raise money. That will change. … Not every company will be able to make it and we must embrace failure.”

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Parmy Olson 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”.