Why is tech feeling the pinch?
The S&P 500, a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States, declined in every sector last quarter. With Communications Services and Technology among the worst performing.
There is not just one factor leading to this market decline. We’re seeing record-setting inflation, supply chain disruptions, the war in Ukraine and the Federal Reserve Bank raising interest rates all making an impact. All of these factors have led to a fear of recession. And with cryptocurrency markets also plummeting, it’s a worrying time for big tech.
How are tech companies reacting to the current financial climate?
Apple’s financial year ends in September, meaning that decisions that will cover the next 12 months are already looming. For their 2023 financial year, Apple plans to slow hiring in some business areas and will not backfill some positions despite the much-rumored launch of their VR headset next year.
Meanwhile, Alphabet (the parent company of Google) CEO Sundar Pichai has informed employees of a hiring slowdown. This has culminated in a 2-week hiring freeze in July, alongside a company-wide hiring slow for the rest of the year. Pichai stated to employees that this is a move to make the company “more entrepreneurial” and that resources would be re-deployed to more high-priority areas. The freeze, and slow, are so that teams and departments can reassess their spending and their priorities across the board.
Meta (Facebook, Instagram et al) too, are slashing the hiring of engineering teams by 30%. Mark Zuckerberg reportedly told employees that they should expect to “do more work” while the company tightens its shoestrings.
Uber’s actions have reflected the company’s attempt to be “hardcore on costs”, a statement made by Uber CEO Dara Khosrowshahi in a memo. These hardcore measures are far more than hiring, for which the company plans to be more “deliberate”, with marketing spending also set to reduce.
Sadly, freezes do not always ensure that layoffs will not occur. Twitter announced a hiring freeze, just a couple of months ago in May. Within 2 months, the company had laid off 30% of its talent.
Similarly, Shopify has announced layoffs of 10% of its workforce. It’s a move that is in part, influenced by Covid-19 as the company experienced pandemic-induced highs which are now coming to an end. The layoffs place the company back to where pre-Covid data expected them to be. Covid simply caused a temporary 5-year leap forward.
Crypto exchange platform Coinbase was less optimistic, laying off 18% of employees due to the economic downturn. CEO Brian Armstrong in a message to employees stated that “we appear to be entering a recession… A recession could lead to another crypto winter, and could last for an extended period.”
What does this mean?
Big tech is certainly not over. Around 3.5% of the US workforce remains employed in the technology sector.
We also must remember that many of the most iconic unicorns were born during recessions.
Take Mailchimp for example. When the company was initially founded, its customers were just multinational enterprises on big retainers, but the recession of 2008-9 changed things. By adding freemium users, and diversifying its client portfolio, the business grew from 85,000 users to 450,000 in less than a year.
Groupon too was born out of the same recession. Promoting businesses to users who were feeling the pinch but looking for good deals. In fact, Groupon created a whole new method of marketing for businesses that were looking to draw in new customers.
For employees whose jobs are under review, it is worth remembering that recessions can breed innovation. With top talent, we may even see them leading the innovation post layoff.
What can other industries learn from the big freeze?
Covid has impacted every business in different ways. Some saw the brakes applied in their growth as soon as Covid-19 hit, while others have products and services of particular appeal during a global pandemic. Whether a business has experienced shrinkage or growth, some stabilization will occur in the coming months.
In view of the looming recession, businesses now face another wave to ride and again, only time will tell.
If we take big tech as an example, making cautious moves forward when it comes to growth and employment seems sensible.
We can also learn that hiring, and growing, too quickly is not without its pitfalls. Tech companies that have grown too quickly and hired exponentially are now experiencing the consequences, losing high-quality employees and getting some bad PR too!
For companies that are hiring in technical roles, keep your eyes peeled when it comes to layoffs. The early bird catches the first worm, and by keeping their ears to the ground, recruiters could benefit from poaching newly redeployed or laid-off talent. These potential new employees will be looking for stability, so make sure this is something you can offer in the medium-long term.
It’s worth remembering that these measures are only temporary. None of these freezes suggests any of these companies are on the brink of collapse. A decade ago Google employed just 32,000 people. Today its parent company has more than 156,000. Even with a small decline, the trend is still substantial growth.
As the financial picture becomes clearer, these reactive technology companies will surely reassess their position yet again and adapt their hiring and spending accordingly.