Is Big Tech in big trouble?

The news has been full in recent weeks of stories about layoffs from the Big Tech firms. It started with Twitter: when Elon Musk took over and seemingly unleashed chaos, half of the social network’s workforce – 3,700 people – was told that they no longer had a job. Just a few days later, Meta announced that it would be letting 11,000 employees go, equating to an eighth of its workforce. Amazon is said to be planning to lay off around 10,000 people, largely in corporate and technology jobs, while Google is also rumored to have plans to reduce its workforce by around 6% (10,000 people) in early 2023.

Do these redundancies tell a story of trouble brewing amongst the Big Tech companies, or are they simply a sign of challenging economic times?

What’s behind the Big Tech layoffs?

For years, Big Tech has benefitted from low interest rates, easy access to cheap money and an environment that encouraged expansion financed by debt. These conditions were exacerbated during the pandemic, when tech companies were some of the only businesses to grow thanks to home-bound captive audiences. The combined revenue of the five largest tech companies – Alphabet, Amazon, Apple, Meta and Microsoft – jumped by 19% in 2020 and 28% in 2021. The feeling of invincibility that these conditions fueled led to huge expansion: Twitter’s headcount doubled in five years, while Meta’s tripled.

However, many of the Big Tech firms made a significant error: they assumed that the changes in behavior that drove their growth during the pandemic would continue in the post-pandemic world. That has not come to pass. Consumers have by and large returned to their pre-pandemic lifestyles, and Big Tech growth has followed suit – growth for the big five is expected to decrease to 9% in 2022, the same as it was in 2019, the year before the pandemic.

But the tech hiring spree continued well into this year, for roles including working on new projects that wouldn’t necessarily come into profitability for many years (hello metaverse). There was also a desire to scoop up scarce engineering talent. Now that the proverbial has hit the fan in the wider economy, investors are demanding that efficiencies are made. The obvious first place to look has been the bulging workforces – and it’s likely that the leaders knew that some severe cuts would eventually need to be made, even as they were hiring left, right and center.

What’s the situation with Big Tech and advertising?

Advertising has of course been the rocket fuel that has launched many of the tech companies into the stratosphere. But that business model has become somewhat wobbly of late, with increased scrutiny on privacy laws and increasing competition from the likes of TikTok. Meta has been particularly affected by these two factors: in its Q3 earnings report at the end of October, it reported $27.2bn in ad revenue – a 4% drop year on year. The company is projecting another drop in revenue in Q4. Meta was hit to the tune of $10 billion when Apple announced it was allowing users to opt out of in-app tracking, and the effects of this move are undoubtedly still being felt. The impact of the recession and global tightening of belts will also be a factor – as is the growth of TikTok. Despite these issues with its core revenue-driver, Mark Zuckerberg still seems to be investing much of the company’s time and effort into the metaverse.

Amazon, on the other hand, is enjoying increasing ad revenue. In its Q3 earnings report, the company disclosed that its ads business generated $9.5 billion in revenue, a 25% increase year on year and a clear demonstration of its increasing prominence in the sector. Amazon has been steadily investing in its tech offerings and attracting advertisers with targeting based on purchase history and other demographics which potentially leads directly to sales – and that’s especially appealing to advertisers looking to covert customers during a downturn.

Ever-increasing scrutiny

It’s not just economic trouble that the Big Tech firms are facing. Across the world, regulatory bodies in the US, Europe and globally are scrutinising the activities of the likes of Meta, Alphabet, Amazon, Apple and Microsoft, particularly when it comes to competition. Meta was recently fined €265 million by the Irish watchdog over privacy concerns, and the US, the UK and the EU have all recently launched reviews into Microsoft’s acquisition of Activision Blizzard. The deal, which would be the largest consumer tech deal since AOL bought Time Warner, needs the approval of 16 governments in order to go through, but currently has the go-ahead from just three – Brazil, Saudi Arabia and Serbia. Whether Microsoft succeeds or not will give a clear message about Big Tech’s ability to continue its meteoric growth in the face of fears that they wield too much power. Microsoft has for the past decade been seen as the ‘nice guy’ of Big Tech – if they can’t get the deal through, it seems unlikely that others would be able to.

What does the future hold for Big Tech?

Let’s start off by clarifying that despite the trouble we are seeing, Big Tech is going nowhere. These are still the most powerful companies in the world, and the death of the cookie will only reinforce that power – Meta and Alphabet in particular will become more powerful as the owners of increasingly valuable walled gardens with higher walls. But they may find that the next few years look different to the last decade or so.

It’s likely that, given the fact that so many companies are laying off employees right now, that money will not be as free-flowing as it has been. With investors breathing down the necks of CEOs, cuts will need to be made – and the most obvious place to start (after workforce cuts) will be with long-term ‘blue sky’ projects. Pulling the plug on these will open the door to competitors, making Big Tech more vulnerable to future competition.

Another effect of less investment in long-term projects focused on innovation will be a less entrepreneurial workforce: employees who aren’t profitable right now are likely to be let go, possibly to be snapped up by competitors and start-ups. Recruitment will also be more difficult as other industries become more ‘techy’ and require skilled workers – but are less bogged down by the controversies and scrutiny that mire Big Tech.

Perhaps the most interesting consequence of the changes that are afoot will be the impact on Big Tech’s leadership, some of whom are among the richest and most famous CEOs in the world. Many of them act more akin to start-up CEOs who ‘move fast and break things’, as Zuckerberg famously said. They thrive on innovation and may find that they are not suited to leading in more constrained, sober times.

A new era in online advertising

Change is inevitably coming down the line for the tech industry, and by extension the advertising industry. And while any change to the status quo can seem alarming, in this case it could help usher in a better, more grown-up era in online advertising. Constant innovation in the online space has created huge opportunities to reach audiences in new and exciting ways, but it has also created huge complexity and risk to brand safety. Perhaps as these companies move from adolescence into adulthood, they will create a more measured, more easily navigable online advertising space. And that can only be a good thing.

Image: Shutterstock/LookerStudio

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