Cryptocurrency crash, Facebook layoffs and Twitter carnage are rocking the tech industry. It is fueling memories of the crash of the Internet 20 years ago.
The departures are cementing the feeling in Silicon Valley that the last decade’s bull market — which created massive amounts of wealth for tech investors, workers and the broader economy — is surely over, evoking a picture of what the rest of the economy might experience if a predictable recession materializes.
“It feels a bit like 2000,” said Liz Beyer, a tech analyst, CEO, and longtime investor, referring to the collapse of the Internet at the turn of the century. “Hire engineers, hire engineers, hire engineers, and then all of a sudden companies find a cold bucket of water in their face.”
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Executives at the companies that made the cuts blamed a variety of interconnected factors — excessive hiring during the pandemic, slowing e-commerce activity and spending less time online as in-person events return. Technology chiefs have been warning of a looming recession for months, telling their employees to expect tougher working conditions and dramatically slow the rapid growth they have preached for years.
When it comes to newer tech companies, low interest rates over the past decade have allowed venture capitalists to easily raise money and pour it into new startups — even if their founders don’t have solid plans to actually make money.
During the pandemic, that dynamic has gone to an extreme. At the same time, major tech companies have rapidly expanded to take advantage of people who spend more time online. Technology stock prices soared, boosting confidence and stock-based payments to workers.
But now that the Federal Reserve has aggressively raised interest rates to fight inflation, venture capitalists are getting stingier on their investments, forcing companies to focus more on profitability rather than growth. Tech giants do the same, with higher prices slashing their revenues, forcing them to cut costs.
The layoffs come just a year after Silicon Valley reached its heyday, with valuations of major tech companies pouring into the trillions, salaries at all-time highs and cryptocurrencies pumping new wealth into the pockets of investors and workers alike. Now, tens of thousands of workers are looking for work.
Mark Weil taught himself how to code when he was nine years old, and has been in the technology field since 2010 in several companies, even starting his own company at one point. This week, the 35-year-old director of engineering at Stripe was one of thousands who lost their jobs.
“Year after year goes by and the technology economy is getting bigger with no end in sight,” Will said. “People who have lived through the past few decades have warned everyone in technology that this is going to end. And that is how it ended.”
Weil bought a house just three weeks before the layoffs. But he’s not too worried about finding a new job, thanks to the network he’s built over 10 years in the valley. He is more concerned about his younger colleagues.
Spokespeople for Lyft, Twitter, Facebook, Salesforce, Amazon and Google did not respond to requests for comment. A Stripe spokesperson pointed to a blog post the company’s CEO made about layoffs.
“We are facing stubborn inflation, energy shocks, higher interest rates, lower investment budgets, and lower startup funding,” CEO Patrick Collison said in the post.
For the past ten years, major tech companies have ruled the American economy. Apple, Amazon, Google, and Microsoft have all crossed the trillion dollar mark, and have become by far the most valuable organizations in recent history. They’ve competed with venture-funded startups like Uber, WeWork, Airbnb and Stripe for tech and business talent, driving up salaries and the cost of living in the Bay Area and other tech hubs like Seattle.
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But over the past year, cracks have begun to form in that dominance. Corporate leaders are beginning to warn of cutbacks, and companies like Google, Microsoft and Facebook are quietly beginning to slow hiring. During the summer, as economic sentiment fluctuated back and forth between positive and negative, companies also provided mixed messages.
The past few weeks have raised a deeper level of concern, as a flurry of earnings reports have shown that even the toughest of companies like Amazon and Google are having serious trouble maintaining the revenue growth they have been able to boast over the past several years.
Facebook and Amazon stock prices fell more than 20 percent when they reported their quarterly earnings in the last week of October. Amazon’s expectations for the all-important holiday season were lower than analysts had expected, and Facebook investors began abandoning the company in droves after CEO Mark Zuckerberg made it clear that he intends to continue to lose money as the company heads to focus on building a new “metaverse” virtual world.
Microsoft and Google, the world’s third and fourth most valuable company respectively after Apple and Saudi Aramco, also reported a slowdown in revenue growth, indicating waning demand for digital advertising and cloud software.
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Last week, Twitter under its new owner, Elon Musk, laid off nearly half of the company’s 7,500 employees. Musk said Thursday that the company will need to find new sources of revenue or else it will not “survive the next economic slowdown.”
His statement came a day after Zuckerberg said a “macroeconomic contraction” was one reason he fired 11,000 workers, or 13 percent of the Meta workforce, in the first large-scale job cuts in its 18-year history.
Stripe is cutting 14 percent of its staff, real estate market Zillow by 5 percent and Lyft passenger recall app by 13 percent.
The week’s layoffs brought the total number of displaced tech employees in 2022 to just over 120,000, according to Layoffs.fyi, a layoff tracker run by tech founder Roger Lee.
Tech workers who previously could count on dozens of displays of their skills will now have to compete for jobs with thousands of other people.
Sarah Chu, 23, graduated from UCLA this year and had just had her first job as a product manager at Lyft when she received a layoff notice.
“It’s a very saturated market right now, and there are only a few roles available,” Chu said. She said she is a Korean citizen, so getting a visa makes the situation more difficult. “It gets to the point where you just look for whatever is available.”
The cuts contrast with other major economic indicators, which show a mixed picture of the economy. Inflation was not as high as analysts expected in October, raising hope that the Fed rate hike is working as intended and may not need to be raised. Macroeconomics added 261,000 jobs in October, and across the country, companies classified as designed for computer systems by the government have added some jobs.
Economists from Goldman Sachs said they expect US wages to continue rising in 2023, even though home prices may fall, according to a November 6 note to clients. The bank said in a research note on November 9 that economists at Barclays expect a “shallow recession” next year.
Julia Pollack, chief economist at ZipRecruiter, a job search site, said Silicon Valley layoffs will have an increasing impact. Technology companies spend a lot of money on other technology services, such as cloud computing or communication platforms, in addition to digital advertising.
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We can either see this having a ripple effect through the economy, or an avalanche. The question is how people react and how they see it,” she said.
It’s possible that the cuts haven’t ended yet.
“We’re sure to see more,” Pollack said. “Tech companies will come under increasing pressure to cut costs and turn profits sooner.”
By 2020, the technology industry made up about 10.2 percent of the United States’ gross domestic product, according to the U.S. Department of Commerce. The seemingly endless growth of companies like Amazon, Google, Microsoft, Facebook, Netflix, Tesla, Salesforce and others has filled the retirement accounts of millions of Americans as tech companies grab an increasingly large share of the stock market. Technology companies accounted for nearly 30 percent of the total value of the S&P 500 index in March.
During the pandemic, tech companies have grown faster, as people spend more time online, buy more computers and video game consoles, and shift much of their shopping from in-store retailers to e-commerce. Tech companies have taken advantage of this shift, investing billions of dollars in hiring new workers and building new data centers to take advantage of what was seen as a once-in-a-lifetime transformation. But with the easing of restrictions on the spread of the epidemic and most people returning to their pre-pandemic habits, the bet that this behavior will change permanently has faded.
Leaders of Facebook and Shopify, which make tools for merchants to sell online, have openly blamed their layoffs for overestimating this shift to e-commerce. “Obviously, this didn’t work out in the way any of us expected or hoped,” Zuckerberg told employees during a call Wednesday, according to a recording shared with The Washington Post.
They quit their jobs. This is what they do now.
This week’s layoffs have dramatically reduced headcount in Silicon Valley, but most major companies still have more employees than they did in 2019. However, the rapid reversal of a trend that has led to a lot of hiring and investment is having an effect. High-impact sentimental, as people compare reality to the inflated expectations they’ve built, said Buyer, who was a tech analyst during the internet’s crash and recently advised companies on structuring their initial public offerings.
“That’s why this type of temperament is so shocked and disappointed,” she said.
For years, tech-savvy workers jumped between companies, leveraging one job to get a higher salary in another. For junior engineers, it wasn’t unusual to receive offers of $200,000 a year plus a signing bonus from big tech companies. The tech companies offered perks like free meals, massages, dog walks, and on-site laundry, as well as unlimited vacation days. With so many recently laid off workers on the market now, that will change.
Rene Ronquillo, 37, has worked his way up from being a Lyft chauffeur to a full-time job at the company as a recruiter. He predicts that many workers will have to cut their salaries or find roles below their experience level if they want to get a new job in this environment.
“I can’t be too picky,” he said.
Simmel Shah, general partner at venture capital firm Haystack, estimates there could be as many as 25,000 to 50,000 unemployed techies in the Gulf’s labor market over the next few months. Salaries will go down, and people will take jobs they might not have thought of before.
Shah said the current shock could be good in the long run. For years, startups have struggled to compete with big tech firms for engineers, and the old-school ethos of working for a low-paying startup in the hope that the company will make it big and make big payouts has eroded, he said.
“It appears to be a very poor correction that most insiders feel is probably a healthy thing, as much as it is painful,” Shah said.
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Hamza Shaaban contributed to this report.
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