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Has the recession-proof Big Tech lost its sheen?

With firings becoming a common practice among the Big Tech—once the bastion of stability—finding job security for techies may get more difficult, particularly with start-ups having gained the hire-fire-at-whim reputation

Has the recession-proof Big Tech lost its sheen?
POSTED ON November 16, 2022 12:12 PM

‘’’Where do you work?... I work with Meta’. Whenever someone asked me this question, answering it was a sense of pride for me,” says Shubham Agarwal (name changed), employed with Meta in the US. While Agarwal managed to give the pink slip a slip during the recent round of mass layoffs, he doesn’t feel at ease anymore. “If we can be laid off by Meta, where can we find job security?” 

The Big Tech, once considered recession-proof and a safe haven for techies, is witnessing mass layoffs amid battered public markets and a potential economic downturn. While Microsoft laid off nearly 1,000 employees across the company in October, Snap—Snapchat’s parent company—fired 20 per cent of its workforce, or about 1,280 employees, citing low revenue growth. The pruning at Snap came after the company reported nearly $10 billion in quarterly losses. 

Meta, too, for the first time in the history since its launch in 2004 let go of 11,000 people or 13 per cent of its workforce after putting them on a performance improvement plan (PIP). 

The ongoings, or rather outgoings, at Twitter, is the stuff that sitcoms are made of with news of people being laid off doing rounds on a regular basis since Tesla chief executive officer (CEO) Elon Musk acquired it on 27th October, 2022. The microblogging platform has reduced half its strength after Musk’s takeover

Recent reports also suggest that Amazon is laying of about 10,000 of its staff. The ecommerce company’s shares lost about 40 per cent of their value so far this year following a slowdown in growth and plummeting share price. 

Big Tech Vs Start-Ups 

The story is no different among start-ups with more than 15,000 employees being laid off this year in India alone. Byju’s in its latest layoff asked 2,500 employees to leave. The edtech unicorn is joined by its peers including Unacademy, Udaan, Chargebee, Ola, Meesho and Cars24—many of them being unicorns. But the shock value of the tech giants laying off its staff is far more, particularly because of the job security associated with them. 

Arjun Mohan, chief executive officer for India, upGrad
Arjun Mohan, chief executive officer for India, upGrad

This is even more worrisome because tech companies were considered as indicators of the broader economy. Going by recent developments, the anticipation of a downturn is only gaining strength, which could mean more layoffs are in the offing. 
In case of start-ups, the hire-and-fire policy is somewhat known and accepted. At least, staffers are more prepared that they will earn more but can also be laid off fast in case of poor performance. 

So, in the current scenario, does the Big Tech stand to lose its credibility and sheen as far as attracting the tech workforce is concerned? Does it also indicate that too much has been invested in growth, which hasn’t really reaped the desired results? Or does it indicate the very failure of the Big Tech business model? 

Multi-Faceted Problem 

The problem of mass layoffs is a multifaceted one, say experts. There is a lot more to it that just being about the business models of the Big Tech. 

Over the years, one thing that has happened is things have moved from an industry-led economy where the wage bill was about 10 per cent to 20 per cent of the revenue to a service-led one where the wage bill accounts for over 40 per cent of the revenue. This pivoting makes labour cost the biggest elephant in the room and hence the first one to come under the scanner when business takes a hit. 

Vatsal Kanakiya, principal and chief technology officer of 100X.VC
Vatsal Kanakiya, principal and chief technology officer of 100X.VC

Inflation, scarcity of talent and people being the key asset make for a deadly mix. The salary of a staffer with about five-years of experience is more than double the salary of a fresher while the revenue growth rate mostly is just about 10 per cent to 15 per cent. 

As a result, more experienced resources are replaced by junior resources by design or are laid off in mass for the company to move to a different geography to earn more on arbitrage. Many mass layoffs only lead the job to move to cheaper economies or be automated by technology. 

Another issue is the absence of labour unions in new-age companies. In the past, when organisations laid off people to relocate their operations or change business strategy, powerful labour unions would obstruct these moves. Governments would often protect these unions as captive vote banks. 

Over time, corporate funding resulted in the labour movement getting massively sidelined, so much that the definition of a workman doesn’t include the IT workforce. Hence, there is no collective bargaining and no protection from layoff. Also, easy labour laws attract foreign investors. 

Is Big Tech Overhyped? 

While the current firings are more to do with the prevailing market and economic conditions, the once recession-proof tech giants seem to have now let go of that tag. These companies that have led the 10-year-old stock market seem to be adapting to the new reality.  

Meta, for example, faced poor revenue forecasts after April, as the Ukraine-Russia war caused both user registration and advertising demand to take a dip. The company has struggled financially this year as it tried to move to the immersive world of the metaverse—while braving the global economic slowdown and a decline in digital advertising, the main source of its revenue. 

Akhil Gupta, co-founder and chief technology officer of Nobroker.com
Akhil Gupta, co-founder and chief technology officer of Nobroker.com

Apart from facing tough completion from players such as TikTok, its stock bull market run. At one point last year, it was valued at $1 trillion—also ended with the stocks falling almost 70 per cent this year. 

But somewhere the calculations of the tech giant did go wrong. Mark Zuckerberg, Meta’s chief executive attributed the job cuts to growing too quickly during the pandemic, when a surge in online commerce led to a huge spike in revenue. He admitted that he had thought the shift would be permanent, leading him to significantly increase spending. 

Arjun Mohan, CEO-India, upGrad—one of the few edtechs that managed to hold onto its own and grow steadily without resorting to any layoffs—said that the current trimming by the Big Tech is mostly because of huge capacity built during COVID due to the optimism in the growth of traffic and online consumption. “The change was believed to last forever and it was expected that people will continue online consumption at the same scale even post-COVID. However, it did not happen and hence, companies are making these corrections,” he stated. 

But then what’s the difference between a start-up and a tech giant at least in terms of the way it onboards and deboards staff? Where will the techies go if both the tech talent guzzling segments can’t provide them the trust to stay on?  

Vatsal Kanakiya, principal and chief technology officer (CTO) of 100X.VC has an interesting take. While he said that whether the Big Tech losing their sheen will be difficult to assess currently, but working with them does have pros and cons. 

“The more talent is freed from Big Tech, the better it is for the ecosystem as a whole,” he said. “We need to look at it differently. The employees who've moved on from the Big Tech have the option to contribute to many other quality Indian enterprises and late-stage startups and create tremendous value with early-stage startups.” 

In Amazon’s case, the reasons for the mass layoff are similar—rapid hiring during the pandemic with consumers’ higher spending towards ecommerce and a fall of over 40 per cent in its share price.  Earlier this month, Amazon had announced a corporate hiring freeze citing economic uncertainty and the big hirings in the previous years. Its revenue forecast for the end of the year is also lesser than expected by analysts. 

Kaustav Dey, senior director at Gartner India
Kaustav Dey, senior director at Gartner 

But people from the ecosystem are looking at the move as a way to manage costs. “In last couple of years, the Big Tech and startups have gone way overboard on hiring, which created stress in supply-demand leading to artificial salaries which created unnecessary salary increases. People have jumped ships in six to eight months of joining a company for anywhere between 40 per cent 100 per cent increase. This was not sustainable and had to stop naturally; anything which goes up too fast also comes down at the same speed,” says Akhil Gupta, co-founder and CTO of Nobroker.com. 

But that doesn’t mean that one should generalise, he said. “It is a rebalance which typically happens cyclically over the years and also depends from company to company. Just as not all startups are firing people (Nobroker included), not every tech giant is firing its employees.” 

What The Future Holds? 

The current developments, experts believe, will lead to some permanent changes. The entire process around hiring and the perception of people about the tech giants will get altered. 

“The loyalty and trust in companies will certainly go down a lot. This will further widen the gap in the salaries of the experienced and the inexperienced. Also, unionism will make a comeback and become a political force,” said Kaustav Dey, senior director at Gartner. 

Tapping the huge Indian IT talent may also become difficult in the times to come for foreign companies. “Most of them will start having partners or subsidiaries to reduce exposure to parent companies. So, the in case of mass layoffs or any such developments, the government won’t be able to fine Meta (the parent company) but Meta India,” he added. 

Dey also believes that going forward employees will start investing in their own development. Instead of waiting for the company to fund their certifications, employees will fund their own degrees. “We will become the world’s largest gig economy in IT with freelancers working directly with clients becoming a legitimate way to engage,” he said. 

Whether the Big Tech or the startups, it’s a lesson to be learnt and understood by the techies. 

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