Almost every big tech company is facing layoffs, even though most are making decent profits. Many people have never seen large layoffs like this, so the honest question is why is this happening? Is it the fault of fashion, fatigue, or something more secular? You can’t dismiss fashion in a monkey-c, monkey-dow way.
Since there’s a fair amount of overlap between many tech companies, especially those that harvest user data and sell it to advertisers, each will want to cut costs to remain competitive in the eyes of its shareholders. So you see companies cutting about 10% of their workforce – about 200,000 techs so far – possibly the least productive people.
But how did they become so relatively unproductive? Two ways: gradually and all at once.
Many tech companies hired extensively during the pandemic, believing that we are moving towards a new way of working. For the most part, those hires received insufficient onboarding and leadership from remote owners, and many didn’t get up to speed. That’s the sequential part.
When we decided the pandemic was over, it happened all at once. OK, not really over, but we were out of patience for being patient – and we needed to get back to the offices. We learned that working from anywhere isn’t all it was supposed to be.
So, although remote work is still a possibility, management would like to see cubicles in the buildings they’re paying big bucks not to occupy. If you haven’t been in office long enough, you’re wasted.
However, I see a more secular explanation, and it goes like this. Every great invention has some important parts. The first is the obvious invention piece, and the second is everything else, which scholars call diffusion.
Spreading a new idea in the society is very costly as it requires a lot of people to work. In the nineteenth century, new networks of transport and communication required many people to lay rails, lay wires, build bridges, erect buildings and make ports accessible to large ships Can go It’s a long list and it’s just one example.
The technological revolution of the 20th century also required the creation of a large infrastructure. True, businesses were the ones stringing cables into their buildings, and other businesses were building the computers, routers, server farms, and eventually cloud infrastructure. But that buildout was real, and it took decades.
The most recent change during the pandemic marks another spread, this time, of people back in their home offices. Industry pitched in big time to support the buildout. But then, midway through, everyone said wait a minute. The current great layoffs (to pair with the great resignations) are partly a symptom of never-ending attention from management.
We’re not working with an inventory system, so what’s in last doesn’t necessarily include all the layoffs. Sellers likely look to the people best suited for the job in their layoff discussions, and the result is what we see.
It’s an inexact science that you can see from those nice round numbers that vendors are declaring. Part of the thinking, of course, will be related to what a company sees in the coming months, and many are thinking bearish.
However, there are recessions, and there are recessions.
A classic recession occurs when inventory builds up, and businesses need to clear warehouses at discount prices. At that point, businesses need fewer people to make things than there are to fill warehouses.
But the tech world isn’t looking at a classic recession scenario. Many people make things that are not usually stored; They are not tangible; they’re services, so worry less demand where more productive capacity means turning up the dial
The reason it is secular is that companies need to reduce productive capacity. One way or another, many have concluded that they have built as much infrastructure as is needed, at least for the time being.
looking for rent
Instead of growing rapidly, many people are exploring what it means to grow organically – or at the same rate as the population. For example look at Facebook or its parent Meta.
Facebook is starting to falter; Its strong growth in users is making the most of it while it makes more money. In the US, it may be losing users who are over the age of 25. Its new augmented reality products haven’t caught the imagination of someone named Zuckerberg.
As I noted a few weeks ago, Apple hasn’t introduced much that’s really new in several years. Now it’s going to advertise a move that some economists call rent-seeking in which a business tries to make more money on existing investments (its data) than on new products.
Long story short, the secular recession is a huge concern for tech and the economy. No, the technology is not going away; It is now woven into the fabric of our lives. But it has reached a saturation point where it faces severe commoditization and price pressure, and real growth is challenging.
Steel manufacturing was once in the same state as technology is today. In the 19th century, many products were made of steel, including railroads and steamships, but also modern high-rise buildings and the then-new automobiles.
We still use steel, and to a much greater extent than before. But now everyone makes steel. It has been commoditized, and the market is flooded with product, some of it selling for less than the cost of production.
In addition, other products such as aluminum, plastic, and carbon fiber weigh less and are just as strong or better suited for the purpose, so why not use them?
my two bits
I am sure technology is moving in that direction. It will take time, but the latest innovations in AI that write passable prose and draw strange but interesting pictures could speed up the process.
Just as there was life after steel and there will be life after the railroads and all the stuff of the 19th century, there will be life after technology. The important thing is that there are still many jobs in tech, so there is no need to panic. Still, the latest round of layoffs is a cautionary note.
What else can we do with what we know about technology? This is a question that should be on the minds of all of us.