Nobody is immune to economic crises: Silicon Valley tech giants are freezing corporate hiring or drastically cutting staff

The pandemic has triggered an unprecedented growth in the need for social media platforms. With lockdowns spreading, countless people began shopping, socializing and working on online platforms.

Mark Zuckerberg, CEO of Facebook, said in March 2020 that usage was so high that the company was “just trying to keep the lights on.”

Against that backdrop, Facebook, later rebranded as Meta, began to actively hire staffers.

Facebook’s staff grew from 48,268 employees in March 2020 to more than 87,000 in September 2022. “In other words, it hired another Facebook’s worth of staff. And it looked like the company would only keep hiring to support its ambitious plans to build a future version of the internet called the metaverse”, said Catherine Thorbecke, writer for CNN Business.

This week, however, Zuckerberg reversed course and laid off more than 11,000 employees, marking the most significant cuts in the company’s history. “In a memo to staff, Zuckerberg coughed up some of the hardest words in the English language”, Catherine Thorbecke said, “he wrote, “I got this wrong, and I take responsibility for that.”

“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth,” Zuckerberg wrote. “Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”

“Silicon Valley operates on many myths, but one of them is the idea of the founder as a visionary who can see key trends coming years if not decades out. But Zuckerberg is one of a growing list of prominent tech leaders who are cutting costs and issuing mea culpas after failing to anticipate a whiplash in the market between 2020 and 2022”, Catherine Thorbecke said.

The tech industry, already seemingly invincible in early 2020, only grew more dominant during the pandemic while other parts of the economy were upended. Consumers shifted spending online. The Federal Reserve maintained near-zero interest rates at the time, giving tech companies easier access to capital. And private and public market valuations for tech companies only seemed to go higher.

As the world reopened, however, many consumers have returned to their offline lives. Meanwhile, high inflation and fears of a looming recession have cut into consumer and advertiser spending, disrupting the core businesses of many of the biggest names in tech, after years of rapid growth.

Now the industry is cutting thousands of jobs.

Last month, home fitness company Peleton — which had been embraced by investors during the pandemic — underwent its fourth round of layoffs in 2022.

Last week, payment-processing giant Stripe said it was eliminating 14% of its staff.

Patrick Collison, CEO of Stripe, one of the most valuable startups in the world, told employees that leadership takes responsibility for the pandemic-era miscalculations that resulted in people losing their livelihoods.

“For those of you leaving: we’re very sorry to be taking this step and John and I are fully responsible for the decisions leading up to it,” Collison wrote. “We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.”

Twitter also announced widespread job cuts.

Twitter co-founder Jack Dorsey, who ran the company until late 2021, said that he takes responsibility for the situation. “I grew the company size too quickly. I apologize for that,” Dorsey wrote.

Other big tech companies, including Amazon, Apple and Google, are now pausing or slowing hiring amid recession fears after a wave of expansion. Amazon, in particular, had seen huge growth during the pandemic, doubling its fulfillment centers in a two-year-period, only to shift earlier this year to focusing on “cost efficiencies.”

The e-commerce giant is now freezing corporate hiring “for the next few months” and reportedly looking to cut costs in some of its unprofitable units.

Amazon spokesperson Brad Glasser said senior leadership regularly reviews investment outlook and financial performance, adding, “As part of this year’s review, we’re of course taking into account the current macro-environment and considering opportunities to optimize costs.”

Nobody is immune and no one knows how long this current period is going to last.

While there have been layoffs in Silicon Valley over the years, the latest wave of cost cuts appears to be hitting every corner of the industry, including the engineers and coders who were often considered untouchable.

While some companies may be better equipped to weather the storm than others, it’s becoming apparent that no company is completely unaffected, said Nikolai Roussanov, a professor of finance at the Wharton School of the University of Pennsylvania.

“Tech has been clobbered so much precisely because it has been seen as very immune to fluctuations in the real economy, but in the end, nobody is immune,” Roussanov said. “And that realization, I think, is important and perhaps what contributed to these sky-high valuations coming down pretty quickly.”

“What’s going on in tech right now is perhaps a taste of what’s yet to come” he said.

By Alex Arlander | ENC News