In its most recent quarter, Microsoft reported $62 billion worth of revenue, $27 billion worth of operating income, and $21.9 billion worth of net income. It also recently cut 1,900 jobs. Alphabet reported $86.3 billion worth of revenue, operating income worth $23.7 billion, net income of $20.7 billion, and an employee count that was down by nearly 8,000 compared to the year-ago period.
On one hand, two of tech’s best-known names just turned in results that put their operating profit at or around the $100 billion annual run-rate mark. On the other hand, both have worked in recent periods to control costs via layoffs. It was the best of times, it was the worst of times.
There’s a similar vibe in startup land, where venture capital totals are in decline and many startups are stuck between funding rounds or between the private and public markets. At the same time, there are a host of incredibly interesting upstart tech companies building new tools and services with or atop AI models that are themselves rapidly advancing. It was the best of times, it was the worst of times.
There are two stories at play here. The first is that many tech companies are thriving in the current moment. The rapid rise in interest rates did affect tech valuations and some technology spend, but now that the cycle of hikes is seemingly behind us, times are increasingly good again. Heck, IT budgets are expected to grow this year by around 7% or 8%. That’s lots of new pie for tech companies to divvy up amongst themselves.
But while tech companies are often doing pretty well, the workers at those companies are having a less exciting time. Data from Layoffs.FYI makes it clear, as we can see in the following chart, which tracks monthly layoffs.
If you collect the above-noted months into quarters, Q1 2024 has already seen more tech staff cut than we saw in either of the two preceding quarters — and technically the first month of the first quarter of this year has yet to close. We could be in for a stompingly bad quarter for tech layoffs if the current pace keeps up through February and March.
There’s an analogy to the larger stock market and labor market that we can make here. While the domestic economy performed better in the final quarter of 2023 than many developed nations, and the stock market has reached all-time highs in recent weeks, there’s also a lot of worry out there among workers. They often report feeling themselves squeezed between their wages and the new cost structure for daily goods that rising interest rates were implemented to combat.
So is the economy good? It depends on who you ask. Is the tech market good? It depends on who you ask. For the mega-cap tech companies, it’s certainly a period of massive profits and growth. But for the individual workers, well, it’s more complicated.
It’s not hard to spot the human pain in the market today. PayPal and Block, two massive fintech companies, announced this week that they’re cutting a large chunk of their staff. We won’t get their earnings until February, but if the cuts are any indication, the companies have decided that their costs are too high and thus needed to come down to allow for greater profitability. Cut, cut, cut.
I am torn between throwing my hands in the air and arguing that tech companies should be allowed to correct the size of their workforce as they see fit, because that’s how business goes. On the other hand, layoffs disrupt lives and families, and thus should be considered with a very stringent eye.
Many tech CEOs have apologized for what, in hindsight, appears to be overhiring, leading to their more recent choices to trim human capital. It’s good that some are at least publicly taking responsibility. But why aren’t they willing to hang on to talent that they were recently wooing so that when they need to hire again — and tech companies are always hiring — they already have people who have made it through their complicated and expensive hiring process?
This is when my personal belief in the long-term generative power of capitalism runs into my near-term perspective that companies laying off staff for non-performance reasons when they are very profitable is discomfiting. Not that there is much of a compact between companies and workers these days — long gone is the era of pensions, for example — but I still wonder why we aren’t willing to budget for a slight profit impact to allow for better lives for the people doing the work of building the towering corporate profits that tech companies can post, quarter in and quarter out.
The good side of Big Tech layoffs is that they unlock talent for startups that might have not been able to afford to poach those workers from larger rivals. That is very thin comfort to folks who have been cut, but it’s something at least. And it’s one partial turn of the wheel of creative destruction that, in time, will boost all our lives to new heights. I just wish there could be less human churn in the process of long-term societal advancement. Perhaps we’ll figure that out in the future. Perhaps AI will figure it out for us.