The Start of Something Terrible: Why Tech Layoffs are Happening All at Once

Layoffs season has arrived.

The tech industry is facing some tough times. Meta is reportedly planning widespread layoffs. Lyft cut nearly 700 staffers. Fintech giant Stripe laid off 14% of its workforce. Those are just headlines in the last week — and it's likely only the beginning, industry experts say.

The carnage in Silicon Valley over the past couple of weeks has been nothing short of devastating — and it’s only going to get worse before it gets better if that even happens at all. We have talked about what’s happened recently with some big players like Microsoft and Yahoo! laying off thousands of people, but now we need to talk about what’s going to happen next and why everyone should be very concerned. Earnings across tech are weakening while companies are beginning to plan for the coming year. And with economic forecasts looking dire, tech firms are starting to tighten the belt — starting with cutting their workforces to shave salary costs.

This means that in the weeks ahead, thousands of tech workers may be out of a job.

If you're in the tech industry, now is the time to start updating your resume and perfecting your interviewing skills. It's going to be a tough job market out there.

How did we get here

As Big Tech companies reported less-than-stellar earnings over the past few weeks, they also flashed warning signs about the months ahead. The looming threat of a recession was causing customers to scale back spending, companies said — with few signs of a rebound on the horizon.

That means in the weeks and months to come, those companies are going to be looking to trim costs where they can, said Dan Wang, an associate professor at the Columbia Business School.

Wang said that when companies cut costs, the first thing to go is typically labour costs and advertising and marketing. He said that when it comes to forecasting what their numbers will look like, it'll depend on how they have seen the trend in advertising spending on their platforms. If that doesn't look good, then they must accommodate those expectations by adjusting the workforce. Lack of innovation is also cited as a factor behind this layoff run. ‘Employees are not providing the value their comp packages are indicating’ a top executive at Meta was quoted as saying.

Tech no longer has a cash cow of investors. They have to “right size” their company. Like other sectors. Getting rid of underperforming workers. redundant positions. Outsourcing to lower payed countries.

After a period of explosive growth, many tech companies are facing layoffs. Wang said that what's happening now is something of a correction, as the tech world recalibrates to a time when people aren't stuck at home, glued to their devices. And even though in many cases layoffs began earlier this year — both at startups and big tech firms — sometimes, they didn't go far enough, Menlo Ventures partner Matt Murphy previously told Insider.

"It always happens in cycles like this that sometimes companies don't do layoffs significantly enough, but rather slow down on hiring and hope that normal churn might right size them," Murphy said. "Coming out of Q3, which was much more difficult than Q2, it became much more obvious how many headwinds there were, and startups realized they can't grow out of this with the staff they have and actually have to lay people off."

What's happening now

Many companies are feeling the pressure of the current economy, as they are also preparing for the upcoming fiscal year.

Amazon, Meta, and Google, for example, have fiscal years that end at the end of 2022 or in early 2023. They may be looking to get costs off their balance sheets now — before their fiscal years close. For example, if an employee is laid off now and given six weeks of severance, that reduces costs for the first quarter. Even if workers are given a longer severance, like three months, their salaries would be off the books before the end of the first quarter.While budget planning doesn't apply to every company — Microsoft, for example, just conducted layoffs and its fiscal year ends in June — there is an element of planning ahead at play, said J.P. Gownder, vice president and principal analyst at Forrester, a market research company.

"That's sort of unfortunate because it means that a certain number of folks are going to lose their jobs before the holidays and before the turn of the year".

But in other ways, some companies may just be playing follow the leader: assessing economic conditions based in part on what other companies are doing, Gownder said.

"Watching other firms that are peers, not necessarily competitors, but similar firms to yours in the tech sector could lead you to say, 'Ah, this is the time,'" he said. "There is a bit of groupthink in Silicon Valley."

What happens next

With Thanksgiving just around the corner, the next two weeks are critical. That's because companies may not want to cut jobs during the holidays — it could tank company morale, paralyze the employees who did keep their jobs, and affect future hiring, Gownder said.

So, if you're waiting to hear back about a job, the next two weeks are crucial. Keep your fingers crossed and hope for the best!" The best talent doesn’t want to work for the companies that kind of indiscriminately and without any empathy lay people off at the first sign of trouble," he said.

If tech firms want to conduct layoffs, the next two weeks are the time to do it. Otherwise, they risk not only keeping those costs on their profit and loss statements headed into the next quarter but also piling on these secondary effects.

Some planning could mitigate that – severance would help soften the blow, as would helping laid-off workers get new jobs as Airbnb did back in 2020. But the timing still comes down to how individual companies are going to make their planning decisions. “There is a process at work here, and unfortunately, I don't know that that process is much focused on not disappointing people at Christmas," Gownder said.

Amazon plans to lay off approximately 10,000 people in corporate and technology jobs starting as soon as this week, people with knowledge of the matter said, in what would be the largest job cuts in the company’s history.

The cuts will focus on Amazon’s devices organization, including the voice-assistant Alexa, as well as at its retail division and in human resources, said the people, who spoke on condition of anonymity because they were not authorized to speak publicly.

The total number of layoffs remains fluid. But if it stays around 10,000, that would represent roughly 3 percent of Amazon’s corporate employees and less than 1 percent of its global work force of more than 1.5 million, which is primarily composed of hourly workers.

Amazon’s planned retrenchment during the critical holiday shopping season — when the company typically has valued stability — shows how quickly the souring global economy has put pressure on it to trim businesses that have been overstaffed or underdelivering for years.