​Big Tech and Layoffs: Towards the Bursting of a New Bubble?
Some speak of the popping of a new "tech bubble", others more simply of a natural consequence of the economic crisis and the world recession. The fact is that the wave of redundancies among high-tech companies is assuming worrying dimensions. The acquisition of Twitter by Elon Musk was followed by a reduction of half of the employees (some of whom were later recalled), but already in July the company had eliminated 30% of its talent acquisition team. Meta also recently announced the cut of 11,000 employees, or 13% of its workforce.
But it's not just social network owners who are suffering: in general, the digital platform sector seems to be struggling. Netflix laid off 450 people before the summer and Lyft, a historic car-sharing company alternative to Uber, recently showed more than 10% of its employees the door, while Stripe – one of the most successful operators for developing software for electronic payments – laid off 1,120 people . And even companies that have not yet reduced staff – Google, Apple, Tik Tok and Amazon – have substantially slowed down hiring and are reviewing their human resource management strategies, in view of likely global restructuring.
There are many reasons for the crisis. First of all, companies are suffering from tough times in the world economy. The increase in inflation has reduced the purchasing power of goods and services of households and businesses and the performance of financial markets is penalizing the valuation of big tech firms that were previously overvalued following their exceptional growth during the pandemic.
Second, profits from online advertising, which has always been a major source of revenue for big tech, are shrinking, forcing companies to rethink and innovate their business models, which had appeared very consolidated. After the acquisition of Twitter, Musk announced that he wants to transform a traditionally free service financed through advertising and sponsored tweets into a paid service with a premium subscription, which will offer a number of benefits to paying users - priority in tweet replies, mentions and search; ability to post longer videos and audio; less advertising. Netflix has also initiated important changes in its business model, due to the significant loss of subscribers. It is starting to charge for shared accounts and plans to adopt a "freemium" model similar to that of Spotify, with the proposal of more expensive premium subscriptions but with cheaper basic subscriptions financed by advertising.
The crisis in the advertising market is also having an impact on the most virtuous companies in the sector. Tik Tok, which many consider one of the main factors behind the crisis of Meta and Twitter, expects to suffer 2 billion in revenue losses due to this phenomenon and Youtube (owned by Google) has suffered a contraction in advertising revenues of 2% for the first time in its history.
Third, driven by the need to find alternative sources of revenue and counter increasing competition, digital platforms have made huge investments in services and technologies that are not performing as hoped. Emblematic in this sense is the case of Meta, where Reality Labs, the unit dedicated to virtual reality and Metaverse, lost 3.7 billion. In addition, the Libra project - later renamed Diem - the cryptocurrency developed by Facebook (Meta) has essentially failed.
Finally, we must not forget the impact of regulation, which in some countries is becoming increasingly stringent. Companies are forced to change their data collection and management strategies to preserve user privacy and to limit any anti-competitive conduct, both from the point of view of acquisitions and in terms of commercial practices.