On Friday Google became the latest tech company to cut its workforce. 12,000 people, nearly 6% of the Google workforce, were mercilessly cut off from their corporate accounts with a brief email informing them of their termination. LinkedIn has the vibe of attending a wake.
Why It Matters
The tech industry has long been flush with capital. The unrelenting growth of large companies like Google with their outsize compensation packages have set a high bar for other organizations to meet in recruiting tech talent. With the shine of affluence wearing off, folks attracted to tech companies by the lifestyle are likely to consider new career paths. Meanwhile software engineers and other technical contributors may opt for government or other organizations that are less subject to the whims of the public markets.
What the Executives are Saying
The refrain from executives across tech is that they over-hired in the past year:
“In that context, we made a set of decisions that might have been right if the trends continued,” he said. “You have to remember if the trend had continued and we had not hired to keep pace, we would fall behind in many areas as a company.”
First, as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less. We’re also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one.
On a financial basis, you can see how our operating expenses - roughly half of which are our corporate headcount - have grown relative to revenue. For most of our history, they have been about 10-11% relative to revenue, but this past year they climbed above 17%. On an operating basis, we can see and feel that we’re not as agile as we used to be or need to be. I’ve decided that we need to fix this, although I recognize how painful these steps will be for people we care about.
What I am Hearing
Lurking in the background is Elon Musk’s acquisition of twitter and subsequent layoffs. Despite his floundering performance since acquiring the company, he has shown that the software could keep running with a much lower headcount.1
In other cases the fact that corporate peers are doing layoffs is giving executives who have been longing to trim headcount to finally satiate that thirst. Even if the company had budget for the employees they are pointing to broader trends as the reason for letting folks go.