The massive layoffs in technology companies unleash alarm in the sector, which knows that it will have to continue readjusting staff until inflation puts the brakes on or the war in Ukraine ends.
With the help of experts we analyze in COPE what consequences will this seismic movement have in the business world Y in the final consumer of these products.
To understand this phenomenon, it is necessary to know that the business world has undergone a 180º turn towards digitalization in the last decade and that has meant that a few companies have grown so much that they have become “big tech”, digital giants. They are well-known companies, such as Amazon, Twitter or Netflix, which saw their profits increase during the coronavirus pandemic. Hiring in the sector skyrocketed and so did profits. The “big tech” experienced strong increases in their price, as was evident in the evolution of the Nasdaq 100 (US index of the main technology companies) which accumulated significant increases, before falling sharply in the last months of 2022.
However, 2023 begins with massive layoffs in technology companies that have put large and small investors on alert who know that they will have to continue readjusting their workforces, as they did last year. Since mid-2022, the digital sector totals more than 150,000 layoffs (90,000 only in the last three months of 2022). The last to join has been the consultant salesforce and affects 10% of the workforce (7,000) employees). In addition, Amazon has announced 18,000 layoffs, publicly traded applications have plummeted, Twitter (3,700, around 50% of the workforce) Meta will lay off 11,000 employees, Netflix 500…, to cite only the best-known examples.
John Philip Jungprofessor in the Department of Economics at the Comillas Pontifical University ICAI-ICADE confirms in COPE the “enormous uncertainty that the digital sector is experiencing because inflation is still very present both in Europe and in the US and it is not known what will happen with the war in Ukraine. The latter has generated an increase in energy prices and has subjected supply chains and logistics to significant stress, which opens up a question of great dimensions tied to the global situation.”.
The economic and labor questions in the technology sector contradict the fact that 50% more employment related to the digital field has been generated in Europe in the last decade and that it plans to continue growing. They are data from Digital Economy and Society Index (DESI). They estimate that the number of ICT professionals currently reaches 9 million, a figure that will help the European Union achieve its goal of hiring 20 million of these professionals in a decade.
The question raised by the experts consulted by COPE is to know if these objectives of the European Union or if the digital sector is losing steam.
In this regard, Professor Jung considers that “This phenomenon is closely tied to the current economic situation and digitization It will continue to be the digital sector of the future in the medium and long term. Also, users can rest easybecause they will be able to continue using digital tools and the platforms will continue to offer their services”.
Opinion shared by Juan Luis Moreno, a telecommunications engineer and chief innovation officerfrom The Valley, who explains in COPE that these massive layoffs in big tech as “result of a conjunctural process and maturity of the sector. In addition, not all of those jobs that are now being dispensed with are occupied by technological or digital professionals.”
Since mid-2022, there has been a correction in the values of big tech or, at least, an increase in their current market values in conjunction with the current economic situation.
This situation occurs becauseeach digital giant has its trajectory and its future depends on how it reacts in the market with this type of adjustment because many of them had been experiencing losses, such as Twitter which lost 200 million dollars in 2021, Amazon has lost 3 trillion dollars in the last quarter of 2022 (excluding the cloud business) and Facebook shares lost 70% of their value by the wayside”, details Professor Jung in COPE.
In the sector they already contemplate the option of charging for the distribution of products or communication services that were previously free or increasing advertising where there was none before.
The origin of the fact that technology companies are seeing the bubble of recent years deflating must be sought in the crisis that began with the pandemic and exacerbated by the war in Ukraine. However, these factors are having a different impact on each of these tech companies:
1st) It generates a drop in income due to the economic slowdown and in some cases recession, the uncertainty of the markets and an inflation that also affects them directly when it comes to consolidating the investment.
The explanation of this first determining factor, Professor Felipe Jung tells us at COPE, must be sought in that “thehe tools of the central banks to combat inflation have been the rise in interest rates that affect these companies that have to invest a lot in research and development”.
2nd) Others, like Amazon, they increased their staff a lot due to the needs caused by the confinement and the pandemic and now you see that you do not have enough activity to maintain those jobs and the previous work structure. It also influences that it is not recovering influenced by the European war conflict with international repercussions.
3rd) At the same time, the competitive intensity of these digital companies has increased with examples such as that of Facebookwhich is being challenged by TikTok.
Other platforms where competition has increased are streaming platforms, such as Netflix, which has seen subscribers dwindle. In this regard, Alberto Nahum García, professor of Audiovisual Communication from the University of Navarra considers in COPE that “heor that has occurred is a sector stagnation due to increased competition, but there will still be millions of subscribers and I don’t doubt it. This way of watching movies is here to stay and there is no going back”.
TECHNOLOGY REINVENTS THEMSELVES
Spain is not spared from this job cut announcement. As an example, the dismissal letter that all Twitter employees in Spain have received. Of the 20,000 workers that Amazon has in our country, many will be affected by the cut of 18,000 jobs worldwide. In addition, 35 of the layoffs announced by Facebook are employees in Spain.
Faced with this loss of income, the digital world reinvents itself and change the business model where the “total free” begins to disappear.
The telecommunications engineer Juan Luis Moreno suggests in COPE that these companies “they have to reinvent themselves. Everything was free and, however, now there are those who are looking for a way for the user to have to pay to access certain services”.
In the case of Twitter, the goal of Elon Musk is to increase revenue from subscription with a hybrid business model that also maintains many free accounts.
The Facebook situation is different because it is directly related to what happens with the Metaverse, “that has been the great betto from Mark Zuckerberg for the coming years and, for the moment, it is not taking off or convincing investors”, according to the analysis made by the professor at the University of Comillas for COPE. Juan Felipe Jung recalls that “hehe other services it offers, such as Facebook, are being increasingly challenged by other social networks preferred by young people”.
Companies that depend on e-commerce would not have to suffer the economic repercussion since the trend is that it continues to grow in the long term, but “it has jumped above normal in the year of the pandemic and now it is normalizing. For this reason, in Professor Jung’s opinion, we will have to wait some time to find out if the e-commerce sector and the macroeconomic situation stabilize”.
Others, like Netflixbegan to include advertising in the film and series platform from the outset in which they noticed the number of subscribers was decreasing.
TWO CRISES, ONE OUTPUT
The readjustment of staff and investment that the big technology companies are carrying out presents very different characteristics from the “dot-com” crisis in the 2000s, although both are already considered the result of digital bubbles.
This is how experts in the digital market such as Professor Felipe Jung understand it, although he recalls in COPE that “at the beginning of the century many jobs were also lost and millions of losses for these companies”.
Specifically, losses of 130,000 digital jobs were recorded and in 2022 more than 153,000 layoffs were recorded, according to the data provided to COPE by the platform layoffs.fyi.
However, the main difference is that the phenomenon registered at the beginning of the century translated into the bankruptcy of innumerable start-ups that had not managed to consolidate themselves in the market and now affects, above all, digital colossi that are adjusting templates and investment to consolidate your future.
The origin of both crises is also different. The first is considered a consequence of a monetary policy with very low interest rates and the current one has its origin in the economic collapse caused by the pandemic and for which we are unable to see a way out.
“What is currently being recordedclarifies in COPE the professor of Economics at the University of Comillas, it is a correction in the value of the big-tech according to the current economic situation”.
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Mass layoffs in technology: End of total free in the digital sector