Layoffs at Amazon, Meta and Twitter signal a major shift in Silicon Valley

A wave of major layoffs sweeps across Silicon Valley.

Meta CEO Mark Zuckerberg cut 11,000 employees, or 13 percent Facebook. Amazon has confirmed plans to cut up to 10,000 jobs in the corporate and technology sectors. lyft. Robin Hood. stripes. Netflix. coin base. They all shrink. And they’re not just cutting jobs — they’re also eliminating some of the perks that have become synonymous with working in tech.

Every business has its own unique set of problems that drive cost-cutting efforts. But there are also a few macro reasons for the contractions. First, they were technology companies Pandemic Winner. As consumers were stuck at home for Zoom meetings, Peloton rides, and Netflix, tech company stocks soared. They got huge injections of money and used them to expand – big and sometimes in increasingly risky industries. But as the economy deteriorates and inflation rises while pandemic restrictions ease, investors are looking for safer bets, and so are tech companies come back to earth. Hence the strap buckles.

The other macro reason for cutting costs, as argued by Recode’s Peter Kafka Explained today, is that the biggest technology companies are now mature. In other words, they can’t offer investors the same kind of massive growth that they did in the late 2000s and 2010s booms. And that will have all sorts of consequences for industry players.

Below is an excerpt of the interview, edited for length and clarity. There’s a lot more in the full podcast, so listen up Explained today wherever you get podcasts, including Apple Podcasts, Google Podcasts, Spotifyand stapler.


Noel King

What are cost-cutting measures at this point?

Peter Kafka

These are cost-cutting measures, but when you talk to people in tech, they’re also kind of an emotional, cultural reset. Google started this many years ago by saying, “We make enough money to afford it. We will hire the best talent. We’ll keep them here by paying them big, but also with these outrageous perks: Not just free food, but multiple cafeterias in each of our offices where you can stuff yourself all day. Really sophisticated gyms and shuttle buses to take you from your home to our campus.”

And what you started seeing last spring was companies like Facebook and Google saying, “We’re going to hit the brakes on this stuff, too.” Facebook said last spring, “You can still have free food if you staying here and working late, but we won’t give it to you that early.” So you really have to stay at work. And something like, ‘We’re going to give you smaller to-go boxes so you can’t take the steak we give you and feed your family with it.’ They say, ‘We don’t want you on Facebook like that see.” It will be closer to the normal working conditions that at least many people in the US are used to.

Noel King

In your opinion, how big is an existential shift in technology during this time?

Peter Kafka

I think it’s quite a big change. I think most people who work in tech have only been there during boom times. The last real deflation in the tech industry was in 2000, 2001. Today almost nobody works in the tech industry who was there for it. So if you’ve worked in engineering, you only know the things that go up and to the right. You got paid a lot. There were always companies that wanted to poach you from the company you were at, so you paid even more. You knew you could leave Facebook or Google and go to a startup, and if that startup didn’t work, maybe Facebook or Google would buy it.

And all of that is coming to a record-breaking conclusion this year. People say, ‘Oh, I can’t just go out. I can’t just leave Facebook or Google and go to a crypto or web3 startup and make even more money. Maybe I just have to do whatever job I have right now and be happy with it.” And that’s a big cultural reset.

Noel King

Peter, you argue that the fundamental problem underlying many of these cuts is one that we like to talk about Explained today: The problem is growth – or lack thereof.

Peter Kafka

Yes. There is a larger story that goes back a few decades. These tech companies, Google, Facebook, Amazon and Apple all had crazy, crazy, crazy growth. They sold tons of ads. They sold tons of iPhones. They reflected a major change in the way the world used technology. They were at the forefront there. For this they were rewarded.

But these companies are no longer growing at the same pace. Many of them are quite old now – or their main product is quite old. The iPhone is 15 years old. Google’s main search ad business is 20 years old. YouTube is more or less 15 years old. Many of these companies and products are still very large and very profitable, but they won’t grow like gangbusters anymore. It’s hard to extract the rapid growth in sales and profits these companies have had over the past several decades. So if you’re looking for growth on Wall Street, it’s harder to find with Big Tech these days. And Big Tech is less dynamic than it used to be. These big tech companies were disruptors, and now they’re something like the big, incumbent giants. And from a Wall Street perspective, that’s less attractive.

Noel King

Do these companies need to grow?

Peter Kafka

You can definitely do it. It helps if you own your own business if you don’t owe anyone money if you don’t have shareholders looking for a return, but you definitely can. And you can even get away with not growing that much if you’re a certain type of company that’s been telling investors, “We’re going to grow a few percent every year, but we’re not going to grow like gangbusters.” That’s one pretty rational way of living life and running a business. However, Wall Street often says, “That’s fine, but what we want is big returns.” We want to make more money, so we want massive growth, and we want you to promise us massive growth.” That’s what a lot of these tech companies have been delivering for a couple of decades. And now it’s harder for them to do it.

Noel King

And are tech companies honest with investors? Did they go up to them and say, “Look, boys and girls. We won’t grow quite as much as we used to.”

Peter Kafka

Yes and no. They must report their numbers publicly. But if they say, “Look, we’re basically going to stop growing, period” or “We’re just going to grow a little bit for a long time,” then it’s game over. Wall Street doesn’t want to hear that. Or Wall Street will say, “That’s fine. But you’re worth 70 percent less now than you used to because we’re trying to get that growth somewhere.” So you’ll find a lot of companies saying, ‘OK, things are slowing down now, but trust us, in X years, this is going to be magical Sprout bean and we will have a new VR headset. We will have a new metaverse. We will grow in markets that do not yet exist. Trust us, we’ll make it.” Netflix runs through a version of this where they say, “Yeah, it turns out streaming might not be quite as big as we thought, but we’re also into gaming . That sounds good, doesn’t it?”

Noel King

What does all this mean for the founders? You are old now too. what happens to them

Peter Kafka

One thing that I think is pretty telling is that almost all of the men – and they’re all men – who founded and ran these big tech companies are: They’re gone. In any case, there are different stories – Steve Jobs is dead – but a lot of these guys said, “We don’t want to run these companies anymore.” Amazon, Google, Microsoft all said, “We’re going to bring in professional managers and say go for it. We’re going to do other things.” We’re going to buy the Washington Post. We will, in the case of Bill Gates, try to vaccinate the world. We’re going to do other things because, honestly, it’s more interesting to do other things than to run these big companies. Mark Zuckerberg is the only major exception.

Noel King

Does all this wobbling mean that big tech companies have less power than they used to?

Peter Kafka

I honestly don’t know that they have less power. They’re a lot less valuable, but they’re still the most valuable companies in the world. So in comparison they are still the big dogs. I think it’s going to be harder for them to get the best and the brightest, the most ambitious people, because those people are going to look around and say, ‘We, as employees, want to go to places where there’s a lot of growth. That’s fun for us personally. It is fascinating. It’s also – there are many financial benefits for us. So maybe we won’t work at Facebook or Google or Amazon or Apple. We do something else instead.”

Noel King

I hear you saying there is a potential uptrend here, like a broader uptrend.

Peter Kafka

Yes. I don’t want to gossip about it because people are losing their jobs. And people will have a harder time paying rent or mortgages or supporting their families. But it’s part real and part fabulous in Silicon Valley to have this creative destruction of tearing down old things. New, cool things are being built in their place. It’s part of the Silicon Valley fable and myth, which also contains a lot of truth. And so there are a lot of people who say, ‘All right, we’re going to do something new. By the way, we’ve made a lot of money in the last few years, the last 10 years. We can afford not to work in a big tech company for a while. Let’s look for a new idea.”

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