Is Big Tech In Big Trouble?

The news has been full of stories about layoffs from the Big Tech firms. It started with Twitter: when Elon Musk took over and seemingly unleashed chaos, telling half the workforce -- 3,700 people -- that they no longer had a job.

Just a few days later, Meta announced it would be letting 11,000 employees go, equating to an eighth of its workforce.

Meanwhile, Amazon is said to be planning to lay off around 10,000 people, while Google is rumored to be reducing its workforce by around 6% (10,000 people) in early 2023. 

Do these redundancies tell a story of trouble brewing among the Big Tech companies, or are they simply a sign of challenging economic times?

What’s behind the Big Tech layoffs?

For years, Big Tech has benefitted from low interest rates, easy access to cheap money and an environment that encouraged expansion financed by debt.



The pandemic exacerbated these conditions, when tech companies were some of the only businesses to grow, thanks to homebound captive audiences.

The combined revenue of the five largest tech companies -- Alphabet, Amazon, Apple, Meta and Microsoft -- rocketed to 19% in 2020 and 28% in 2021.

And the feeling of invincibility that these conditions fueled led to huge expansion: Twitter’s headcount doubled in five years, while Meta’s tripled.

However, many of the Big Tech firms made an error of judgement -they assumed that the changes in behavior that drove their growth during the pandemic would continue in the post-pandemic world.

That has not come to pass. Consumers have by and large returned to their pre-pandemic lifestyles, and Big Tech growth has followed suit -- growth for the big five is expected to decrease to 9% in 2022, the same as it was the year before the pandemic.

But the tech hiring spree continued well into this year, for roles that include working on new projects that would not necessarily come into profitability for many years (hello, metaverse!).

There was also a desire to scoop up scarce engineering talent. Now investors are demanding that efficiencies are made, and a bulging workforce is the obvious first place to start.  

What’s the situation with Big Tech and advertising?

Advertising has been the rocket fuel that launched many of the tech companies into the stratosphere.

Yet with increased scrutiny on privacy laws and rising competition from the likes of TikTok, that business model has becoming less stable. Meta has been particularly affected by these factors.

In its Q3 earnings report in October, the tech giant reported $27.2bn in ad revenue -- a 4% drop year-on-year -- and is projecting another drop in revenue in Q4.

The impact of the recession and global tightening of belts is also a major factor. However, despite all this, Mark Zuckerberg still seems to be investing heavily into the metaverse.

Amazon, on the other hand, is enjoying increasing ad revenue.

In its Q3 earnings report, the company disclosed that its advertising business generated $9.5 billion in revenue -- a 25% increase year-on-year and a clear demonstration of its increasing prominence in the sector.

Amazon has been steadily investing in its tech offering and attracting advertisers with targeting based on purchase history and other demographics, helping to convert customers during a downturn.

Tech firms face ever-increasing scrutiny

Regulatory bodies in the U.S., Europe and across the globe are scrutinizing the activities of Big Tech firms, particularly when it comes to competition.

Meta was recently fined €265 million by the Irish watchdog over privacy concerns, and the U.S., U.K. and EU have all recently launched reviews into Microsoft’s acquisition of Activision Blizzard.

The deal -- which would be the largest consumer tech deal since AOL bought Time Warner -- needs the approval of 16 governments, but currently has the go-ahead from just three.

Whether Microsoft succeeds or not will give a clear message about Big Tech’s ability to continue its meteoric growth in the face of fears that they wield too much power.

Microsoft has for the past decade been seen as the decent face of Big Tech -- if they can’t get the deal through, it seems unlikely that others would be able to.

What does the future hold for Big Tech?

Let’s be clear -- Big Tech is going nowhere. These are still the most powerful companies in the world, and the death of the cookie will only reinforce that power -- Meta and Alphabet in particular will become more powerful as the owners of increasingly valuable walled gardens with higher walls.

But they may find that the next few years look different compared to the last decade.

With so many companies laying off employees, it’s likely that money will not be as free-flowing as it has been.

Investors are breathing down the necks of CEOs and cuts will need to be made; after workforce cuts, the most obvious place to start will be with long-term "blue sky" projects. Pulling the plug on these will open the door to competitors, making Big Tech more vulnerable to future competition. 

With less investment in long-term projects focused on innovation, Big Tech firms will see less entrepreneurialism among its workforce, and employees who are not profitable right now are likely to be let go, possibly to be snapped up by competitors and start-ups.

Recruitment will become more difficult as other industries grow more tech-savvy and require skilled workers -- but are less bogged down by the scrutiny that mires Big Tech.

Perhaps the most interesting consequence of the changes will be the impact on Big Tech’s leadership.

Many of them are among the richest and most famous CEOs in the world, yet act more akin to start-up CEOs who "move fast and break things," as Zuckerberg famously said. They thrive on innovation and may find they are not suited to leading in more constrained, sober times.

A new era in online advertising

Change is inevitable for the tech industry, and by extension the advertising industry. And while any change to the status quo can seem alarming, it could help to usher in a better, more grown-up era in online advertising.

Constant innovation in the online space has created huge opportunity to reach audiences in new and exciting ways, but it has also created huge complexity and risk to brand safety.

As these companies move from adolescence into adulthood, we may see the creation of a safer, more measured, more easily navigable online advertising space. And that can only be a good thing.

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