By Siddharth Pai
During the pandemic, companies around the world accelerated their “digital first” efforts. As a result, big tech companies like Facebook and Google, as well as IT service companies like Infosys, TCS, Wipro, and others in our own backyard, ramped up their hiring activities to meet this sudden surge in demand.
Things are changing, and fast. The technology sector has experienced an unprecedented slowdown throughout 2022. Gone are the days when Silicon Valley seemed immune to the ups and downs of the larger market. This was confirmed for a full decade, until 2021, when America’s top five tech companies saw their revenues and profits grow at the astronomical rate of five times America’s GDP growth, according to The Economist. This ability to weather the storm seemed to be underscored during the pandemic lockdowns, as these companies continued to post record profits even as the rest of the economy lay in tatters.
2022, however, was a different cauldron of fish. While the S&P 500, a broader measure of America’s stock market, is down 20% since the start of the year, technology companies have been hit much harder. The NASDAQ Composite, a very tech-heavy index, is down 33%. The 5 largest BigTech companies – Netflix, Meta (Facebook), Amazon, Alphabet (Google) and Microsoft – have seen their market caps drop by a staggering $3 trillion.
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In the case of Meta, the loss was even greater – almost 66% of its value was wiped out. There are several reasons for this decline – first, the penetration of digital advertising (which accounts for the bulk of these companies’ revenues) has probably peaked. A large part of the advertising budget has already switched from newspapers and television to digital; Apparently, about two-thirds of all advertising spending in the US is already being done digitally.
Additionally, these companies have now begun to gain a foothold in each other’s key markets. Amazon Cloud is slowing as Google Cloud, led by my classmate Thomas Kurian, is making aggressive moves in the business, much like Microsoft’s Azure is increasing its market share through innovative and strong positioning with startups. The fact that Microsoft owns such a large share of the enterprise market allows them to facilitate joint launches for startups, which neither Amazon nor Google can easily do since their market penetration in the enterprise space is lower. Meanwhile, Apple is quietly entering the advertising space, and the controversial rise of TikTok beats Facebook as the social media leader.
In November, Meta announced it would lay off 11,000 employees, just as Elon Musk was shedding nearly 75% of Twitter’s workforce. Microsoft fired 1800. Amazon hasn’t released an official number, but it’s believed to be over 10,000. Cisco laid off 4000. Bitcoin’s value has plummeted by two-thirds this year, dragging several startups down with it. Google has announced a hiring freeze and is likely preparing its own layoff plans. Although these have not yet been released, analysts note that Google’s hiring of 30,000 employees over the Covid years to bring the total to over 185,000 is highly unusual and that layoffs would be a natural consequence if Google continues with the streamlining begins. According to The Information (bit.ly/3jzBQyK), 10,000 Google employees could be classified as low performers and thus at risk of being eliminated.
Here in India, edtech major Byjus has laid off 2,500 employees, Unacademy 1,500 and Vedantu 1,100. (bit.ly/3i9RCjB) . India’s startup sector is believed to have laid off 17,000 employees this year.
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Gone are the days of frantic hiring of low and middle level employees in India and other parts of the world. These are now the same levels that are being hit the hardest by the slowdown in demand. Rumor has it that new and mid-level employees were hit hardest, as they were the ones demanding unscheduled promotions and outrageous increases in compensation packages in order to change jobs.
As usual, the weak suffer what they must. The New York Times reports: “Over the past decade, the prospect of six-figure starting salaries, perks like free food, and the opportunity to work on apps used by billions has prompted young people to rush toward computing — the Studied computer programming and processes such as algorithms – on college campuses in the United States. According to the Computing Research Association, which tracks computer science degrees at about 200 universities, the number of students studying the subject more than tripled to nearly 136,000 from 2011 to 2021. Tech giants like Facebook, Google, and Microsoft fueled the computer education boom by offering software jobs for students as a route to lucrative careers and the power to change the world.
But now, layoffs, hiring freezes, and planned recruitment slowdowns at Meta, Twitter, Alphabet, and Amazon are sending shockwaves through a generation of computer and data science students who spent years progressing to careers at the biggest tech companies. In addition to prompting recent graduates to find new jobs, the cuts have created uncertainty for college students seeking high-paying summer internships at big consumer tech companies. In the past, technology companies used their internship programs to recruit promising job candidates and offered many students the opportunity to return as full-time employees after graduation. But those opportunities are shrinking.
We can expect a major restructuring among the youngest aspirants as well as those who are in the middle of their careers around the world. India is not immune. Prepare for impact.
The author is a technology consultant and venture capitalist