Layoffs alone won’t solve tech’s problems

Google Inc, owner of the world's most popular search engine, reported an increase in first-quarter profit after cutting jobs and jettisoning some businesses. Net income was $1.42 billion, or $4.49 a share, compared with $1.31 billion, or $4.12, a year earlier. (Photo by Tony Avelar/Bloomberg via Getty Images)

The world’s largest tech companies are promising across the board to spend less, new territory for an industry that thrives on perks. Already last year, Facebook parent Meta Platforms Inc shut down its laundry service for staff, and in January of this year, Alphabet’s Google included more than 30 massage therapists in its first big round of layoffs.

Tech giants are tightening up on fringe benefits and showing their talent the door. But there is still more to do.

Hiring freezes and cutting perks are the easy part. Now, having grown fat on old business models and morphed into sprawling bureaucracies, Silicon Valley’s biggest firms must become innovative again. That means spearheading a shift in culture away from protecting mini-fiefdoms and more toward getting ideas in motion and product features out the door. That’s an entirely new challenge for big tech’s stable, mostly technocrat leaders. Microsoft’s Satya Nadella, Meta’s Mark Zuckerberg and Google parent Alphabet’s Sundar Pichai have overseen years of continued growth largely by keeping things ticking along.

When the pandemic came, their steady growth went into overdrive. Collective profits at Amazon, Apple, Facebook, Google and Microsoft grew by 55 percent in 2021 from an already eye-popping baseline. Their combined $1.4 trillion in sales would have made them the world’s 13th largest economy, overtaking Australia.

Now with shares and growth under pressure, Zuckerberg is talking about flattening his leadership structure and trimming middle management. Pichai wants to “re-engineer the company’s cost base in a durable way.” That will mean more layoffs because even the latest, painful cuts haven’t brought staffing levels anywhere close to pre-pandemic levels.

Facebook hired about 30,000 new staffers during the pandemic while Alphabet went on an even bigger hiring spree, swelling its ranks by 68,000 to 187,000. But Meta and Google have announced 11,000 and 12,000 job cuts, respectively, so far. Microsoft, which hired 58,000 people in the two years following the start of the pandemic, said last month that it was cutting 10,000 positions. The painful truth is that for these companies to earn the market’s trust in their pledges for efficiency, cuts will need to continue through 2023.

They also will have to continue to get the most out of their top talent, who might be less inclined to stay loyal to their employers now that they know that their bosses could cut them loose at any time.

An equally difficult task will be changing tech’s management culture. Already last year, months before the layoffs began, Zuckerberg and Pichai were telling staff they needed to work harder, with “greater urgency,” in the words of the Alphabet chief executive, and to come to the office more frequently.

Google especially needs to get better at executing on new product features. For all the attention that the company receives about its exciting moonshot projects, Google is notoriously conservative in its release of new products and services, because it doesn’t want to tinker too much with its $150 billion search business or its lucrative ad-tech operation. But the search business has come under threat from ChatGPT and other AI tools that generate conversational answers to any query.

Under pressure to respond, Google on Monday said it would soon release a ChatGPT competitor  called Bard to the public. The service will be powered by LadMDA, Google’s highly sophisticated large language model. Google has rarely moved so quickly to develop a product, marking a  risky new era for the company while it’s simultaneously trying to cut back on spending.

Doing more with less is much harder than it sounds for companies in Silicon Valley, who are used to throwing money at problems to make them go away. At least they know that needs to change. Meta Chief Technology Officer Andrew “Boz” Bosworth said in an email to the company’s 18,000 Reality Labs employees, who are driving its metaverse efforts, that “we have solved too many problems by adding headcount.” Now Meta needs to learn to solve problems by innovating and executing.

Zuckerberg used the word “efficient” or “efficiency” approximately 40 times in his earnings call with analysts last week. (By comparison, he mentioned “metaverse” just seven times.) Investors liked that direction of travel so much that they sent Meta’s shares up by more than 20 percent after earnings day, despite a miss on profit estimates.

A looming question is how much all this talk of efficiency from Alphabet, Meta and Microsoft, the world’s biggest internet and software companies, will lead to real improvements. And if it doesn’t, will investors care? Meta’s rally last week could be a sign that investors are looking for any excuse to resume their love affair with some of the most profitable companies in history. Who wants to agitate for efficiencies from companies (barring Amazon) that have regular quarterly net margins of around 30 percent? Compare that with two other popular stocks, Walmart Inc. and Walt Disney Co., that have margins of 6 percent and 5 percent, respectively, according to Bloomberg data.

Still, high margins weren’t enough to stop big tech stocks from getting bruised over the last year in the markets. Wall Street wants to see these companies become leaner and meaner. Big Tech’s investor-friendly, technocratic operators will almost certainly comply.