BigTech: From boom to bust

These days, the headlines are about the big layoffs at the big tech companies. Tens of thousands of tech employees globally, in jobs previously thought to be secure and well-paying, have had to pack their bags in recent days. Layoffs and hiring freezes have impacted just about every corner of the tech industry.

From Meta to Zomato, Tesla to Twitter, and Amazon to Google, layoffs are in the tens of thousands, accounting for 10 to 50 per cent of their total workforce. “Just six months ago, everybody was talking about the great boom in the tech industry, and everybody stocked up on manpower. Because they view employees and manpower as inventory,” said Shantanu Rooj, founder and CEO of TeamLease.

In the last year, Meta has lost 66 per cent of its stock price, while Alphabet (Google) and Amazon shares are down 31 per cent and 46 per cent, respectively.

The start-up ecosystems in India are also suffering as a result of this. “The startup world was a bit excessive over the last five years because everyone was getting funded, and it almost made it seem like anyone could build a billion-dollar business—which was not true. We were in a bull market.

So, if something happens in the US, I think the startup ecosystem will get affected first,” said Zerodha CEO Nithin Kamath.

“I want to take accountability for these decisions and for how we got here,” Meta CEO Mark Zuckerberg said while announcing the 11,000 layoffs, or 13 per cent of Meta’s team. Zuckerberg said candidly that he had anticipated that the surge in e-commerce and Web traffic from the beginning of the Covid-19 lockdowns would be part of a permanent acceleration.

“But the macroeconomic downturn, increased competition, and ad losses have caused our revenue to be lower than expected. I got this wrong.”

In the last two years, big tech companies like Amazon, Meta, Twitter, etc. have been poster kids for aggressive upscaling. They made big investments in new ideas and experiments, anticipating sustainable exponential growth. Mark Zuckerberg has been spending heavily on his metaverse project. To date, Meta has invested more than $36 billion in building its virtual world. This massive spend on the hypothetical future iteration of the internet, without much result, has led many to believe Zuckerberg has squandered the capital.

The coronavirus has ripped through the global economy, hitting India hard. Lockdowns and the consequent boom in online footprints made the biggest names in US tech invest heavily in India. In one of its largest bets in the developing markets, the social network platform Meta (then called Facebook) made a $5.7 billion investment in Jio Platforms in April 2020 for a minority stake of 9.99 per cent.

“The country is in the middle of a major digital transformation, and organisations like Jio have played a big part in getting hundreds of millions of Indian people and small businesses online,” Mark Zuckerberg then said in a post on his Facebook page announcing the investment in Jio Platforms.

“With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses,” Zuckerberg went on to add.

Google, in July 2020, announced a $10 billion investment in India as part of plans to make the internet affordable and useful for a billion plus people. “This is a reflection of our confidence in the future of India and its digital economy,” Google CEO Sundar Pichai said while announcing the investment on livestream.

Riding on the wave of the massive, unanticipated technology acceleration during the last two years of Covid-19, the big tech companies went broke on investments -- expecting the acceleration to last forever. They expected the lockdowns to last forever!

With the receding of Covid-19, brick-and-mortar has taken over clicks. The visionary tech tsars have misread the future. Their employees are paying a heavy price for their collective misjudgment.

(The writer is an alumnus of IIM-A, and a retired corporate professional.)