Tech layoffs don’t mean that the sky is falling anytime soon
THE STORY BEHIND THE NUMBERS
Despite the frightening reality of an accelerating string of five-figure layoff notices, the sky isn’t falling. As is so often the case in tech, there’s context beyond the numbers. And in this case, the context of the broader jobs situation across the tech and tech-adjacent spaces tells us a bit of a different story.
Much of what we’re seeing is less dire-clouds-gathering-on-the-horizon than it is a structural realignment as we slowly emerge from the pandemic.
Indeed, as COVID first took hold in March 2020, many tech companies found themselves slammed by spiking demand for services from now-homebound customers and employees. Amazon, for example, had to hire thousands of new people to handle deliveries, and to staff their warehouses to manage the avalanche of ecommerce orders.
Web and social media players like Google and Meta saw user engagement skyrocket, which drove a similar increase in advertising. They needed to have people in place to handle the greater infrastructure requirements, as well as the advertisement placement and processing.
Behind the scenes, Big Tech also needed to upgrade all the infrastructure – data centers, networking, hardware – that powers their services. This, in turn, required more people.
CONSUMERS PLOT A NEW COURSE
As we ease into the far side of the pandemic – it isn’t over by a long shot, but we are moving toward more normalized day-to-day behaviors – that initial crush of demand is easing off, as well. Steep increases in consumers’ reliance on digital services are flattening out, or even shrinking, as lockdowns fade into history and we all emerge from our homes and return to the office, malls, concerts, and other in person activities.
Big Tech has always been a mirror of the society it serves, and now is no different. Major companies are increasingly rightsizing themselves to better match these less inflated market demands.
And while it means a pullback from the lofty mid-pandemic headcount highs, in most cases, even after five-digit layoffs and almost without exception, all the companies that have announced layoffs are still much larger than they were when the pandemic started.
For example, Microsoft had 163,000 employees in June 2020. By June 2022, that had grown 36% to 221,000. So even with 10,000 job cuts, the company remains far larger than it was. Likewise Amazon bulked up from 1.3 million employees just before the pandemic to 1.6 million in 2021. Their headcount currently hovers around 1.5 million. Within this broader context, the overall layoff figures represent small percentages of the overall employee base.
So, yes, layoffs are awful if you’re one of those affected, and the cruelty of the layoff process in 2023 is particularly disturbing. For example, twitter employees described being suddenly locked out of their corporate accounts – with no official word from HR on next steps or severance. A number of Google employees in New York reportedly learned they had been laid off when they swiped their access cards to get into the office. Green meant they still had jobs, and red meant they had been laid off.
EVERY COMPANY IS NOW A TECH COMPANY
Here at STEP Software, we don’t just work with tech companies; we also work with companies in sectors who rely heavily on tech to keep the lights on. Within this context, every company is a tech company, and despite the growing macroeconomic headwinds facing organizations across all industries, the time has never been better for organizations of all sizes and types to use technology to drive innovation and maintain competitiveness.
This shift offers particular opportunity for smaller startups to flourish, because tech tends to hit the innovation gas pedal – particularly with better software and processes – during times of economic difficulty, and this will be no different. Here in Canada where we’re based, the landscape skews toward small and mid-sized businesses, so north of the border we’re well positioned for whatever plays out next. The same logic holds true in the U.S. and beyond, as well.
Comparing previous recessionary periods to this one, it soon becomes clear that the tech industry as a whole, is better served than it’s ever been before to reinvent and refocus. Many of the ingredients for technology excellence across entire regions – such as incubators and accelerators – are now in place and have been growing roots in their respective communities for decades. For example, Toronto’s DMZ and Kitchener’s Communitech have been connecting resources for emerging innovators, and in doing so have contributed to the recognition of their regions as de facto centers of excellence.
These aren’t just mini-Silicon Valleys: they’re tech-centered economic engines in their own right, and they’re already helping organizations pivot in advance of the coming economic waves.
IT’S ALWAYS ABOUT PARTNERSHIP
Well-established partnerships between business, academia, and government are also creating ecosystems that incentivize investment and attract talent over the long-term. Historically, that means longer-term resilience even amid shorter-term, sometimes-challenging economic cycles.
The Kitchener-Waterloo-Cambridge region is barely an hour’s drive from STEP Software’s hometown of London, Ontario, and the area is home to onetime tech darling BlackBerry. As the early smartphone innovator lost ground to Apple and Google, the fear was that the region’s tech sector would be hit hard because the 800-pound gorilla was about to take everyone down.
Quite the opposite actually happened: talent shed from BlackBerry ended up starting their own startups, often with the assistance of the region’s rich support ecosystem. Instead of drying up amid BlackBerry’s implosion, the tech sector there grew tremendously. Once the one big company was no longer grabbing all the attention and resources within the region, the playing field was cleared for small, hungry outfits to drive innovation and growth.
Fast-forward to today and we’ll likely see the same thing play out across most global economies in the months and years to come. We’ll see particularly agile tech companies – or general companies with significant investments in tech – pivot to fast-changing market conditions.
THE BOTTOM LINE
Economic slowdowns force tech companies to get smart. The party, fueled by long-term double-digit growth and cheap, low-interest capital, is now over, which means organizations can no longer afford to waste resources. So, they focus instead on going lean, cancelling unnecessary and frivolous initiatives, and prioritizing only the things that drive growth.
All of this makes organizations of any size or type healthier and stronger, and it boosts the integrity of the entire segment. Tech sectors in STEP’s home province of Ontario, across Canada, the U.S., Europe, and beyond have all seen this play out before. Given the maturity of resources now available to help businesses flourish, it’s not much of a stretch to predict things will play out similarly this time, too. Give us a call if you’re wondering about how you’ll navigate the coming storm.
Note: STEP Software’s communications director – and author of this article – Carmi Levy joined a panel discussion on TVO’s The Agenda to discuss the broader implications of tech layoffs on the industry’s future. The video can be found here: What’s The Future of the Tech Sector?