Targeted cuts and fewer layers: layoffs in the technical field are entering a new phase

Last year, Mark Zuckerberg declared 2023 a “years of efficiency.His company, Meta, soon laid off a third of its employees. Amazon, Google and Microsoft have also laid off tens of thousands of employees.

Their worlds did not stand still. Not only that, the companies were also rewarded. Their stock prices soared. Some divisions were more productive. And the companies — including X, formerly known as Twitter, which has cut nearly 80 percent of its workforce since late 2022 — continued to operate.

Other top executives took notice. And one month into 2024, technology companies have entered a new phase of cost cutting.

After widespread layoffs last year, the largest companies — including Amazon, Google and Microsoft — have made smaller, targeted job cuts in recent weeks, while focusing on fewer projects and shifting resources to key products such as artificial intelligence. Some tech startups – like Flexport, Bolt and Brex – have cut deeper to stave off a possible extinction. The mandate from the top is the same: do more with less.

“There are three fundamental redundancies that we're seeing,” said Nabeel Hyatt, general partner at venture capital firm Spark Capital, which invests in technology companies. “Big, fat tech oligopolies looking for more growth and profits; there are mid-sized companies that hired too many people during the boom; and there are the smaller startups that are just trying to gain runway to survive.”

The new layoffs are the latest correction to years of a booming global economy and near-zero interest rates, which allowed tech companies to throw away large amounts of cash to attract top talent during the pandemic. Many of the companies have hired tens of thousands of new employees during that time to meet digital demand.

Recent years have forced tech executives to think differently. After lockdowns were lifted and people ventured out into the world again, the use of tech products shrank compared to pandemic heights. More than 1,000 technology companies will cut more than 260,000 jobs by 2023, according to data from Layoffs.fyi, which maps job losses in the technology sector.

Shrinking the tech workforce would have been anathema in Silicon Valley just a few years ago. The technology culture has long been one in which a manager's status was determined by the number of people reporting to him or her and how effectively a company countered competitors' recruiting efforts. Tech executives often viewed recruiting the next generation of computer scientists as a full-contact sport.

But now the stigma of layoffs is gone. More executives at tech companies have admitted to hiring too many people during the pandemic. The largest companies are making strategic cuts in areas where they plan to invest less and where certain types of jobs are no longer needed. Smaller companies that could easily raise capital just a few years ago are cutting back to stay afloat.

According to Layoffs.fyi, 25,000 layoffs occurred at approximately 100 tech companies in the first 30 days of this year. Microsoft, Google, Apple, Meta and Amazon will provide more insight into the state of the sector this week when they release their quarterly results.

Waves of job losses tend to happen suddenly and all at once, says Sheel Mohnot, partner at venture capital firm Better Tomorrow Ventures. “If a company in your space or nearby does it, you get air cover to do it,” he said. “It becomes easier for a company to say: 'It's not us, it's the industry.'”

Meta, owner of Facebook and Instagram, is an example of the series of layoffs.

Last year, Mr. Zuckerberg eliminated what he called “managers managing managers.” This year, the company has been more targeted with its adjustments, most notably reducing the number of “technical program manager” roles on Instagram, according to two people familiar with the company's plans. A technical program manager, or TPM, oversees various projects within a department and is responsible for keeping teams on track — exactly the kind of middle manager role that Mr. Zuckerberg planned to eliminate.

Business Insider previously reported about Meta's attempt to reduce the role. Meta declined to comment.

Amazon also cut hundreds of jobs this month at its streaming business, including at Prime Video, MGM Studios and Twitch. Google has made thousands of cuts in several areas, including YouTube and the hardware division that makes the Pixel phone, Fitbit watches and Nest thermostat. In an internal memo obtained by The New York Times, Google CEO Sundar Pichai hinted that there is no imminent end to the rolling layoffs, and that the company would remove more “layers to simplify execution and speed up some areas to increase” the company.

“Many of these changes have already been announced, but to be fair, some teams will continue to make specific resource allocation decisions throughout the year as necessary, and some roles may be affected,” Mr. Pichai wrote.

Medium-sized start-ups with hundreds of employees are also scaling back. Some are faced with the prospect of an initial public offering, which has caused them to take a closer look at their finances. Such companies “know they have to get their balance sheets in order,” Mohnot said. “The market appreciates profits.”

Certain areas have been particularly hard hit this month, particularly the video game industry. Companies such as Unity Software, Riot Games, Eidos-Montréal and Activision Blizzard and Microsoft's Xbox have downsized in recent weeks.

These cuts are partly the result of a consolidation of game studios, says Joost van Dreunen, an analyst who monitors the sector. After a number of blockbuster game debuts last year, a relatively quiet slate of titles is expected this year, with fewer employees needed to release those games, he said. Consumers and programmers are also waiting for new consoles like Nintendo's Switch 2, leading to a more immediate decline in customer spending and new title development.

Discord, the social networking and group chat app popular with gamers, this month laid off 17 percent of its staff, or 170 jobs, after increasing its workforce fivefold since 2020.

“We took on more projects and became less efficient in the way we operated,” Discord CEO Jason Citron wrote in a memo to employees.

Few expect the wave of consolidation to slow down anytime soon. Those in the tech industry now joke about ZIRP companies – short for Zero Interest Rate Phenomenon, describing startups that would not have been able to raise capital if they had not had access to cheap and free-flowing venture dollars.

Many of these startups, unable to attract further venture investment due to rising interest rates, are cutting their workforce and focusing on fewer products.

“Maybe they just tried a lot of things to find a business model that works,” Mr Mohnot said. “But now it's time to settle the score.”