Each company has its own, unique problems driving cost-cutting measures. But there are also a couple of macro reasons for the contractions. First, tech companies were . When consumers were stuck at home on Zoom meetings, Peloton rides, and watching Netflix, tech companies’ stock went up. They got huge infusions of cash and used it to expand — a lot, and sometimes in . But as the economy worsens and inflation rises, while pandemic restrictions ease, investors are looking for safer bets, and tech companies are coming back to Earth. Hence the belt-tightening.
The other macro reason for cost-cutting, as Recode’s Peter Kafka argues on Today, Explained, is that the biggest tech companies are now mature. In other words, they can’t provide investors the same kind of massive growth they could in the boom times of the late 2000s and 2010s. And that will have all kinds of ramifications for players in the industry.
Below is an excerpt of the conversation, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get podcasts, including , , , and .
Noel KingWhat do cost-cutting measures look like at this point?
Peter KafkaThese are cost-cutting measures, but if you talk to people in tech, they’re sort of emotional, cultural resets as well. Google really kicked this off many years ago, saying, “We’re making so much money that we can afford to do this. We’re going to hire all the best talent. We’re going to keep them here by paying them a lot, but also through these outrageous perks: Not just free food but multiple cafeterias at every one of our offices where you can gorge yourself all day. Really elaborate gyms and shuttle buses to take you from your house down to our campus.” And what you started to see last spring was companies like Facebook and Google saying, “We’re going to tap the brakes on this stuff, too.” Facebook last spring said, “You can still have free food if you stay here and work late into the evening, but we’re not going to give it to you quite so early.” So you really do have to sort of stick around at work. And as petty a thing as, “We’re going to give you smaller to-go boxes so you can’t take the steak we’re giving you and go feed your family with it.” They’re saying, “We don’t want you to think of Facebook that way anymore.” It’s going to be closer to what normal working conditions for lots of people around the US, at least, are used to.
Noel KingHow much of an existential shift in tech do you think this time period is?
I think it’s a pretty big shift. I think most people who are working in tech have only been there during boom times. The last real deflation in tech was all the way back in 2000, 2001. There’s almost no one working in tech now who was around for that. So if you’ve been working in tech, you’ve only known things going up and to the right. You got paid a lot. There were always companies who wanted to hire you away from the company you were at, so you got paid even more. You knew that you could leave Facebook or Google and go to a startup, and if that startup didn’t work, maybe it would get bought by Facebook or Google.And all of that comes to a record-scratch stop this year. People say, “Oh, I can’t just walk out. I can’t just leave Facebook or Google and go to a crypto or Web3 startup and make even more money. I might just actually have to sort of do the job that I have right now and be content with that.” And that’s a big cultural reset.
Peter, you argue that the fundamental problem underlying a lot of these cuts is one that we love talking about on Today, Explained: the problem is growth — or lack thereof.