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Wednesday, March 22, 2023

Mass Layoffs at Big Tech: Understand How it Can Affect You

The macroeconomic crisis has led tech giants like Google, Meta and Microsoft to cut staff; Experts assess the effects for the end user

Big tech companies, as big tech companies are known, have laid off employees on a massive scale. IBM, Google, Microsoft and Meta are among the companies that have recently announced cutbacks. Data compiled by the Reuters and CNBC portals estimate that from October 2022 to January 2023, at least between 51,000 and 70,000 workers were affected by these cuts. But what caused the mass layoffs at big tech companies? Is it possible to affect the end user in any way? Can the stability of the platform be compromised? Do we expect an increase in the prices of the services provided by companies?

To answer these questions, TechTudo spoke to João Victor Archegas, a law and technology researcher at the Rio de Janeiro Institute of Technology and Society (ITS Rio), and Rodrigo Viñau, a senior partner at Mazars, a digital consultancy. In the following lines, understand the reasons for these massive layoffs at major technology companies and whether they could end up affecting users.

Why Big Tech Companies Are Laying Off Collectively

The American computer giant IBM announced on Wednesday (25) that it will eliminate some 3,900 jobs. Five days ago, last Friday (20), Alphabet, the company that controls Google, announced the layoff of more than 12,000 employees worldwide. The decision came just two days after Microsoft officially cut 10,000 jobs, following the trend of other big tech companies. To reach the dimension, data from Reuters, the British press agency, indicate a decrease of no less than 51,000 jobs in the main companies in the industry until January 2023, while the US portal CNBC estimates a figure higher than 70 thousand.

For ITS Rio’s principal researcher for law and technology, João Victor Archegas, the scenario is the result of the economic slowdown in the United States and the subsequent decline in advertising revenue, as many advertisers have cut their advertising budgets in line.

Technology companies, especially large technology companies, rely on revenue that comes from advertisers paying for ad space within digital platforms. With inflation and interest rates rising in the United States, these companies have stopped making some announcements. He explained that by relying on this source of income, the value of the shares of technology companies has plummeted, and the immediate repercussion of this is massive layoffs.

In December 2022, when Mark Zuckerberg announced the mass layoffs of more than 11,000 dead employees – representing 13% of the company’s workforce – he realized the direct impact of the macroeconomic crisis and lost advertising revenue in the cuts. The CEO was also wrong and admitted that he was wrong to increase the company’s investments after the wave of growth that he witnessed during 2020.

“Post Covid, the world moved rapidly online and the wave of e-commerce fueled revenue growth. Many people expected this to be a permanent acceleration that would continue even after the pandemic ended. So did I. So we took the decision to significantly increase our investment. Unfortunately, it didn’t work out. Things are as I expected. Not only has online commerce returned to previous trends, but the general economic downturn, increased competition, and loss of income from Advertising has left our revenue much lower than I would have expected. “I made a mistake and I take responsibility,” Zuckerberg said in a statement.
The CEO of Meta’s mistake has also been made by the CEOs of other technology giants, says Rodrigo Viñau, managing partner of Mazars, a digital consultancy. He explains that during the pandemic there was very high turnover growth for these companies, a fact that prompted them to make forecasts affected by this scenario -which was not maintained after Covid-19-.

“With the end of the pandemic and the reduction of monetary stimuli granted by governments, there was a slowdown in the economy, and with it an increase in inflation and interest rates. Cost structures began to be reviewed,” he said in the report.

After all, could these layoffs affect users?

Service stability

Although it is not possible to guarantee that the large technological layoffs will affect users, for João Victor Archegas this scenario is likely, especially in the case of Twitter, which has cut around 80% of its workforce. This happens because, with the layoffs, some entire teams have been fired, including those that ensure the stable operation of the platforms.

In this sense, for Archegas, it is possible that the services introduce more instability in their operation, with errors and other possible failures in their source code. On the other hand, the researcher believes that Elon Musk’s network “managed to maneuver and avoid some of these very harmful consequences.” But he says: “[Instability] is definitely a risk that’s there from the moment you start firing these people.”

Spread Misinformation

The ITS Rio researcher also mentioned the effects the layoffs could have in the areas of content moderation, a particular concern for Twitter, which laid off the entire sector last year, and for Meta, which only controls three heavily used networks in the misinformation system.

“[They are] employees responsible for content moderation policies, and they are at the forefront of creating and enforcing the rules that define what you can and cannot say or do within these platforms. In the political moment we are living in , especially in Brazil, that is very problematic”, opened Archegas.

The researcher also referred to the events of January 8, when terrorist groups, organized in disinformation networks on Telegram, Twitter and WhatsApp, destroyed the buildings of the three powers in Brasilia. In this sense, what worries Archegas is that with the reductions in these areas, “[the platforms] will no longer have the same ability to act and respond to these events.” In practice, this could mean more misinformation and/or hateful content being posted on these networks.

Launch Premium Jobs

Another possible result for the user is the launch of paid functionality on the platforms, as happened with Twitter Blue, a subscription service that offers a verification stamp on the network for R$ 60 per month. This is because with declining ad spend (to give you an idea, Twitter only saw a 70% drop in December 2022), these tech companies tend to look for new sources of revenue. But don’t worry: for the specialist, what is currently free is still free.

TechTudo also asked the researcher if he thought that in the case of paid services like Spotify, there might be an increase in monthly fees to offset this drop in ad revenue. Last Monday (23), the live streaming platform announced the layoff of about 600 employees. Archegas believes that an increase is a possibility, but emphasizes that this will vary by company.

“In the case of platforms that already operate as subscription services, it is possible that you will get an increase in the value of this subscription. It is not certain, (…) but it is a possibility. I think this should in some cases, and perhaps in others the company does not need to increase the value”.

Will mass layoffs continue in 2023?

Experts heard by TechTudo think mass layoffs at big tech companies should be a trend in 2023, after what was seen in the final months of 2022. It’s possible, though, as inflation slows in the US. and the interest rate increases over and over again. At a lower scope, this image stabilizes and there are fewer layoffs.

For João Victor Archegas, changing or continuing the scenario will depend on two main factors. “First, will advertisers go back to spending what they used to spend on these platforms? Second, will the platforms find alternative sources of revenue?” says the researcher.

It’s worth noting that as long as the cuts continue through 2023, they shouldn’t harm the health of Big Tech or its ability to innovate. “Although eloquent, the layoffs are more related to cuts in future projects or planned expansions than to maintaining the operation,” confirms Rodrigo Venao.

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