Every day there’s more big job cuts at tech and games companies. I’ve not seen anything explaining why they all seam to be at once like this. Is it coincidence or is there something driving all the job cuts?
this post was submitted on 25 Jan 2024
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Asklemmy
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Lots of tech companies saw huge growth during covid thanks to everyone having extra money to spend (see crypto and NFTs if you want clear examples that we just had too much laying around).
Many of these companies then saw their revenue and userbase increase month-after-month and thought the growth was going to continue forever (or, more cynically, they knew it was going to crash but acted like it was going to continue). This led to a bunch of hires to "drive growth."
But obviously, pandemic spending habits have mostly stopped, and the money faucet is being turned off. Companies can't afford all the workers they hired, so they're "let go due to market downturns."
TL;DR Companies either thought they were going to have unrealistic growth and made dumb hiring decisions, or knew the growth was going to end and thus made cruel hiring decisions.
The correction I would make is that they can afford the workers. But the leadership needs to continue the growth. All they have left is to cut expenses, and the easiest way to do that is layoffs.
Add something about the federal funds rate exceeding 2.5% for the first time since 2008 and you’re on the right track. I think interest rates affect startups more than Google so bigger tech firms were hoarding talent to prevent new competitors from having those workers.
Definitely. Google has lots of cash already, whereas startups are often in need of more money.
The other thing that's happened recently is that businesses used to be able to write off (deduct in their tax return) all their R&D expenses in the year they were incurred, whereas now they need to be amortized over five years. This has a huge impact to startups because a lot of their initial work is R&D, and now they have much larger tax bills than they used to have. https://www.axios.com/2024/01/20/taxes-irs-startups-section174
An additional factor is that a ton of tech companies aren't even profitable. Twitter and twitch are both very well known to be unprofitable and there are many more that are probably unprofitable. Aside from social media, things like Uber, Lyft and many more are unprofitable.
Even YouTube might not be profitable, Google only posts revenue from the platform, NEVER profits. YouTube's also desperate for money, blocking adblock, making YouTube premium, trying to shove it down our throats and all of the shitty, scammy, ads they accept because they're so desperate.
All of these massive companies had tons of venture capital poured into them to grow the platform, THEN be profitable. Then AI came around and investment priorities changed, leaving many tech companies in the dust. Plus a lot of investors are losing hope, since many of these companies have existed for some 15 years without a cent to show for it.