A crypto-collapse, lay-offs at Facebook and carnage at Twitter are rocking the tech industry. It’s stoking memories of the dotcom crash 20 years ago.
The firings are solidifying a feeling in Silicon Valley that the bull market of the past decade — which created massive amounts of wealth for tech investors, workers and the broader economy — is decidedly over, conjuring an image of what the rest of the economy could experience if a predicted recession materializes.
“It does feel a little like 2000,” said Lise Buyer, a longtime tech analyst, executive and investor, referring to the turn-of-the-century dot-com crash. “Hire engineers, hire engineers, hire engineers, and then suddenly companies get a cold bucket of water in their face.”
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Executives at the companies making the cuts blamed a variety of interconnected factors — overzealous hiring during the pandemic, a slowdown in e-commerce activity and people spending less time online as in-person events return. Tech CEOs have been warning about a looming recession for months, telling their employees to expect tougher working conditions and drastically slowing down the rapid growth they had preached for years.
When it comes to newer tech companies, low interest rates over the past decade have allowed venture capitalists to easily raise money and pour it into new start-ups — even if their founders didn’t have solid plans for actually making money.
During the pandemic, that dynamic went into overdrive. At the same time, bigger tech companies expanded rapidly to take advantage of people spending more time online. Tech share prices soared, boosting confidence and stock-based payouts for workers.
But now that the Federal Reserve is aggressively raising interest rates to fight inflation, venture capitalists are being stingier with their investments, forcing companies to focus more on profitability than growth. Tech giants are doing the same, as higher prices cut into their revenue, forcing them to cut costs.
The firings come just a year after Silicon Valley was at its peak, with valuations of Big Tech companies spilling into the trillions, salaries at all-time highs and cryptocurrencies pouring new wealth into the pockets of investors and workers alike. Now, tens of thousands of workers are looking for work.
Marc Weil taught himself how to code when he was 9 years old, and has worked in tech since 2010 at various companies, even founding his own start-up at one point. This week, the 35-year-old engineering manager at Stripe was one of thousands who lost their jobs.
“Year after year goes by and the tech economy keeps getting bigger and bigger with no end in sight,” Weil said. “Everyone in tech has been warned by people who lived through the last few decades that this will end. And so it ended.”
Weil bought a house just three weeks before the layoffs. But he’s not too worried about finding a new job, thanks to the network he’s built up over 10 years in the Valley. He’s more concerned about his younger colleagues.
Spokespeople for Lyft, Twitter, Facebook, Salesforce, Amazon and Google did not return requests for comment. A spokesperson for Stripe referred to a blog post the company’s CEO had made about the layoffs.
“We are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets, and sparser startup funding,” CEO Patrick Collison said in the post.
For the past 10 years, Big Tech companies have ruled the U.S. economy. Apple, Amazon, Google and Microsoft all broke the trillion-dollar valuation mark, becoming by far the most valuable organizations in modern history. They competed with venture-funded start-ups such as Uber, WeWork, Airbnb and Stripe for tech and business talent, driving up salaries and the cost of living in the Bay Area and other tech hubs like Seattle.
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But over the past year, cracks have begun to form in that dominance. The companies’ leaders began warning of cutbacks, and firms such as Google, Microsoft and Facebook quietly instituted hiring slowdowns. Over the summer, as economic sentiment whipped back and forth between positive and negative, the companies also provided mixed messages.
The past few weeks have triggered a deeper level of concern, as a wave of earnings reports showed that even the most stalwart companies such as Amazon and Google are having serious trouble keeping up the revenue growth they were able to show off over the past several years.
Share prices for Facebook and Amazon fell more than 20 percent when they reported their quarterly earnings the final week of October. Amazon’s forecast for the all-important holiday season was below what analysts had expected, and Facebook investors began ditching the company in droves after chief executive Mark Zuckerberg made clear he intended to keep losing money as the company pivots to focusing on building a new “metaverse” virtual world.
Microsoft and Google, the No. 3 and No. 4 most valuable firms in the world respectively after Apple and Saudi Aramco, also reported slowdowns in revenue growth, showing that demand for digital ads and cloud software is falling.
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Last week, Twitter under its new owner Elon Musk fired around half of the company’s 7,500 workers. Musk said Thursday the company would need to find new sources of revenue or it would not “survive the upcoming economic downturn.”
His statement came a day after Zuckerberg said the “macroeconomic downturn” was one of the reasons he needed to fire 11,000 workers, or 13 percent of Meta’s workforce, in the first wide-scale job cuts in its 18-year history.
Stripe is cutting 14 percent of its staff, real estate marketplace Zillow is cutting 5 percent and ride-hailing app Lyft is firing 13 percent.
The week’s layoffs bring the total number of fired tech employees in 2022 to over 120,000, according to Layoffs.fyi, a layoff tracker run by tech founder Roger Lee.
Tech workers who previously could have counted on dozens of offers for their skills will now have to compete for jobs with thousands of other people.
Sarah Cho, 23, graduated from UCLA this year and was just months into her first job as a product manager at Lyft when she got her layoff notice.
“It’s a very saturated market right now, there’s only a handful of roles that are available,” Cho said. She’s a Korean citizen, so being on a visa is making the situation harder, she said. “It gets to a point where you are just looking for whatever’s available.”
The cuts contrast with other key economic indicators, which show a mixed picture of the economy. Inflation was not as high as analysts had expected in October, triggering hope that the Fed’s interest rate hikes are working as intended and may not need to be increased. The overall economy added 261,000 jobs in October, and, countrywide, companies classified as computer systems design by the government actually added some jobs.
Economists from Goldman Sachs said they expect U.S. wages to continue to rise in 2023, though home prices could fall, according to a Nov. 6 note to clients. Barclays economists predict a “shallow recession” next year, the bank said in a Nov. 9 research note.
Still, the firings in Silicon Valley will have a growing effect, said Julia Pollak, chief economist at ZipRecruiter, a job search site. Tech companies spend a lot of money on other tech services, such as cloud computing or communications platforms, as well as digital advertising.
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“We could either see this have a ripple effect through the economy, or an avalanche. The question is how people react and how they perceive this,” she said.
The cuts likely aren’t over yet.
“We’re almost certain to see more,” Pollack said. “Tech companies will be under increased pressure to cut costs and become profitable sooner.”
By 2020, the tech industry made up about 10.2 percent of U.S. GDP, according to the U.S. Department of Commerce. The seemingly endless growth of companies such as Amazon, Google, Microsoft, Facebook, Netflix, Tesla, Salesforce and others has padded the retirement accounts of millions of Americans as tech firms took up an increasingly big share of the stock market. Tech companies made up nearly 30 percent of the total value of the S&P 500 this March.
During the pandemic, tech companies grew even faster, as people spent more time online, bought more computers and video game consoles and shifted much of their shopping from in-store retailers to e-commerce. Tech companies took advantage of that shift, investing billions of dollars in hiring new workers and building new data centers to take advantage of what was seen as a once-in-a-lifetime shift. But as pandemic restrictions eased and most people returned to their pre-pandemic habits, the bet that that behavior would be permanently altered fell flat.
The leaders of Facebook and Shopify, which makes tools for merchants to sell online, explicitly blamed their layoffs on overestimating this shift to e-commerce. “This obviously didn’t play out the way that I expected or that any of us hoped,” Zuckerberg told employees during a call on Wednesday, according to a recording shared with The Washington Post.
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The layoffs this week have cut back head count in Silicon Valley significantly, but most big companies still have more staff than they did in 2019. Still, the rapid reversal of a trend that had led to so much hiring and investment is having a big emotional impact, as people compare reality with the inflated expectations they had built up, said Buyer, who was a tech analyst during the dot-com crash and more recently has advised companies on structuring their initial public offerings.
“That’s why the sort of mood is so shocked and disappointed,” she said.
For years, skilled tech workers jumped between companies, leveraging one job to get a higher salary at another. For entry-level engineers, it was not unusual to get offers of $200,000 a year plus a signing bonus from Big Tech firms. Tech companies offered perks such as free catered meals, massages, dog walkers and on-site laundry, plus unlimited vacation days. With so many recently fired workers out in the market now, that will change.
Rene Ronquillo, 37, worked his way up from being a Lyft driver to a full-time job at the company as a recruiter. He expects a lot of workers will have to take pay cuts or find roles below their level of experience if they want to get a new job in this environment.
“I can’t be too picky,” he said.
Semil Shah, a general partner at venture capital firm Haystack, estimates there may be as many as 25,000 to 50,000 out-of-work tech people on the Bay Area job market over the next few months. Salaries will go down, and people will take jobs they might not have considered earlier.
In the long term, the current shock could be a good thing, Shah said. For years, start-ups have struggled to compete with bigger tech companies for engineers, and the old-school ethos of working for a low start-up salary in the hope that the company will make it big and provide a large payout has eroded, he said.
“It seems like a very nasty correction that most insiders feel like is probably a healthy thing, as painful as it is,” Shah said.
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Hamza Shaban contributed to this report.