You are currently viewing It’s the end of ‘fantasyland’ for Big Tech and its workers

It’s the end of ‘fantasyland’ for Big Tech and its workers

After Big Tech grew unprecedentedly and unchecked for a decade, building ostentatious palaces to house growing workforces while gifting them lush gifts to keep them from defecting to rivals, is the mad rush over?

The biggest tech companies, along with their smaller competitors, are looking to cut spending as they face a litany of headaches: billions of dollars in unused commercial real estate; supply chain and cost issues; funding evaporation; a 21% drop in global M&A activity in the first half of the year to $2.2 trillion, according to new data from Refinitiv; an almost closed window on IPOs; wage inflation; talent retention.

The Managing Directors of Meta Platforms Inc. META,
-7.15%
and Alphabet Inc.’s GOOGL,
-5.03%

GOOG,
-4.93%
Google warned employees of tough times ahead – with Mark Zuckerberg telling employees on the last day of the second quarter that the company was facing one of the “worst downturns we’ve seen in recent history” – and Microsoft Corp. MSFT,
-1.68%
slows hiring in some groups and eliminates some jobs. Even the most valuable company in the world, Apple Inc., AAPL,
-0.52%
reportedly planned to cut hiring and spending, after spendthrift Amazon.com Inc. AMZN,
-1.77%
reported reductions earlier this year. Other high-flying tech players in recent years, such as Netflix Inc. NFLX,
-1.93%,
Snap Inc. SNAP,
-38.63%
and Lyft Inc. LYFT,
-3.07%
take similar or more drastic measures, and many startups are in much worse shape.

See also: Tech companies turn to layoffs after huge hiring surge

All of these are signs of vexing changes to come in the industry after a boom in the first two years of the pandemic, when tech companies went on a hiring and spending spree and allowed some employees to leave. work from home. But inflation, supply chain issues, the war in Ukraine and the prospect of a recession could hamper what venture capitalist Bill Gurley has called a “Disney-like set of experiences/expectations in the high-tech companies.

The perfect storm of economic calamity has led a legendary executive to predict nothing less than a “technology market bloodbath” for the next one to three years, which could dramatically change the culture and structure commercialization of companies in Silicon Valley and beyond for the foreseeable future. coming.

“It’s going to be very painful and a lot of people will be hurt,” said C3.ai Inc. AI,
-10.93%
CEO Tom Siebel told MarketWatch. “We had this SPAC, NFT, crypto madness. Gone are the days when everyone made a lot of money, worked from home in their pajamas, got paid in bitcoin.

“Before this is finished, there will be a lot of empty commercial real estate buildings like we saw in 2000-2001 in Silicon Valley,” Siebel added. “Not as much, but a lot.”

Employees especially feel the pinch. A recent LinkedIn poll found that 60% of respondents were worried or very worried about their careers due to economic uncertainty.

Read: The Great Renegotiation — Millions of Employees Leaving Old Jobs for Better Ones

“Camelot is over for them. It’s over,” Hilary Kramer, a nationally recognized investment analyst and portfolio manager, told MarketWatch. “This growth was unsustainable, and COVID has undoubtedly helped prolong strong results for Amazon, Apple, Netflix, Microsoft, and all video game makers.”

Tech giants brimming with billions of dollars aren’t poor, but with a possible recession on the horizon, even those with the deepest pockets have a strong incentive to watch their bills. Imagine, then, the dilemma for funding-dependent small businesses with little chance of going public anytime soon, or those stuck in the middle.

Qualtrics International Inc. XM,
-6.00%
CEO Zig Serafin felt a depressing mood after speaking with around 100 CEOs in Europe over the past 90 days. Their worries about interest rates, inflation, supply chain constraints, talent retention and geographic uncertainty prompted a “healthy level of caution” about the future for the platform company. experience management. While demand for Qualtrics’ software remains strong, he said certain deal cycles are more trusted by cost-conscious customers.

“Remember all that Roaring 20s stuff? The feeling was, ‘Hey, we have to think big,’ and some companies overspent and over-hired,” said Vijay Chattha, CEO of VSC.

The great telework debate

Enterprise software start-ups that depend on funding to grow their businesses face particularly tough challenges, Appian Corp said. APPN,
-6.77%
CEO Matt Calkins, who agreed with Gurley that workers in Silicon Valley lived in a “never land” of higher wages and benefits in recent years.

One likely consequence, Calkins said, is a forced return to dazzling business parks like Apple Park and the Googleplex, where “we waste a lot of money on commercial real estate.

“CEOs think in-person work is more productive,” he said.

As companies seek to cut costs in the form of layoffs, reduced travel and fewer hires, another tactic is forcing workers back into the office and saying goodbye to those who won’t. A large majority of tech workers have been loath to return to the office despite the efforts of the biggest tech giants.

Read more: How to handle the dreaded ‘back to work’ Zoom call with your boss

“It was a remarkable and abnormal time for work: being paid so much and working under ideal conditions,” Calkins said. “But to paraphrase Bill Gurley, the days of the fantasy world are over.”

Google and Meta brought employees back to the office at least twice a week. Meta’s offices opened at full capacity on March 28, although anyone who can do their work remotely can apply for full-time remote work. The company offers a flexible hybrid schedule where individual teams determine how often to meet in the office.

Apple was ready to move this summer but postponed in May after more than 1,000 current and former employees signed an open letter calling the plan inefficient, rigid and a waste of time. Microsoft does not require employees to return to the office, but considers it normal to spend 50% of the time. Employees can ask for more flexibility in their schedules.

In January, about half of executives said their company required or planned to require employees to return to full-time, in-person work within the next year, according to a Microsoft study, which surveyed 31,102 workers. worldwide between January and February. Yet only 4% of employers said they require all employees to return to work full-time, according to a Conference Board employer survey.

Many companies are making the hybrid experience a “permanent reality”, with more productivity tools such as digital whiteboards, smart galleries and workspace reservation zones, said Aparna Bawa, director of operation of Zoom, to MarketWatch. “There are more tools available to you,” she said.

However, those who don’t go that route might accept the departure of workers who don’t want to return with a sigh of relief, as it means they can avoid another layoff and the severance that would come with it. The dynamic looks like a complete turnaround from a year ago, when many tech workers considered leaving, especially if companies forced them back into the office.

Blast(ed) from the past

Fueling general paranoia and caution, notes from financial analysts, such as the one predicting an “appocolypse” or the bursting of the mobile app bubble.

“We define this tech bear market as an era where spending requires greater justification when it comes to [return on invested capital] and [customer lifetime value to customer acquisition cost]money no longer flows freely and short-term fundamentals matter more than the long-term dream,” Bernstein analyst Mark Shmulik said in an ominous July 13 note.

“The problem with this approach is that companies are locked into a lower growth environment in order to control margins, leading investors to question the growth story – a vicious flywheel,” he said. warned Shmulik.

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But Rob LoCascio, the longtime CEO of LivePerson who went through the dot-bomb bust in the early 2000s, sees the current downturn as a pale imitation of what happened then, and more like a corrections era. .

“In the early 2000s, we had to restructure the business in 2001 after laying off most of our staff, 140 out of 180, because we were losing customers by the hour,” LoCascio told MarketWatch. “Half of our customers were dot-coms. The situation is not as serious this time around. We prune rather than cut. This time there is an overreaction from the stock market.

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