Despite years of growth and the pandemic boom, 2022 proved to be a tough year for tech giants like Meta, Amazon, Alphabet, and Twitter. In the last few weeks, we’ve seen massive tech layoffs, new leadership that’s led to disastrous organizational changes, and cost cutting measures implemented across the tech industry. With a potential recession and plummeting revenues, 2023 will be telling of the future of big tech.
In November, CEO Mark Zuckerberg announced that Meta would cut almost 13% of their workforce (11,000 jobs) and called for a hiring freeze. Amazon followed suit after their third-quarter earnings fell short of expectations, laying off 10,000 employees in tech related roles. Just last week, Google’s CEO Sundar Pichai announced the layoffs of 12,000 employees. And of course, the newest tech CEO Elon Musk purged about two-thirds of Twitter’s workforce. The industry finds itself in a more unstable moment than ever, forcing us to grapple with some of the root causes of this all too precarious sector.
This stage is marked by greater instability, a concentration of speculative financial capital, a post-Fordist economy and larger income inequality. Tech boomed amidst the pandemic because it was able to capture a greater audience through bringing our work online and further decentralizing the forms in which we participate in the flow of capital. However, the success of tech is not necessarily tied to actual profits. It’s backed greatly by investor speculation and the potential gains forecasted by stockholders and economists. To put it differently, the tech industry is not simply experiencing a storm that it will find a way to weather, but quite the opposite; its precarious structure is being exposed.
That said, these dramatic changes shouldn’t be understood as failures of the industry, but rather, a bump in the road for a sector that has proven to be more than adaptable. The decentralized tech industry structures allow for advances and collaborations previously unthought of in earlier business endeavors. Platform based structures provide fluid ways of connecting users, consumers, and clients. In other words, traditional understandings of building sustainable businesses do not necessarily apply to the industry. Despite how unsettling the changes in the sector may seem in the short term, the future of big tech is one marked by great possibility.
How did we get here?
In 2022, big tech claims a combined market value of around $2.5 trillion according to J.P. Morgan. Despite a decade of strong growth, the tech industry found itself navigating rising interest rates, rampant inflation, and a reliance on outside investors over companies making real profits. With the pressure to rapidly adapt to economic changes in order to stay afloat, the sector searched for quick fixes in order to survive insecure times.
The current changes in the tech industry can be attributed to five issues:
Bloated cost structures
Unsustainable business design
Changes in consumer patterns
Supply chain difficulties
Competition in the industry.
Bloated cost structures
Big tech once boasted lux working conditions, employee perks, inflated budgets, and global offices; however, those benefits are proving unsustainable if profits cannot be secured. The pandemic boom led to a necessity to recruit and hire the best talent in the industry; therefore workers secured better pay packages and benefits as companies fought to attract and retain talent. Companies are being forced to address these bloated cost structures and cut perks, shrink global real estate footprints, and lay off “non-essential” employees.
Unsustainable business design
Because of the tech boom, the vast majority of tech companies have financial structures highly reliant upon external investments. In moments of greater economic insecurity, companies must prove that they can remain profitable for investors. Current rising interest rates have investors looking for quick returns on investments, forcing companies to also look for short term solutions. Those include unsustainable decisions like cutting staff in order to inflate share prices and give the illusion of maximized profits.
Again, the industry has been propped up on investor speculation. Doug Anmuth, Head of the U.S. Internet team, J.P. Morgan explains, “Key opportunities for Big Tech in 2023 include rightsizing cost structures through headcount reduction and greater operating discipline, increasing focus on profits and cash flow, leaning responsibly into new growth drivers and gaining market share during this tough macro period.” Through trimming cost structures and appealing to investors, companies may secure short term solutions. However, these business decisions are not sustainable in the long term.
Changes in consumer patterns
Due to significant economic changes, inflation, the price of rent, and general economic security, consumer spending slowed in 2022. Non-essential items like some new technologies are the first to go when consumers find themselves facing more precarious economic situations. For example, Apple saw a deceleration in the handset and smartphone markets and was forced to reduce the production of the iPhone 14. This is true across tech: as discretionary spending slows, the industry takes a hit.
Supply chain difficulties
Since the COVID-19 pandemic, we’ve seen great threats to the global supply chain. This is as a result of factories closing during the pandemic, conflicts such as the war in Ukraine, and other threats to global transportation from air freight to rail:
Amazon faces difficulties delivering goods at a fast pace because of operational challenges relating to delivery workers.
Apple struggles to secure quick production of their devices because of factory closures and worker unrest in Zhengzhou, China.
Microsoft posted its worst quarterly revenue growth in five years. They cited surging energy costs as one factor limiting their ability to secure profits.
For tech, a sector modeled on the frictionless flow of goods and services, threats to the global supply chain greatly impact the goods and services that the industry can provide.
Competition in the industry
Tech is appealing and platforms develop quickly because the barriers to entry are minimal and the possibilities for innovation are endless. The sector has grown immensely in a short amount of time, making competition steep. Tik Tok, for example, has beat out Instagram, Snapchat, Youtube, and Facebook as the most used social media platform. Other applications also pose threats to tech companies like Meta and Alphabet. It’s an industry that is growing quickly and the pressure to adapt to market pressures and compete with other platforms is high.
It’s not all gloom and doom: The Future of Big Tech
The chaos we’ve seen in recent weeks should not be understood as an end to the tech industry in the slightest. If anything, the changes in the sector should be thought of as growing pains and opportunities to reorient business strategies and organizational structures. Macro pressures, supply chain difficulties, and industry competition is a reality in any sector. The task here is to understand the current landscape of big tech. The layoffs remind us of the precarity of this work and the insecurity we feel is a testament to the ways in which the whole sector is improvising. The task here is not eliminating that risk, but rather finding new ways to harness it. Leaning into the fluid structures provided by decentralized tech work will become more necessary in order to make this sector work for us.
It’s scary to see the wealthiest of companies struggle, however, with proper analysis, the shifts can be understood as possibilities more than threats to the future of big tech. What’s always been important to big tech is flexibility and a frictionless movement of goods and services. From here, new business strategies must be developed to ensure that tech companies can find solutions that are longer term and not based on false illusions of profitability. How can this happen? Through:
Diversifying income streams
Identifying the chokepoints in the supply chain and finding ways to reduce those potential threats
Creating strategic alliances with competitors to be more resilient together.
A more sustainable era for big tech simply means obtaining a better analysis of the current industry and implementing the necessary changes to be more resilient in the face of a sector that’s successes are owed to its ever-changing structure.
What’s exciting here is the possibility promised by big tech. Of course, we find the industry in a moment of change and under significant stress, yet, the potential for growth, new business strategies and structures, and the opportunity for new competitors to partake in the industry is exciting.
