With the layoffs, the suspension of hiring and the adjustments in the business strategies of Big Tech, we can affirm that these large technology companies are in a moment of important changes.
Despite years of growth and the rise of the pandemic, 2022 turned out to be a tough year for tech giants like Meta, Amazon, Alphabet and Twitter. In recent weeks, we’ve seen massive layoffs in the tech sector, new leaders leading to disastrous organizational changes, and spending cuts across the tech industry. With a possible recession and plummeting revenues, 2023 will be telling as to the future of Big Tech.
In November, Meta CEO Mark Zuckerberg announced that the company would cut nearly 13% of its workforce (11,000 jobs) and called for a hiring halt. Amazon followed suit after its third-quarter earnings missed expectations and laid off 10,000 employees in technology-related positions. Last week, Google CEO Sundar Pichai announced the layoff of 12,000 employees. And, of course, the latest tech CEO, Elon Musk, laid off about two-thirds of Twitter’s workforce . The industry is in a more unstable time than ever. And, therefore, we are forced to address some of the root causes of this very precarious sector.
This stage is marked by greater instability, a concentration of speculative financial capital, a post-Fordist economy, and greater income inequality. Software development services boomed during the pandemic because it was able to capture a larger audience by shifting to working from home and further decentralizing the ways in which we participate in the flow of capital. However, the success of technology is not necessarily linked to actual benefits; It is largely backed by investor speculation and potential profits anticipated by shareholders and economists. In other words, the custom software development service industry is not going through a bad moment that it will be able to overcome easily, but rather the opposite: its precarious structure is being exposed.
That said, these drastic changes should not be understood as industry failures. We could say that they are a bump in the road of a sector that has proven to be more than flexible . The decentralized structures of the technology industry allow for advances and collaborations that used to be unthinkable in previous business initiatives. Platform-based structures provide seamless ways to connect users, consumers, and customers. In other words, traditional conceptions of creating sustainable businesses do not necessarily apply to the industry.
How did we get here?
According to JP Morgan, Big Tech’s aggregate market worth was estimated to be around $2.5 trillion in 2022. Despite experiencing a decade of strong growth, the technology sector faced rising interest rates, rampant inflation and a dependence on external investors over companies that made real profits. Under the pressure of having to quickly adapt to economic changes to stay afloat, the sector looked for quick solutions to survive times of insecurity.
The current changes in the technology industry can be attributed to five factors:
- Inflated cost structures
- Unsustainable business design
- Changes in consumption patterns
- Supply chain difficulties
- Competition in the sector
Inflated cost structures
Big Tech once boasted luxurious working conditions, employee benefits, inflated budgets, and offices around the world. However, these advantages are unsustainable if profits cannot be secured. The rise of the pandemic generated the need to hire the best talents in the sector . Workers therefore secured better pay packages and benefits as companies struggled to attract and retain talent. Companies are forced to address these inflated cost structures and cut profits, reduce overall real estate footprints, and lay off “non-essential” employees.
Unsustainable business design
Due to the rise of technology, the vast majority of custom software development company have financial structures that rely heavily on external investments. In times of greater economic insecurity, companies must demonstrate that they can remain profitable for investors. The current rise in interest rates makes investors look for quick returns on investments, forcing companies to also look for short-term solutions. These include unsustainable decisions such as staff cuts to inflate share prices and appear to be maximizing profits.
Once again, the sector has relied on investor speculation. Doug Anmuth, US Internet Team Leader at JP Morgan, explains: “Some of the key opportunities for Big Tech in 2023 are reducing cost structures through headcount reduction and greater discipline. By cutting cost structures and attracting investors, companies can secure short-term solutions. Of course, these business decisions are not sustainable in the long term.
Changes in consumption patterns
Due to major economic changes, inflation, rent prices and general economic security, consumer spending slowed in 2022. Non-essential items, such as some new technologies, are the first to go when consumers find themselves in more precarious economic situations. For example, Apple saw a slowdown in the phone and smartphone markets and was forced to reduce production of the iPhone 14. This is the reality that affects the entire technology sector: when discretionary spending slows, the industry receives a hit.
Supply chain difficulties
Since the start of the COVID-19 pandemic, we have seen major threats to the global supply chain . This is due to factory closures during the pandemic, conflicts such as the war in Ukraine, and other threats to global transportation, from air to rail:
- Amazon is struggling to deliver its products at a fast pace due to operational issues related to delivery drivers.
- Apple is struggling to ensure rapid production of its devices due to factory closures and worker unrest in Zhengzhou, China.
- Microsoft posted its worst quarterly revenue growth in five years. They pointed to rising energy costs as one of the factors limiting their ability to make profits.
For technology, a sector that relies on the smooth flow of goods and services, threats to the global supply chain greatly affect the goods and services the industry can provide.
Competition in the sector
The technology is attractive and platforms develop rapidly because the barriers to entry are minimal and the possibilities for innovation infinite. The sector has grown exponentially in a short time, so competition is fierce. TikTok, for example, has surpassed Instagram, Snapchat, YouTube and Facebook to become the most used social media platform. Other applications also pose a threat to technology companies such as Meta and Alphabet. This is a rapidly growing industry and the pressure to adapt to market pressures and compete with other platforms is high.
Not everything is pessimism: the future of Big Tech
The chaos we have witnessed in recent weeks should not at all be understood as the end of the technology industry. In any case, changes in the sector must be considered as growth difficulties, but also as opportunities to reorient business strategies and organizational structures. Macroeconomic pressures, supply chain difficulties and industry competition are a reality in any sector. The important thing here is to understand the current Big Tech landscape . The layoffs remind us of the precariousness of this work. The insecurity we feel is a reflection of the way in which the entire sector is improvising. It is not then about eliminating that risk, but about finding new ways to take advantage of it. Leaning on the fluid structures that decentralized tech work provides will be increasingly necessary to make this sector work for us.
Seeing how the richest companies struggle is scary, but with proper analysis, changes can be understood as possibilities rather than threats to the future of Big Tech. What has always been important for Big Tech is flexibility and fluid circulation of goods and services. From here, new business strategies must be developed to ensure that technology companies can find longer-term solutions and not only rely on giving a false image of profitability. How does this happen? As follows:
- Diversifying income streams
- Identifying bottlenecks 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 to a sector whose successes are due to its constantly changing structure.
What is exciting here is the possibility that Big Tech promises. Of course, we are dealing with an industry in flux and under great stress, but the potential for growth, new business strategies and structures, and the opportunity for new Competitors participating in the industry are exciting.
