BL Explainer. Meta, Twitter, Snap and more: What’s behind the layoffs?

1. Twitter, Meta, Snap, Intel, Shopify and Robinhood are some companies that have fired thousands of employees or are believed to be in the process of doing so. What is driving these actions?  

In three words, it is the ‘changing business environment.’ The Covid pandemic boosted technology companies, as most parts of the world were locked down and physical movement was restricted. This led to huge growth and sky-high valuations. As long as the restrictions were in place, tech companies got a black swan boost and hired in huge numbers to address this sudden market opportunity. 

With Covid on the wane and business almost back to normal, some valuations are getting corrected. For instance, Zoom – a communications technology company – which became wildly popular during the Covid lockdown and saw its share price shoot to $559 at its peak, is back to trading at its pre-pandemic level of around $80.

Again, for the likes of Meta, which are largely dependent on online advertising, reopening the physical economy meant lesser eyeballs and thus, lower revenue. For PC sellers or their chip makers, the pandemic had forced millions to buy or upgrade their desktops, laptops, phones, and tablets; that growth booster is now gone. 

All this has meant that they have had to ‘downsize’ their workforce to address newer market realities. 

2. Does this mean a more deep-rooted problem for all social media or digital technology companies? Do they need to re-examine their business model?  

The answer has to be a qualified yes, on both counts. If you wonder why qualified, like any shift in the market, there will be winners and losers. Those who can adapt quickly to newer realities of a global economy growing at a slower pace or contracting, higher inflation, lower spending capacity and ability to navigate rising geo-political risks will emerge winners. In comparison, those who have been either dependent on mainly online advertising or selling digital-only goods or failed to adapt to newer market realities, are likely to face more challenges. 

Some of these technology companies may be forced to re-examine their business models. Witness, Twitter’s new owner charging a sum for a blue tick against one’s name. Some other current ‘free’ platforms and services may also look at ways to monetise besides online advertising. 

3. Do you think other companies will also follow suit in large-scale employee layoffs?  

If the overall economic environment is challenging, it will inevitably impact all enterprises. The degree of impact will vary based on metrics like their exposure to more affected segments of the economy, their market categories, their unique offerings, and their own resilience. Governments are also likely to step in to help protect employee rights and mitigate the adverse effects to the extent possible, with all the levers at their command.

4. What are the implications for Indian employees of these companies? 

In the case of Twitter, some media reports have indicated that their India operations have now been pared down to a skeletal staff, with the majority being ‘laid-off.’ However, this might not be the case in all other instances. The reason for that is very clear. Several global technology companies have ramped up their India operations significantly, not just because of the huge pool of talented technical manpower, but also mainly due to cost reasons. So, while the Indian operations of global companies witnessing layoffs are likely to be impacted, it might be more moderate than some higher-cost geographies like North America and Europe. 

The damage might not be limited to just Indian employees of their global companies. In the inter-connected world, even other Indian workers might inevitably be impacted. For instance, the Indian IT industry employs nearly 5 million people and is a key service provider to several large global enterprises. They will also feel pain for their customers in terms of lesser business and lower margins. Though businesses serving the domestic market may fare better, there will be some domino effect. 

5. Do consumers have anything to fear? Will new user charges be imposed on them, or existing charges be hiked?  

With businesses trying to re-orient their business models, it will inevitably impact end users, aka consumers. Enterprises might look at introducing newer tariffs or increasing existing ones. However, unless a business is a monopoly – which in the tech world is very difficult to sustain over long periods, given the constant innovation -  its leeway to do will be limited as they will be afraid of their customers fleeing to lower-priced competitors.