What is Driving Tech Layoffs and How Do They Affect Your Business?

Prepare for a tech sector reality check in 2023: According to the Crunchbase tech layoffs study, this year in the US, more than 155,589 IT workers have been laid off, with a startling 93,000 jobs slashed in 2022. Google, Microsoft, Amazon, Meta, and Alphabet are leading the layoffs. But why are the tech layoffs happening? Prepare for the rippling effects of layoffs on companies and the economy that rely on these digital titans. 

The $1,000,000 question is how will it affect YOUR business? 

Stay alert and prepared!

Why are there so many layoffs in tech right now?

Learn about the exciting world of tech, where innovation and expansion coexist, and yet layoffs can happen. Study the cases of large business giants that are experiencing turmoil as a result of:

• Technological breakthroughs
• Post-pandemic adjustments
• Overhiring

On this eye-opening tour, OmiSoft uncovers the stories behind what is causing the tech layoffs and how they will affect your business. 

Are you ready for a deep dive? Let’s go!

AI is advancing at a rapid pace

The fast growth of technology, particularly in AI and ML, has lowered the demand for human employees in the IT industry. As a result, many people are losing their jobs. 

For example, we previously stated that Dropbox, a cloud storage business, had just revealed that it would be laying off about 500 people, or 16% of its staff. With the leading rate of tech layoffs San Francisco, the company owes it to the start of the AI era of computing. 

Dropbox CEO Drew Houston noted that the company’s choice to let people go is a cost-cutting strategy that would allow the company to devote resources to new areas. The CEO believes that layoffs are beneficial for long-term business gains, although not necessarily for short-term profit.

Also, many other SF tech layoffs are caused by the rapid pace of ML and AI software development. The companies and employees who will manage to incorporate AI development software and other solutions will grow and succeed, while those who won’t will lose to their competitors.

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The post-pandemic situation

The COVID-19 pandemic has also brought a variety of complications, including major layoffs in the IT industry. Clubhouse, a popular social audio app, is a prime example. Due to changing client preferences in a post-pandemic environment and the challenges of working remotely, the firm has laid off more than half of its staff. 

Paul Davison and Rohan Seth, the company’s co-founders, said that it has become difficult for many individuals to connect with one another at Clubhouse and have lengthy talks in their everyday lives. With more than $100 million in venture capital funding, the firm is currently focusing on developing “Clubhouse 2.0” with a smaller, more efficient crew.

So, the other answer to what caused tech layoffs is the challenges of global pandemics and recovery afterward.

Hiring too many people

According to Business Insider, Stripe, a top financial business headed by the Collison brothers, made news towards the end of 2022 when it let off 14% of its employees out of an 8,000-person workforce. But what is driving tech layoffs?

Stripe CEO Patrick Collison explained that the layoffs were the result of overhiring during the pandemic-induced e-commerce boom, followed by an economic recession with rising interest rates, and other macroeconomic impediments. 

This story is common in the IT business, for example, the same reasoning is behind Walmart global tech layoffs. As companies overestimate their ability to grow and then reduce their employment to match the market situation.

Economic turbulence

Economic turbulence is difficulties or challenges that negatively influence the economy as a whole, such as:

• Recessions
• Inflation
• Rising interest rates
• Unstable market

The four horsemen of the apocalypse…or at least tech layoffs 2023 Reddit discussions!

These issues might have a negative impact on business revenue and growth. And they push businesses to use measures to reduce expenses, such as layoffs, in order to shift their internal processes and remain competitive. 

Amazon, for example, has seen enormous layoffs due to economic turbulence, which has resulted in big Seattle tech layoffs. In particular, the company has shed more than 150,000 jobs in 2022, while Salesforce just declared that it will lay off 10% of its workers, boosting the level of San Francisco tech layoffs.

What are the effects of mass layoffs on employees and companies?

The consequences of mass layoffs affect organizations and employees and may be both good and not so much for the businesses that use them. The most important ones are:

• Employees are affected both economically and psychologically. People who have been laid off may have difficulty obtaining new work in addition to losing their pay. Employees may suffer from depression on a mental level.

These people typically come with anxiety and panic disorders, and there is a significant increase in such patients in psychiatric facilities. A handful of them are currently on medications, and the dosage has increased as has the intensity of their symptoms.

• Employee layoffs affect the fear of no stability among employees who remain working, significantly impacting the internal atmosphere in the company.
• Layoffs can lead to the loss of key skills and expertise, resulting in decreased production.
• It might send a message to clients that the company is going through an uncertain time or is experiencing a crisis.
• How could layoffs of such intensity affect business?

It pours when it rains. That’s the simple truth. But why layoffs are bad for business?

The negative effects of layoffs can go beyond the company’s staff and influence the business’s connections, from investors to vendors. Or they can overlap with some other challenges that the company faces.

Let’s look at some recent examples of organizations that had large layoffs while also tackling other urgent challenges.

Layoffs at Meta

The massive layoffs are part of Meta’s larger reorganization drive, which CEO Mark Zuckerberg characterizes as the “year of efficiency.” The speculation is that some projects and teams at Facebook and Reality Labs will be laid off, and game developers may be reasonably safe, as Meta intends to promote its metaverse.

Layoffs at Shopify

Shopify has announced the sale of its logistics firm Deliverr to Flexport for around 13% in shares, in addition to major layoffs in 2023 (20%). Larger organizations, according to Shopify CEO Tobias Lütke, tend to get a lot of side projects that take attention away from the company’s core activities.

Layoffs at GitHub

Microsoft-owned developer platform GitHub has cut off a major percentage of its technical crew. According to Fortune, the company let go of around 10% of its employees (of about 3,000) and went fully remote.

And these layoffs had a big influence on India’s developer market, as it’s a critical engineering hub for many multinational corporations. The layoffs at GitHub, a popular development platform, have affected the Indian economy and the job market.

Layoffs at Salesforce

Aside from recent large layoffs, there is a significant lack of transparency in the layoff strategy: it is not obvious why Salesforce is performing the layoffs in stages. Employees’ LinkedIn posts reflect their emotions of anxiety and irritation as a result of the lack of openness. 

Also, in recent months, the corporation has experienced constant challenges from 5 investors, putting pressure on them to take measures to reduce expenses. That’s why how many tech layoffs in 2023 are yet to come? We can only estimate, but analysts say the layoff is far from over.

Bottom line: How do all the tech layoffs influence YOUR business?

As we can see, major layoffs in the field of tech can have enormous and far-reaching effects on your company. These layoffs can provide both difficulties and opportunities for your operations and market dynamics. On the one hand, huge layoffs may result in a larger pool of highly-experienced specialists, opening up prospects for recruiting top talents.

Moreover, large layoffs can have an impact on market dynamics, causing changes in price, availability of products, and client demand. As organizations reorganize and adapt to changing market dynamics, industry trends and relationships may also change. 

Nonetheless, companies should make an effort to monitor and anticipate the effects of mass layoffs, manage the shifting landscape effectively, and proactively change their strategy to reduce risks and capitalize on new possibilities.

By Yevhen Sakara

CBDO & Co-founder

Aug 01, 2023

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