San Francisco’s downtown has slowly come out of its pandemic hibernation, as tourists return to the city and some workers go back to their offices. But during lunchtime on a recent weekday, the entrance to Twitter’s headquarters, just off bustling Market Street, was quiet, despite new owner Elon Musk’s command that workers return to in-office work. Since taking over the company at the end of October, he’s fired more than two-thirds of its employees.
At the end of 2022, nearly 30 percent of San Francisco’s commercial office space was empty, compared with just 3 percent at the end of 2019, according to CBRE, the global real estate services company. Tech companies have cut almost 80,000 employees in the San Francisco Bay Area since the beginning of 2022, according to layoff tracking website layoffs.fyi.
On Thursday, Apple, Google and Amazon — among the biggest drivers of the West Coast economy, will announce their year-end 2022 earnings numbers. The reports are shaping up to be some of the most important in months for Wall Street analysts and investors, who have been asking the firms to fire workers and cut costs and want to know tech CEOs’ predictions for the industry in 2023.
“Big Tech earnings this week will fill in a major piece of the [Wall] Street puzzle,” said Dan Ives, an analyst with Wedbush Securities. He said he expects the companies to signal that more layoffs and cost-cutting could be coming, even as the markets for digital advertising and cloud storage — crucial for Big Tech — are beginning to stabilize.
After a decade of largesse, the biggest tech companies are casting off their reputations as places that offer lifetime employment with free food and high salaries as they embrace the reality that they’re calculating corporations focused on one thing over everything else: making money. During the boom years, tech companies could spend however they wanted, charming Wall Street with consistent growth and spinning tales of how multibillion-dollar investments in cloud services and artificial intelligence would create massive new revenue streams. Now, investors are pushing company managers to get back to basics. To Wall Street, investments in delivery drones and internet-broadcasting balloons look less like innovation and more like expensive distractions.
At the same time, the companies have seized the explosion of interest in artificial intelligence technology as an opportunity to tout their tech prowess. Microsoft recently struck a major deal with OpenAI, a smaller tech company that has released chatbots that have captured regular people’s wonder and attention in ways AI leaders like Google haven’t yet been able to.
The big companies are all pushing AI to the front of their marketing and are trying to launch products faster. Facebook is still investing huge sums in building out products for the metaverse — a loosely defined term for a set of digital worlds that the company hopes will be the next major platform for work, recreation and commerce. It even rebranded itself as Meta in 2021.
Meta CEO Mark Zuckerberg said during an earnings call on Wednesday that the company plans to remove layers of middle management in an effort to make decisions faster and become more productive. He’s also planning to deploy new artificial intelligence tools to help engineers become more productive and cut projects that aren’t performing or are no longer crucial to the company’s priorities. He’s calling 2023 the “year of efficiency.”
“We closed last year with some difficult layoffs and restructuring some teams. And when we did this, I said clearly that this was the beginning of our focus on efficiency and not the end,” Zuckerberg said. His comments came as the company posted its third straight quarterly revenue decline.
It’s a sharp shift from previous years, when the companies positioned themselves as engines of innovation and change, despite the bulk of their money coming from traditional revenue streams such as e-commerce, digital advertising, and hardware and software sales. Google’s founders restructured the company in 2015 as Alphabet, saying the change would allow its core business to run separately from new ventures like self-driving cars and a research lab that studied how to prolong life. But eight years later, the company still gets almost all its money from ads and has shut down many of its “moonshot” side projects.
For the past decade, Big Tech firms grew to gargantuan sizes, riding the waves of historically low interest rates and the massive changes wrought by the internet to cement their place among the most profitable and powerful corporate entities in history. At the end of 2021, the peak of the bull market in tech stocks, the combined market value of Google, Facebook, Amazon, Apple and Microsoft was nearly $10 trillion — twice the gross domestic product of Japan. Google alone brings in around $750 million every single day.
Those massive rivers of money allowed the companies to spend big. Competition for tech workers led to a years-long arms race, in which companies offered such perks as free laundry, food and massages, and bigger and bigger salaries. Software engineers fresh out of college could expect to make $180,000 a year in pay and stock grants if they won a coveted Big Tech job. The companies bought their way into new industries, increasing their power.
Google in particular had a reputation around Silicon Valley as being a place where workers could spend their entire careers, moving between projects and steadily progressing up the pay levels while collecting valuable stock options. The company encouraged workers to be “googley” — an adjective for people who were friendly, humble, hard-working and willing to help their colleagues.
Google had never done major layoffs. Even after competitors like Microsoft and Amazon announced huge cuts, Google workers said they expected the company to instead fire low performers in a piecemeal way rather than conduct mass firings.
But the layoffs came, showing up as emails in people’s inboxes in the early morning of Jan. 20. Some workers found out they’d been cut when they tried to log into their work accounts and got error messages. The cuts hit across the company, but Google’s internal incubator, Area 120, a home for employee side projects, was almost completely gutted, according to a person familiar with the matter. Mandatory filings Google made with the state of California show signs that one of the company’s famous free benefits might be ending: The layoffs included two dozen massage therapists.
The tech industry is far from crashing like it did when the 2000 dot-com bubble popped. After that crash, tech companies were viewed as somewhat fiscally irresponsible, and the market treated them with wariness, said Tom Essaye, president of Sevens Report Research. They don’t want to fall into that pattern again, so they’re cutting proactively, largely to appease shareholders, he said.
Amazon has scaled back massively on its plans to expand into brick-and-mortar retail stores, with CEO Andy Jassy singling out the division in his memo announcing the company’s 18,000 layoffs. For years, the e-commerce giant had invested in physical stores, even buying the Whole Foods grocery chain for $13.7 billion in 2017.
Amazon founder Jeff Bezos owns The Washington Post.
Facebook has scaled back on data-center construction, something that had pushed up its costs over the past several years. At the same time, it expanded its stock buyback program, a gift to investors who saw the company’s shares fall heavily last year. Shares jumped nearly 20 percent after it announced its earnings results Wednesday.
Apple is the one Big Tech company that hasn’t announced major layoffs. The iPhone maker didn’t hire as rapidly as other companies did during the pandemic, and its revenue comes largely from hardware sales and subscriptions, as opposed to e-commerce and digital advertising. The company’s earnings will give insight on how consumers around the world are spending, said Ives, the Wedbush analyst. “Apple will likely cut some costs around the edges, but we do not expect mass layoffs,” he said.
California labor laws require companies to give employees two months of warning before laying them off, meaning most people who lost their jobs are technically still employed, even though they’ve been locked out of their offices and equipment. One employee who lost his job after 13 years at Google said the company truly felt like it wasn’t a regular corporation, but a place where the ultimate goal was to bring big world-changing projects to fruition.
But the layoffs have definitively curtailed that spirit, he said. The laid-off worker recently spoke to a colleague who is still employed but has lost much of his faith in the company. “He said, ‘the magic of Google died for me, and I don’t know how to stay motivated.’ ”
Rachel Lerman, Naomi Nix and Faiz Siddiqui contributed to this report.