It is indeed ironical that when Amazon’s Black Friday sales across the world have turned live for Christmas, Amazon founder Jeff Bezos goes public warning consumers to conserve cash and postpone buying goodies such as refrigerators, TVs and cell phones.
Bezos’ message in a recent CNN interview: “….If we are not in a recession right now, we are likely to be in one very soon. If you were going to make a purchase, maybe slowdown that purchase a little bit.”
What seems like a sales hara-kiri, is a carefully modulated campaign to get people to expect worse.
Amazon has announced it will lay off 10,000 people in corporate and technology jobs just ahead of the Christmas holiday season. The company has also launched huge cost-saving moves like winding up its home delivery robot Scout. In India, Amazon is shutting down its EdTech platform and refunding students’ fees.
The bottom line says it all. Though third quarter net sales increased 15% to $127 billion, Amazon’s operating income fell to $2.5 billion, nearly half of $4.9 billion in the same quarter last year.
Recession looms
Big Tech, the darling of investors and job-seekers, is in trouble; and no one knows when the carnage will end. Industry watchers say more than 137,000 white collar jobs in 850 tech companies have gone up in smoke and thousands more are on the line. Some companies have performed badly; others are gearing up to face an imminent recession that could last as long as 2 years.
Meta, the newly-named parent of FB and WhatsApp, has announced plans to fire 11,000 employees – about 13% of the company’s staff strength. Falling advertising revenues pushed down Meta’s net income in the third-quarter 50% to $43.5 billion, from $91.4 billion last year. HP Inc says it will lay off 10% of its workforce of 61,000. Its third-quarter results showed a 11% drop in revenue.
Meanwhile, Alphabet Inc., Google’s parent, is girding itself for a major layoff. The cue has come with the company changing its performance rating system to flag about 10,000 workers, or 6% of its employees, as poor performers.
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India Impact
Big Tech is a globally entwined business operation, and there is no way India could have missed the carnage. The K-12 or EdTech companies – those that provide the 12 years of school education online – have been the worst hit as they ramped up indiscriminately in response to the Covid-stay-at-home demand. Calendar 2022 has so far seen about 7,000 layoffs in this sector. These include Unacademy that has fired around 1,350 employees in 2-3 tranches and Byju’s is letting go of around 2,500 staffers.
A far bigger impact on the country will be the massive numbers of Indian-origin techies who will be now stranded in the US without jobs. Having spent years in getting their H-visas, now without jobs and a sponsor, they face a bleak future and possible deportation. Most techies in the US work with the H-1B visa which is more like a work permit. Under this visa’s conditions, an unemployed person will face deportation if he does not find another sponsor within 60 days of termination.
It is not very difficult to fathom what’s going on. The two years or more of the pandemic gave rise to limitless opportunities. People were stranded at home and learnt to live a new life by crafting their shopping and entertainment needs online via Amazon and Netflix, respectively.
Education came through virtual classes on Byju’s, and business meetings were held on Zoom or Google Meet. Tech companies saw the vision of a new normal and an endless demand for online applications. The sin they committed was they hired for an unseen future, and drove up salaries and investments. Though Big Tech is not in any serious threat, it has been forced to shift gear and shed personnel.
Many had not factored in that some things would go back to pre-Covid times. A survey by a consultancy firm LEK and DC Advisory revealed that 30% of the parents may not renew their online subscriptions for their child learners. Byju’s is perhaps paying the price for not understanding consumer behaviour in time. The company reported a loss of R 2,702 crore for FY2021 against a profit of R7.4 crore for FY2020. Revenue dropped over 30% during the year.
Many companies cutting staff are not reacting to immediate losses but preparing for a looming long-term recession. The Ukraine War has created a spiraling energy crisis and a global economic slowdown that is hitting Big Tech hard. Advertising is its main source of revenue, and if advertisers pull out, Google, Meta and others will face the heat. The impact of long-term recession was first underlined by Coinbase CEO Brian Armstrong, and has been reiterated by among others Elon Musk, Zuckerberg and Jeff Bezos.
Unfortunately, the optics of mass layoffs in Big Tech has a perilous cascading effect. Big Tech is seen as the New World’s business leaders; techies are highly skilled and highly audible. Their groans and anger can more than light a fire.