Big Tech layoffs: Has Silicon Valley finally 'lost its mojo'?

Tens of thousands of tech workers have been laid off in the last few months—even pandemic kings like Amazon (AMZN) have slashed jobs. The laundry list of villains is familiar: inflation, a hawkish Fed, sluggish consumer demand and slower ad spending. And, of course, the threat of a recession in 2023.

Still, the numbers are jarring for a sector that's boomed for a decade: 11,000 jobs slashed at Facebook parent Meta (META), 10,000 at Amazon, and about 7,500, so far, at Twitter. Additionally, layoffs have slammed Stripe, Salesforce (CRM), Lyft (LYFT), DoorDash (DASH), and Carvana (CVNA).

But what does this all mean about the state of the industry? Are we looking at years of a tech bear or is this a fleeting setback? Why is this happening?

Yahoo Finance spoke to eight experts, from economists to historians and business scholars, all of whom said some variation of this: If you look at history, mass layoffs in tech are more common than you might expect. So, to understand what might lay ahead, we might be well-served by looking at what has happened in the past.

For one thing, said historian Margaret O'Mara, this isn't armageddon for Silicon Valley. The industry has rebounded from sharp slumps before. As recently as 2014 to 2016, a spate of old-guard tech companies like Intel (INTC), Microsoft (MSFT), and Dell (DELL) "right-sized" followed by another bullish era.

"I see this as another chapter in Silicon Valley's boom and bust story," said O'Mara. "There's something of a rhythm to it, and it's been a long boom."

In the 1999-2000 dotcom bust, she pointed out, the sector weathered waves of layoffs and bankruptcies—and then dived headfirst into another boom. Today, explained O'Mara, tech has an advantage now that it didn't then: "You didn't see the super-dominance of these platforms," she added, "which now have influence in so many domains."

Simply put, the economy needs tech more than ever. These companies, whether Microsoft or Amazon, no longer just make hardware or sell goods – they bolster and provide critical infrastructure to so many, if not all, other industries.

Daniel Keum, a professor of management at Columbia Business School, said the key difference between these tech layoffs and the those of the past is that the current round of cuts are fundamentally precautionary.

"It's a lot more preemptive this time," he said. "In earlier cycles, they would have let it run another two or three years – or at least a year even. This time, however, they're pulling off the Band-Aid way earlier than they would have before."

He added: "These companies saw what survivors did after the dotcom bubble and the Great Recession, so they're sitting on piles of cash and doing layoffs now so they can come out swinging once the dust settles."

Lessons are also filtering down to the workers themselves. Ahmed Banafa, an engineering professor at San Jose State University, found himself caught in the tech layoffs of the dotcom bust and now he is proactive about telling his students that even great tech jobs aren't layoff-proof.

"I tell my students, always have a Plan B," he said. "The job you have now is your job, and don't get attached to the company. You don't own the company, you are one of the people working for it. Tech isn't so different from other industries. The same way you could leave the company for a better job, if the economy starts giving the company a hard time, they could let you go. So, Plan B, even in tech, is important."

What goes up must come down

If there's one thing we learned about tech history it's that busts are common – and inevitable. And so are the rebounds and the explosion of new industries entirely, said Vanderbilt University professor and former SEC economist Joshua White. “We had this decade of explosive growth in tech, and we moved to this app economy,” he said.

As the 2010s came into focus, tech benefited from the Fed's post-Great Recession policies: low interest rates and quantitative easing (QE) pumped easy money into the U.S. economy. “I think it's fair to connect the dots all the way from QE to Big Tech," said White. "Tech received patient capital from investors because interest rates were just so low."

That "patient capital" seemed to pay off in 2020, as COVID-19 hit and created a rare but massive profit-making opportunity for tech giants, ZipRecruiter Chief Economist Julia Pollak told Yahoo Finance.

"Companies faced a once-in-a-lifetime opportunity during the pandemic, one due to very favorable conditions, with very low interest rates, free money everywhere," she said. "Even more importantly, there was a business opportunity that came from people being forced to stay home, stop shopping in-person, and stop going to sports events and concerts... So, it made sense that those companies lean into that moment heavily and make a big investment and capitalize on that sort of leverage to appeal to even low propensity customers."

Head counts at the tech firms, as a result, ballooned—hiring not just for current growth, but for future growth, Harvard Business School professor Ranjay Gulati told Yahoo Finance. Those executives wanted "to be ahead of the curve, not behind," he said.

Sometimes, of course, you can be far enough ahead of the curve that you have to take a step back. When inflation skyrocketed and the Fed raised rates, growth became more expensive as money became more expensive, said Gulati. However, it would be foolhardy to just blame the Fed for the industry's woes, he added.

"When you're unable to grow, it's typically symptomatic of a failure to innovate," Gulati told Yahoo Finance. "We have to wonder – has Big Tech lost its mojo?"

Added Keum: "This bubble of sorts was driven by overly optimistic projections of growth that never materialized, exactly what we've seen in previous tech bubbles."

Nevertheless, long-term, Mark Gibson, KPMG Global and US Tech, Media and Telecoms Sector Leader, isn't worried.

"The industry is coming back down-to-earth, realizing they have over hired," he said. "Demand for tech talent, however, is still very high and structurally long-term is not going anywhere. Further, technology is an integrated part of daily life and will only become more integrated in the future, so while there are short-term headwinds. Long-term, I remain very bullish on tech and where it’s headed."

So, where do we go from here? Well, layoffs may not be over just yet, Bledi Taska, Lightcast Chief Economist, told Yahoo Finance.

"Looking at the data, I wouldn’t be surprised if we saw another spike of layoffs in January,” he said.

While layoffs are terrible for those affected by them, in the grand scheme of things, we could see it reshuffle talent in the industry in exciting ways, Taska added. That axiom about downturns being opportunities to build has been true in the past in tech.

“All these layoffs in tech for me aren’t necessarily bad news," he told Yahoo Finance. "People who’ve been fired with technical skills are getting hired and a lot of these layoffs might lead to startups. It's hard because money is expensive, but that's certainly something we've seen before. "

Though this hasn't been an easy time for tech, our memories are short and it's easy to forget that we're not that far off from where companies were at as recently as a few years back, Taska added.

"Companies responded to a once-in-one-hundred-years demand shock, and now we're seeing things return to where they more or less were in 2019," he said.

Ultimately, the question isn't whether the industry will rebound. It's what the next big innovation will be that drives and shapes that rebound.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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