Microsoft to continue its layoffs

One of the more severe effects of an impending economic downturn is mass layoffs, and the financially robust and high-flying IT sector isn't exempt. In confirming that it had slashed jobs across several businesses, including its Xbox unit, numbers around 1,000 workers, Microsoft Corp. on Monday gave a foreshadowing of things to come. Following news last week of thousands of job cutbacks being planned by Intel Corp. due to a decline in PC sales, there has been a rollback in those plans. In a similar vein, Facebook parent firm Meta Platforms Inc. will be "smaller" by the end of 2023, according to the CEO Mark Zuckerberg, who recently announced comprehensive plans to reorganize the company's teams and slash headcount for the first time. Both Snap Inc. and Netflix Inc. lay off staff this summer due to falling stock prices. Expect additional businesses to follow. Tech companies will be seeking cost-cutting measures if the economy continues to deteriorate while also demonstrating to investors that they are willing to reign in their occasionally wasteful behavior in the face of shifting circumstances. But a more pressing concern is whether the tech sector's impending pullback is a normal and justified reaction to the economy's slowdown or whether some of the top firms are ushering in a new, more frugal age. Along with the economic slump, businesses also confront a variety of obstacles, most notable dangers to their ad-dependent business models. Particularly Meta has struggled with Apple's privacy change, which has cost it around $10 billion in lost ad revenue. In the hopes that a thorough immersion into the virtual world will serve as the company's second act, Meta has invested an additional $10 billion in developing goods and services for the metaverse. Like Meta, Google's ad business is susceptible to a downturn in the economy since during tough times, businesses tend to cut back on expenses like advertising. The business is in a better situation than Meta because of some buffers. Thanks to the expansion of its premium subscription service, YouTube Inc. is generating billions of dollars in income annually, and during recessions, advertisers prefer to boost their spending on search advertisements. Tech engineers, marketing professionals, and product managers may find it difficult to accept the very idea of layoffs. The standard for desirable benefits, high pay, and extras like in-office massages and catered meals was set by this business, after all. Not to mention that, for the most part, the epidemic resulted in significant financial gains for the tech sector. As companies and consumers flocked to services like Zoom Video Communications, Slack Technologies, and Netflix and spent more time online generally, share prices skyrocketed. The pace of hiring kept up, and in some cases, it even increased. Meanwhile, thousands more entrepreneurs benefited from a flood of fresh venture financing, with VC funding growing by 14% in 2020 compared to 2019. During the pandemic, there was also an increase in mega-rounds, or agreements worth more than $100 million. However, as everyone returns to work amid growing costs and higher interest rates, firms are trying to change their strategy. Next week's earnings reports from Google, Apple, and Meta should provide a clearer indication of how much each business may need to reduce. Even while it is painful, restructuring can result in higher efficiencies and expenditure restraint, especially among newer businesses, which will now have access to a wider talent pool thanks to stronger capitalization. At the Bloomberg Technology Summit last month, Tom Stafford, a venture capital partner at the late-stage internet investing firm DST Global, predicted that thousands of startup companies would have to close their doors by 2023. Bad ideas had received far too much funding. He asserted that nearly all concepts could raise money in the previous three years. That's going to alter. It's important to accept failure because not every business will succeed.