Good morning,
Leaders at Big Tech companies are dropping massive “moonshot” projects to cut costs.
An article in the New York Times, "The Perils of Working on a CEO's Pet Project," highlights a current pivot in Big Tech. Typically, when a CEO’s big bet project fizzles, workers just go to another role at the company, and the business absorbs the bad idea. But as companies currently look for budget cuts, employees involved in projects that could take years to make a profit have found themselves among the mass layoffs.
For example, “At Amazon, the ax fell on teams working on the Alexa voice system, drones and automated stores, all projects championed by Amazon’s founder, Jeff Bezos, who no longer runs the company,” according to the Times. “At Google, it hit ventures like autonomous trucks and other so-called moonshots once championed by Larry Page and Sergey Brin, who also no longer run their company.”
I asked Wedbush Securities analyst Dan Ives, who covers tech, for his assessment. “What's happening right now is—the clock struck midnight for hypergrowth in Big Tech,” Ives tells me.
Prior to this, “they've spent money like 1980s rock stars,” he says. Hiring increased during a “hypergrowth phase” over the past decade, Ives says. “It’s led to a rip the Band-Aid off moment, where a lot of the moonshot or next-gen projects could easily get cut,” he says. “And now these CEOs are having to make tough decisions that they haven't had to make since the financial crisis in 2009.”
But is eliminating teams of highly skilled professionals a good move for a company in the long run? A recent Mercer report advises that if you do reduce headcount, it’s important to “decouple skills from jobs.” This means that even if unneeded roles are eliminated, employees with critical skills are retained and redeployed to different areas.
I asked Ives his thoughts on that approach. “The headcount cuts that are happening across the board in Big Tech are on more legacy areas or less strategic areas,” Ives says. “Those employees could get moved around from one division to another. But I think what you're seeing in these massive layoffs is a prioritization of resources that's happening across the tech space.”
Big Tech companies combined have almost a trillion dollars on the balance sheet, Ives says. “So, there are significant resources that are going to be allocated to drive the next cycle,” he says. For example, "Apple and Amazon are now laser-focused on where they’re spending," he explains. "But from Apple’s AR [augmented reality] and VR [virtual reality] to Amazon’s build out of cloud, as well as artificial intelligence capabilities, that’s not going to stop.”
“I think there's the fourth industrial revolution that's playing out among tech around A.I., ChatGPT, electric vehicles, and cloud,” Ives says. “Spending in next-gen areas is going to actually accelerate in this Game of Thrones battle that's going on between tech.”
And in this Game of Thrones, tech talent may take more caution in deciding whether to jump to their CEO's pet project.
Sheryl Estrada
sheryl.estrada@fortune.com
