Meta, Twitter, Amazon last November, and now Google and Microsoft: layoffs are raining down in the kingdom of GAFAM. Are we witnessing a turning point after years of hegemony? We put the question to Paul Belleflamme, professor of economics at UCLouvain.
Twitter got the ball rolling last November, announcing the layoffs of nearly 50% of its workforce. A special case since these occur at the time of the takeover of the platform by the whimsical Elon Musk. The latter accused “a group of activists” who would have “pressured advertisers” concerning the moderation of the content of the platform, which has become more lax under the aegis of the boss of Tesla. Several large groups, such as General Motors and Volkswagen, have indeed suspended their advertising expenditure on Twitter.
Twitter got the ball rolling last November, announcing the layoffs of nearly 50% of its workforce. A special case since these occur at the time of the takeover of the platform by the whimsical Elon Musk. The latter accused “a group of activists” who would have “pressured advertisers” concerning the moderation of the content of the platform, which has become more lax under the aegis of the boss of Tesla. Several large groups, such as General Motors and Volkswagen, have indeed suspended their advertising expenditure on Twitter. But perhaps these advertisers would have left in any case, since this is the trend of the moment. Indeed, barely a week later, it was the turn of the giant Meta, led by Mark Zuckerberg, to announce more than 10,000 layoffs. The platform also shows a loss of revenue on the advertiser side, but also an “unstable” macroeconomic context in the face of inflation, which rather encourages savings. “All companies face the same economic problems, but GAFAM even more so” , says Paul Belleflamme, professor of digital economics at UCLouvain. “Indeed, demand is less strong, because individuals are cutting ‘superfluous’ expenses, and will therefore, for example, decide to stop certain subscriptions on platforms. And the current crisis is worse than the forecasts of some.” days later, Amazon takes over by announcing that it will also cut 10,000 jobs. Victim of the same symptoms mentioned above, the company of Jeff Bezos also seems to have difficulty waking up from the period of confinement. If it was a nightmare for most people, the GAFAM got rich spectacularly, and therefore hired with a vengeance. But as all good things come to an end, that of containment slowed down their activities.” GAFAM invested a lot during Covid with the increase in online orders. It’s easy to say things after the fact, but on the moment, they thought that this trend was going to continue. These kinds of companies also force and encourage behavior and they plan to take advantage of it more”, confirms Paul Belleflamme. The researcher adds that “many of these laid-off people find a job very quickly, as their skills are in high demand. Nevertheless, these waves of layoffs create a tense atmosphere in these large companies, as those who remain wonder if they will be next. “And so it continues at the start of 2023. Microsoft joined the troop, announcing several thousand job cuts, followed by Google last Friday. Sundar Pichai, boss of Alphabet, Google’s parent company, simply said that he “hired in an economic context different from that which we know today”. The cocktail of inflation, fear of recession and post-pandemic context has therefore claimed two new victims. Additional elements of context now make it possible to understand a little more what these companies will have to overcome to continue to exist. Meta indeed also spoke of “increased competition”. The group, owner of Instagram, is fighting in particular with its direct competitor TikTok, which is currently one of the most popular applications among young people. The revenues of the latter would have increased by 80% in 2021, even if its economic health is not guaranteed. Mark Zuckerberg also speaks of “rising costs for our long-term investments”, probably referring to the metaverse, which does not currently convince investors. For its part, Microsoft seems to be betting on innovation and artificial intelligence . The digital giant could indeed spend ten billion dollars in the Californian start-up OpenAI, at the origin of ChatGPT, an application which is currently causing a stir among young people by being able to write entire texts on a simple question. The important thing for these companies is to have an attractive balance sheet in relation to investors and to satisfy shareholders.And in this kind of tense context, a lot of specialists say that it is not enough to reduce the workforce, but that you have to think about a global strategy. Facebook has not had the expected results with the metaverse and TikTok is a serious competitor”, explains Paul Belleflamme. The UCLouvain researcher concludes: “at Microsoft, they may be trying to make it appear that these changes are thought out in order to invest in other technologies rather than suggesting a change of mood. But sometimes, the behavior of some cause others to do the same. And that may be the case with these layoffs.”