In the last month, we have had huge layoffs across technology, yet the “real economy” seems robust. What is going on?
Meta is making 2023 ‘a year of efficiency’. Microsoft, Alphabet, and many other companies have stated economic headwinds as the reason for letting thousands of people go.
However, last week, the US posted the lowest unemployment numbers in 50 years(!) while adding half a million jobs.
Ben Thomson discusses this in this week’s excellent Stratechery article.
He points to 4 factors that are causing this disconnect:
1️⃣ 😷 The COVID Hangover -> Companies assumed COVID meant a permanent acceleration of eCommerce spending. Customer behavior has reverted (to a certain extent) to pre-pandemic patterns
2️⃣ 💻 The Hardware Cycle -> Hardware spending is cyclical. After bringing forward spending due to the pandemic, customers are unlikely to buy new hardware for a while.
3️⃣ 📈 Rising interest rates -> The era of free money is over. Investing in loss-making technology companies in anticipation of a future payout is no longer attractive.
4️⃣ 🛑 Apple’s Application Tracking Transparency (ATT) -> ATT has made it difficult to track the effectiveness of advertising spending. This caused enormous problems for companies like Meta, Snap, etc. that rely on advertising.