Mass layoffs at Facebook, Twitter and Amazon: is the tech bubble about to burst?

The technology industry has flown the banner of global economic growth for the past 10 years. Today, however, something is happening. Very representative companies such as Facebook, Twitter either Amazon They face massive layoffs that makes us wonder what is happening in the sector, could projects as ambitious as the Metaverse be affected by this general crisis?

The figures are not light. Twitter laid off half of its 7,500 employees worldwide, Facebook did the same with 13% of its workforce –more than 11,000 people–, AmazonFor its part, it would be planning to retire 10,000 employees, according to a report by The New York Times. And just like these companies, there are many others that are going the same way.

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On the other hand, according to recent earnings reports from companies like alphabet, Amazon, Goal Y Microsoftthe projections were not fulfilled, which caused their shares to plummet. Just Meta, for example, lost more than 70% of its market value so far this year; However, despite that and the staff cuts, Zuckeberg has said that she will continue to focus on the metaverse, something that seems to make investors uncomfortable. In fact, the company has already had to step aside from some technologies that were in development.

Crisis of 2000: the dotcom bubble

“It was believed, at that time, that by having a presence in cyberspace, every business was going to be fruitful,” comments Bruno Ortiz. (Pixabay/)

This whole situation reminds the dotcom bubble crisis of 2000. That time, At the height of the Internet and web pages, a very strong speculative current was generated among companies in the sector that gave way to a bubble that ended up bursting.

The enthusiasm for emerging technologies (especially in the area of ​​information technology and telecommunications) caused capital to move towards this sector in the market. With the arrival of money, companies were expected to develop, grow and reward the investors who bet on them.

Technology can be something very attractive, however, many times it takes time to establish its foundations and show that it really is efficient. That time, big projects started to fail and the doubt appeared. It did not take long for capital to flee to less volatile sectors. Even before the collapse, specialists warned that the bubble would burst sooner or later.

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“At the time it was believed that by having a presence in cyberspace every business was going to be fruitful. Imagine, there was a page called Hats.com that was dedicated to selling hats online. We are talking about the first years of the first decade of the 2000s. They thought they would sell millions and millions of dollars simply by being on the web and having their page, without taking into account that the hat business has been a niche market since forever”Bruno Ortiz, a journalist specializing in technology and science, tells El Comercio.

During the stock market crash, many online stores, such as Pets.com, Webvan, and Boo.com, as well as several communications companies, such as WorldCom, NorthPoint Communications, and Global Crossing, went under and eventually closed. Some others, such as Cisco, Amazon.com, and Qualcomm, lost a large chunk of their market capitalization but survived.

“In 2000, the foundations on which it was founded [el mercado tecnológico] were mere expectations as a result of the foreseeable generational change that would lead to the proliferation of Internet use. But at that time the networks did not have enough reach and access to connectivity devices was not yet within the reach of the majority, to assume a generalization of the phenomenon.says Luis Ortigueira, a professor in the administration department of the Universidad del Pacífico.

“It wasn’t until 2007, with the iPhone, that there was real integration and a mobile device with real levels of usability, setting what would be the benchmark in the industry. But we cannot speak of a large-scale effect until the popularization of affordable smartphones that have been based on the Android operating system”add.

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Could we be close to a new tech bubble?

Today -and after a period of prosperity-, although the technology sector is not having a good time, nothing seems to indicate that we will go through a situation similar to that which occurred at the turn of the millennium. Things seem to be different this time.

In fact, Ortigueira believes that today the situation is radically different. The reduction of personnel and the loss of value in the market of technology companies are based on a readjustment or return to a pre-pandemic situation. The gradual return to normality and ‘offline’ habits that for a long time were, due to restrictions, inaccessible It has led to a reduction in the ability of companies to reach consumers with advertising messages.

“Let’s remember that these companies base their business model on their ability to micro-segment customers or, in other words, on their ability to give the right message, with the right stimulus to the right individual to generate a response from them”Explain.

The storm after the bonanza

Meta lost more than 70% of its market value so far this year (Photo: Facebook)

On the other hand, the pandemic brought a accelerated digital transformation. What under other circumstances would have taken many years was done in a few months. This situation demanded a strong commitment to the industry. Even as other sectors cut staff, the technological one demanded more human capital. Thus, when some firms went bankrupt, technology companies did not stop growing.

Complications appeared with the arrival of the current economic crisiswhich has triggered inflation, and the ukrainian warwhich has brought shortage problems.

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The professor from the Universidad Pacífico explains that the waste of disproportionate hiring decisions and without management foundations has led to a drag on the results of many of these companies.

“Let’s take into account that the scope of control, that is, the ability to coordinate and supervise employees in different areas, has increased excessively, which has affected performance in these areas. That is why several of these companies are now considering measures to evaluate the performance of these new employees that justify the suitability of the contracts.”, refers Ortigueira.

Likewise, as William Quinn, an academic at Queen’s University Belfast, recently pointed out to BBC Mundo, due to the increase in interest rates, greater pressure is exerted on technology companies because it is difficult for them to raise more investments. “Some strong, profitable companies are making fairly reasonable cuts, but others are in trouble”.

Is innovation and technology development in danger?

In recent years we have witnessed the voracity with which technology has advanced: foldable devices, the use of artificial intelligence for art and many other areas of life, blockchain technology or the metaverse. And this is just a sample button.

The question that many ask is if technology companies will continue with the same rate of development that they have had up to now or, on the contrary, there is a risk that some projects cannot go ahead.

The social networking giant has allocated around 20% of its budget for the development of this virtual universe. (Photo: Pixabay)

One of the most notable cases is that of Goal, which, as we already mentioned, has lost up to 70% of its market value in the last year. One of the reasons has to do with billing and advertising profits, which have grown wildly in recent years, and are now plummeting. While that happens, the group continues to invest tens of billions of dollars in the metaverse. But really the future is uncertain.

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The social networking giant has allocated around 20% of its budget for the development of this virtual universe, although the same mark zuckerberg has said that we will have to wait years for this project to stop being in the red, so it will choose to capitalize on businesses that already work as Messenger Y WhatsApp.

“This crisis is going to affect the industry. If the big companies don’t have money, imagine how the smaller ones will be. It must be taken into account that, above all, startups apply for financing funds, so, As there is not so much expectation, investors will be more careful when investingsince the possibility of a quick return is going to be more and more difficult”says Bruno Ortiz.

The journalist considers that we are realizing that, although the story of becoming a millionaire with a “breakthrough” technology idea worked for a few years, that is not the end of the story. Businesses have to be maintained and to be maintained they have to function as normal businesses.

“I think that now we are seeing in its real dimension what are the problems that companies in the technology industry are going through and we are witnessing how they are trying to manage these problems. And hopefully they can find such groundbreaking ideas to find solutions like the ones they had when they proposed the businesses that made investors bet on them. I would like to see that same innovation to find solutions that allow people to keep their jobs and continue to develop products that serve users.”says Ortiz.

Source: Elcomercio