A LESS SUNNY MOOD FOR TECH FIRMS

Navneet Alang

If you were looking for a bright spot during those dark, early days of COVID in 2020, it was tech that was the shining light.

With tens of millions working from home, Zoom-ing into work, spending evenings on Netflix, digital companies could do no wrong. They hired at a blistering pace, posted enormous profits and promised a world in which the digital was the good.

Tech’s fortunes were so good in the work from home era that Microsoft’s beleaguered Windows posted huge gains.

Now, ask anyone who works in tech what the mood is like and they might reference a sword of Damocles dangling above everyone’s head.

Tech companies both large and small have slashed jobs; some companies like Amazon have cut as many as 18,000 people. Meanwhile, novelty or innovation are, at least for the time being, hard to spot. Suddenly, the mood in tech is altogether less sunny.

What happened? In short, whether or not the pandemic is in fact “over,” its effects on tech are. A fitting symbol of this fact; Zoom laid off 1,300 employees last month, as the idea that everything from meetings to university classes would all take place over Zoom has clearly fizzled. And in place of the wild optimism – that we would all be working and learning virtually, and that a grand new future on its way – instead there is a new, altogether more quotidian focus in tech: making a profit.

That can sound like an odd assertion, given how much profit tech companies continue to make. Microsoft made $16.4 billion (U.S.) in net income last quarter, while Meta made $4.7 billion. Whatever is happening in tech, it’s not that the bigger firms are losing money.

But it’s useful to take a look back and think about the larger context. Since 2008 and until very recently, interest rates were at, or near, record lows. Capital was cheap and investment firm’s poured money into tech. Ideas of all kinds got funded and companies coasted on the promise of future profitability for years.

This is how, for example, Uber lost billions year after year, how co-working firm WeWork continued to get funded despite having almost no real ming, adopting a scattershot, throwing anything at the wall approach that has since diluted its catalogue and allowed rivals like Disney to rapidly catch up. Microsoft invested in virtual and augmented reality, only to realize the business case for it just wasn’t there yet. Meta continued to pour billions into its metaverse idea; recently, its net income, while high by some standards, has cratered in comparison to the year before. flurry of activity and investment followed by contraction and reorientation.

Now look at how things have changed. Netflix has created an ad-supported tier to continue to grow revenue, while also cracking down on password sharing. Microsoft has turned its attention to A1 – yes, because it’s the hot new thing in tech, but also because it’s trying to gain market share in search, a category that has margins simply not seen elsewhere. Apple is reportedly pulling back and delaying its own virtual reality headset, while Amazon has cut back significantly in its money losing Alexa division.

The point is that the runway of cheap money is gone, even for companies with healthy balance sheets. The focus is on profit and leanness.

There is a very reasonable critique to be made about how and why that leanness is being enforced the way it is. You don’t need to be a doctrinaire Marxist to have qualms with the share of profit going into labour versus that going to stock buybacks or executive compensation.

But perhaps this latest refocusing also helps explain why tech has so eagerly embraced artificial intelligence. While its effects remain to be seen – its impact on misinformation, social prejudice and jobs could be both significant and detrimental - the one thing it promises to do is automate an array of things.

From basic computational tasks to producing images or short pieces of writing. AI may well be able to replace an array of jobs.

Put yourself in the shoes of a bean counter at a tech firm, and the appeal isn’t hard to understand. Even in this new age of more financially diligent industry, the old rule – that is payroll that is a company’s largest expense - seems to be driving both the present and future of tech.