For years, big tech companies have been lauded by investors — sometimes attacked by smaller rivals and scrutinized by regulators — as unstoppable heroes. Competitors, large fines and the global economic downturn caused by the Covid-19 pandemic have not stopped increasing revenues and profits.
Now the tide has turned.
Another recession is looming. Europe is beginning to put teeth behind its efforts to become the global regulator of technology. And new competitors and technologies have threatened some of the biggest companies in their markets. On top of that, big tech companies have been tricked into investing heavily in employees and new products during the pandemic, and the shift to virtual life will be permanent — something that hasn’t been seen.
In response, big tech companies are cutting spending faster than they have in decades to navigate what tech executives and bullish investors say 2023 is tough.
On January 5, Amazon.com Inc. He said the layoffs would affect some 18,000 workers. Meta Platforms Inc. It said it would cut 13 percent of its workforce, or about 11,000. Google parent Alphabet Inc. On January 11, the health care unit saw a 15 percent reduction in staff. Overall, tech employers cut more than 170,000 jobs last year, according to estimates from Layoffs.fyi, which tracks media reports and company announcements.
Wedbush Securities analyst Dan Ives said he thinks big tech companies will finally get over their problems, saying “they’ve proven they can grow during the ride, but the era of free money is over.” He called it a Category 5 hurricane and set to develop again. “Tech companies spent like 1980s rock stars. Now they’re starting to spend like seniors on limited budgets.”
There is no easy way.
Analysts say the economic reasons behind the austerity are several. Rapid inflation led to higher interest rates. Russia’s invasion of Ukraine has put a new spotlight on supply chain bottlenecks. And the slowdown will further weaken demand — the ad revenue that supports some big tech companies and consumer spending on electronics that feeds others.
The new thinking comes as competition for big tech companies heats up — at least in some quarters.
Google and Meta dropped their share of U.S. digital ad spending below 50% for the first time since 2014 as they grow more slowly than the rest of the market, according to Insider Intelligence Inc. That’s partly because Amazon and startups like ByteDance Ltd.’s TikTok have seen their share of digital advertising grow. But video streaming services are also on the rise—a trend that ad-supported Netflix Inc. And the Walt Disney Company is accelerating the launch of Disney+ versions.
Advances in artificial intelligence could rearrange the digital playing field. ChatGPT, a chatbot released last year that can provide convincing answers to a range of questions, has been hailed by some industry observers as an eventual alternative to search engines like Google, even though the program can sometimes make factual errors. OpenAI, which makes chatbots among other tools, is currently in talks to sell the company for around $29 billion, more than double the offer it previously made in 2021, the Journal reported earlier this month.
More strict regulation
These challenges are coming to the fore at the same time that technology regulation, a long-standing and looming threat ignored by investors, is starting to take a bigger bite. EU regulators earlier this month rejected the legalization of Meta’s highly targeted ads. That leaves the company scrambling to find a way to show targeted ads based on the online activity of Facebook and Instagram users within the block.
The European Union has started implementing two other new rules it passed last year – over the objections of big tech companies – to make it more open to smaller competitors and force them to police content more on their platforms.
Although companies under the Digital Markets Act – a law focused on technological competition – will not be officially called until the end of this year and the provisions will not come into force until 2024, the law is pushing companies to change their business practices. . For example, Apple Inc. is now preparing to allow apps to be downloaded to iPhones and iPads outside of the App Store, something the company has said compromises security in order to comply with the law.
Amazon recently promised better treatment and visibility to third-party sellers, as a company executive said it would comply with the new law, part of an antitrust lawsuit in Europe.
Other provisions of the law include a ban on companies with a search function from prioritizing their products and tools over other companies — a provision that would require and mandate changes to the way Google operates in the bloc. Digital giants of messaging apps should allow smaller rivals to partner with them. That could undercut Apple’s walled-garden approach to its Messages app on the iPhone.
Big tech companies have been mulling their votes on the regulation, saying they plan to comply with the new rules.
“We are now working hard to fully comply with the new processes and product changes,” a Google spokesperson said. .”
Apple and Amazon declined to comment. Meta spokesman Mark Zuckerberg said in a statement on a recent earnings call: “I believe the strong priorities, discipline and agility we are driving across the organization will help us navigate the current environment and become a stronger company.”
What happens in the EU next year could become a template for other parts of the world, with the UK and India considering legislation with some similar provisions.
“What is coming [Digital Markets Act] “Sooner or later it may be important for these companies to adjust their positions as the pressure builds globally,” said Anne Witt, a law professor at the Augmente Law Institute at EDHEC Business School in Lille, France. international character.”
