One of the central issues that will accompany us during 2023 is the one referring to the restructuring of technology companies. After Google’s latest announcement to reduce 6% of its global workforce (12,000 employees), the adjustments in technology companies still show no sign of slowing down. It is not surprising that the growth promises of technology companies come of age (we talked about this quite a bit with Natalia Weisz in our book “Strategy as Leadership”).
Perhaps the most curious thing is the synchronized movement, since within the layoffs there are businesses with very different diffusion dynamics such as search engines, servers, or video on-demand. The “positive” side, if we can see something good in the massive layoffs, is that the demand for talent for certain positions will not be as hot, improving the chances of hiring by medium-sized companies located in Latin America. The downside is that rising unemployment contributes to accelerating the probability of a recession in the United States. As much as a very solid labor market is reported, these layoffs are a clear cloud on the horizon. Contrary to expectations, in recent months the world has seen an increase in global liquidity and for a recession to occur there must be a major disruption somewhere in the economy and a trigger.
Given that in the United States it is not clear that there is a strong real estate bubble (most of the credits are at fixed rates prior to the increases), the candidate to generate the recession is the stock market. What would be the trigger? The rate hike is a great candidate.
Understanding the evolution and perspectives of the global technological giants is of special interest given their impact on global economic activity and the way in which people interact. Especially global oligopolies like alphabet (Google), Amazon, Goal (Facebook), Microsoftand Manzana (although it is of a different business nature), they mark the pulse of the stock market and are the platform on which companies and individuals interact the most. For example, for a few years the average time that people spend on social networks has stabilized at just over 140 minutes a day, generating installed bases for these companies that are measured in billions of users.
2022 seems to have been a dark year for these giants. in the last few months alphabet laid off 12,000 employees, Amazon about 18,000, Goal about 11,000, and Microsoft 10,000. Is this very serious? Is your competitive situation threatened? The market value of many of these companies has plummeted from their highs, with values reaching 50% for Meta. From this perspective, the correction has been brutal and the specialized media give some alarm signal. However, there is an alternative look, which reports it, in its provocative way, Scott Galloway: layoffs are only a small proportion of the hiring made since the pandemic (see attached graph) and the analysis made of this data is “more spectacle than meaning”. Supporting Galloway’s reading, I understand that there would be four elements that would explain the adjustment in the value of the shares:
1️⃣ The herd movement, with little analysis, of retail savers supported by new technological platforms.
2 ️⃣ The fear of global recession (which hasn’t happened yet).
3️⃣ An excess of hiring due to the movement to the digital world caused by COVID.
4️⃣ The approaching maturity of many of the businesses of these companies, with structural changes in growth expectations. The issue is that none of these elements has the strength to change the competitive structure of these oligopolies (or monopolies). Perhaps the long-term reading that should be done is to discount the flows of the oligopolies somewhat downwards. They may grow less and now fall short of market expectations, but as time goes by, their flows are likely to stabilize in very strong dominant positions.
*Economist, professor at IAE/Austral
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by Roberto Vassolo
