The Tech Bubble Burst

Easy access to loans and high demand for products inflated the tech industry. Now it has lost both.

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People walk past Google offices in New York City. (Photo by Leonardo Munoz/VIEWpress)

Tech behemoths Spotify, Salesforce, Google, Amazon, and Microsoft have joined small Silicon Valley startups in slashing their workforces—to the tune of more than 56,000 workers losing their jobs in recent weeks.

With the COVID-19 pandemic effectively over and the Federal Reserve raising interest rates to cool inflation, a pre-pandemic tech surge is looking more like a bubble—despite the U.S.’s low unemployment rate of 3.5 percent.

The bubble burst fast for people like Jeremy Joslin, a Google software engineer who spent 20 years with the company. His tweets went viral after he said his termination was “a slap in the face” and that he wished he “could have said goodbye to everyone face to face.”

Joslin learned he had lost his job in an early-morning email on January 20 delivered to his personal email address. He thought it looked suspicious. But after being unable to access his work email, Joslin realized it was real.

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  1. Avatar photo
    Karmol

    I've been working in tech for 8 years (at 3 different relatively high profile, well-funded startups). I was laid off in April, and I decided to use my severance to join a pre-seed startup (i.e. I was the first "hire" after the founders before they'd raised any money - my job was, in part, to go to conferences and attract investors) - I had an idea that the crypto slump was going to rebound (this was before FTX - the last conference I was at was the week before the FTX collapse) and there had been talk about a recession for so long that it didn't seem like it was going to be super impactful. All this to say, I thought I'd be able to re-enter the job market around now having bypassed the tech downturn, which was definitely a miscalculation on my part, so I've been paying a lot of attention to what recruiters, tech insiders, investors, laid off employees, etc have been saying about the layoffs.

    And, so far, the global markets seem to be pretty strong - I've been talking to a lot of people, and one of the crazy things about these layoffs is how much cash on hand there is right now. VCs are just sitting on piles of money and not investing in new startups (or re-investing in up-rounds), and the tech giants have billions of cash on hand. VCs not investing seems to largely be tied to interest rates, but a lot of the chatter among tech spectators on linkedin and twitter have been noting that CEOs of the tech giants have a mandate to raise the share price.... in the short term. What's crazy about these moves is that they really don't make a lot of sense in the medium to long term - they're going to probably start re-hiring these same roles in 2024, for many of the roles they just laid off. There were layoffs of people who JUST got hired - meaning they wasted a lot of good will and a lot of money to set up the recruiting efforts to hire them. This means they'll have to re-hire a lot of recruiters to re-hire the roles, all while really hurting company culture and losing lots of trust and institutional knowledge, all for short term raises in stock price (maybe at the expense of long term growth).

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  2. Avatar photo
    Mudskipper

    Boom and bust. Boom and bust. That's the story of Silicon Valley.

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  3. Mike.Amundson.76

    I’m not seeing a clear connection in the article about online demand dropping significantly at the end of 2022 and companies waking up with layoffs. Seems like most of the c19 online spike was over by end of 2021 and these companies were smart enough to differentiate between a trend and a short term spike in hiring practices.
    There is probably a lot more complexity underlying the tech layoffs than cheap loans went away.

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  4. Avatar photo
    George.Skinner

    The other part of this story is a collapse in tech stock valuations. A lot of investors were content to see tech companies keep burning cash as long as stock prices were rising - they’d get their return from selling shares. Now, these companies are under pressure to actually turn a profit. There’s been a lot of conveniences paid for with venture capital largesse for the past decade that never made a lot of sense: Uber prices undercutting taxis, Amazon delivering packages of anything to your house with a 2 day delivery for $79 per year, huge spending on content for streaming media.

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  5. Hartzlk

    I can understand companies needing to reduce their workforce.
    I can't understand the thoughtlessness and suddenness of terminating a faithful employee in these ways. Full-time work makes up a huge percentage of people's lives. To have it ripped away like that is lousy HR strategy.
    I've never worked in HR, but from the outside it seems to me that terminations with no prior notice from big companies are probably handed out due to someone(s) in decision making roles being paranoid about disgruntled employees that are being let go sabotaging the company. But for the faithful ones who enjoyed working with their colleagues, sabotaging the company would mean sabotaging their friends at work. being unable to understand this reflects poorly on the HR departments of these companies. It's like HR minus the H.

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    1. Gabej1989

      I agree… I never would have questioned whether I want to work at Google again, but that method is a major turnoff.

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    2. M.Flibbles

      It’s brutal, but that’s how layoffs have generally been done at software companies. Your access is removed, you are notified and if you are physically at the office they walk you out.

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      1. Hartzlk

        I would argue that this really depends on the company. I have worked as a software developer since 2011. These stories of being walked out the door within moments of being notified are shared among some of my colleagues as memories of the distant, barbaric past. (Knock on wood...)
        I've seen many developers let go in more humane ways.

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      2. Avatar photo
        Mudskipper

        Once upon a time, tech companies handled layoffs in much less brutal ways. Notifying an employee by email would have been considered a very last ditch method to use. Instead, managers were expected to man (or woman) up and have the courtesy to inform the employee in person. The employee was then sent to a meeting where they could get immediate help in figuring out what their benefits would be and what job placement resources might be available to them.

        In some of the companies I worked for, the employee could return to their desk and inform others at their discretion. They were not walked out the door. Surviving employees were instructed not to treat the laid off employee like pariahs.

        Kinder, gentler times those were.

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        1. M.Flibbles

          Yes, that’s definitely a more professional way to handle it. I do remember back in the day when one of our remote sites was shut down management and HR actually flew out there to talk with them. At least nowadays where I worked HR will follow up with a phone call to discuss the severance package and benefits.

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      3. Iblamethedrugs

        Tech isn't as unique in this matter. This spring my plant had a big unplanned (to us, at least) meeting. Half of the people met at one end of the building and half met at the other. My half still works here.

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    3. Nicco

      Good points. But also, if you’re laying off thousands of people all at once, who’s going through to determine which employees are risks and which are not? How can you know with confidence how each person will react?
      This was probably a decision made by legal and/or security as much as (or more than) HR.

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  6. Avatar photo
    Dusty

    "Many tech companies go years before becoming profitable and get by while losing money because investors see a strong possibility of long-term profit."

    This is true, but companies like Google, Apple, Microsoft, etc are some of the most profitable companies in history. There's a mantra in investing that warns people to beware any assertion that "This time is different" and the same was true in November of 2021 when the Nasdaq was at its peak. Google, Apple, Microsoft are great companies but their valuations were always unsustainable. They had reached such a massive size that the far more likely correction to that valuation was going to be a multiple decrease as opposed to a massive earnings increase.

    The same is true for a company like Tesla. Elon has made news for being the first person in history to lose $100 billion of net worth, but that is totally a product of Tesla's valuation and not a reflection on Tesla as a business or Elon Musk as a manager. Most auto companies trade at an under 10 price-to-earnings ratio. At its peak I believe Tesla was trading for something stupid like 900 price-to-earnings and had a higher market cap than GM, Ford, and Toyota combined. That was always due for a massive correction and it was always unlikely that Tesla was going to increase earnings at such a rate to match such an absurd valuation.

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    1. Kennethckush

      Nice. Common sense is a world devoid of common sense. Kudos.

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    2. Avatar photo
      Michael McGuire

      As far as I know, there have been no layoffs at Apple yet. Apple was one of the major tech companies that didn’t go on a ridiculous hiring spree during COVID.

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      1. Avatar photo
        Dusty

        This is true. Their stock is down but not as significantly as the other mega techs and largely in line with the market. I probably shouldn’t have included them with the others.

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    3. Avatar photo
      George.Skinner

      Tesla’s an outlier even in the tech world given its outsized valuation. I think it’s simply the biggest and most enduring of the pandemic meme stocks. The fan base doesn’t just buy the cars, it buys and holds the stock.

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      1. Bobby D

        Tesla is like the $10 kale smoothie that as the rage among virtue-signaling technocrats a decade ago. The other day I watched one take 10+ attempts to parallel park. It finally stopped with 1/3 of the car in the lane of traffic.

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