3 ms·

That's so weird that layoffs have primarily been in the US, the most expensive labor market. It's almost like the layoffs aren't really out of any necessity in

by jmyeet 4y ago

That's so weird that layoffs have primarily been in the US, the most expensive labor market. It's almost like the layoffs aren't really out of any necessity in most cases but are just an attack on labor and labor costs. That aside, it is worth noting that a lot of other countries make it a lot more difficult to lay people off and when you do there are more protections, greater notice periods and so on. So it may just be that layoffs are happening overseas and we haven't really heard about them yet. Also, most non-US offices of big tech companies tend to e a lot smaller. London is a bit of an outlier.

unmole 4y ago
This is such a bizzare take. If a company was looking to cut costs, why would it start anywhere else but the largest and most expensive part of the business?
- jmyeet 4y ago
  So at the end of 2022, Google apparently had 190,000 FTEs. The 2022 FY income statement lists revenue of $238B and cost of revenue of $126B. Those costs aren't really broken down so we have to guess. According to [1] the median employee compensation in 2021 was $296k. Now that's not a mean and it also isn't speific about what's included (eg perks, health insurance, retirement savings, food, etc). Once you factor in office space an average of $350k/employee as a baseline cost probably isn't too far off the mark. At 190,000 employees times $350,000 that's a cost of $66.5B/year, which is more than half of the cost of revenue. Labor is the biggest expense. It also echoes "investor" concerns about how the cost of revenue is rising faster than revenue is increasing (ie lower profit margins). Or what are you arguing is a bigger cost? [1]: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/alphabet-retains-top-median-employee-salary-hits-lowest-ceo-pay-gap-in-tech-71896693 https://www.spglobal.com/marketintelligence/en/news-insights...
  - deleted 4y ago
    [deleted]
  - unmole 4y ago
    I don't understand. You agree that labour is the biggest expense. So why do you think it's bizzare that companies trying cut costs are laying off people?
conductr 4y ago
> That's so weird that layoffs have primarily been in the US, the most expensive labor market. It's almost like the layoffs aren't really out of any necessity in most cases but are just an attack on labor and labor costs. I can give my CFO perspective on this having been through it from that position. It's not that you had that plan, but often when faced with questionable shift in business strategy, you look for the "low hanging fruit" and often just start with a number in mind, Eg. need to trim $x million of cost. From there, there may be complete teams or products that get cut (business decides to cut loss and divest of that product/service/etc), and/or at some point you often do sort by cost and make cuts towards the top first. There's usually a lot of conversations amongst management about which folks are mission critical and who is expendable (there's usually a middle bucket of folks that are neutral, "keep if we can"). This allows you to get to $x million by cutting the least number of headcount. Obviously, with hindsight, it would make more sense to just hire from lower-cost-of-living regions to begin with, but that assumes a level of planning that's rarely in place. Most hiring is done optimistically. For this reason, tech follows a boom/bust cycle just like the oil industry.
- nickpinkston 4y ago
  Well said. Also, for more sales/ops-heavy companies, their sales teams are likely getting killed on reups, revenue/unit projections are cut, meaning that both their sales/ops teams are overbuilt purely because the customer base themselves is cutting costs. This is how disinflation works really, and is what the Fed is trying to make us all do. The rate cuts increase a company's cost of capital (effectively the interest rate, fundraising environment, etc.) which then increases their "hurdle rate" - ie the ROI a project needs to have in order to be justified, and (in an explicit / implicit sense) the marginally low ROI projects, people, etc. are then not justified.
- jmyeet 4y ago
  > Eg. need to trim $x million of cost. Let's start with that: the "need" to reduce costs. In another comment I used Google as an example so I'll do so here too. Google is specatacularly profitable on an overall basis and a per-employee basis. Layoffs as a cost-cutting measure are largely virtue signaling than true cuts in costs, for several reasons: 1. Once you factor in severeance costs, it takes a long time to realize any of those savings; 2. Those layoffs assume those laid off were providing no value. It's hard to believe that 10K+ employees were providing no value. Whatever value they were providing is also lost, further defraying any supposed cost savings; 3. Mass layoffs tend to be hugely destructive to culture and have a long-lasting impact on those who remain; and 4. By the time any benefits are realized you're probably hiring again anyway. The point of layoffs is to virtue signal to the market that they're "serious" about cutting costs and to depress compensation. These companies won't be getting inflation pay raises. They'll probably be getting minimal bonuses and 0-2% pay raises, if that. Refresh grants will be less. But the real kicker comes from doing more work for the same pay. Whatever the laid off people were doing will become the additional responsibility of those who remain. Sundar Pichai has come out and said he's aiming for 20% increase in "productivity" (ie 20% more labor for no increase in compensation). Zuckerberg has said similar about Meta. You see with inflation that there is fairly rampant profiteering: raising prices because prices are rising while reaping record profits. These mass layoffs are largely the other side of that coin. Wages are being suppressed due to some largely invented (to this point at least) "recession". Now there are some other commpanies who truly do have to cut costs. They don't have a profitable business model and because of rising interest rates, the cheap VC money well is drying up. But all the FAANG companies are doing just fine but have seen (or arguably created) an opportunity to attack labor costs.

by jmyeet 4y ago

unmole 4y ago

This is such a bizzare take. If a company was looking to cut costs, why would it start anywhere else but the largest and most expensive part of the business?

jmyeet 4y ago
So at the end of 2022, Google apparently had 190,000 FTEs. The 2022 FY income statement lists revenue of $238B and cost of revenue of $126B. Those costs aren't really broken down so we have to guess. According to [1] the median employee compensation in 2021 was $296k. Now that's not a mean and it also isn't speific about what's included (eg perks, health insurance, retirement savings, food, etc). Once you factor in office space an average of $350k/employee as a baseline cost probably isn't too far off the mark. At 190,000 employees times $350,000 that's a cost of $66.5B/year, which is more than half of the cost of revenue. Labor is the biggest expense. It also echoes "investor" concerns about how the cost of revenue is rising faster than revenue is increasing (ie lower profit margins). Or what are you arguing is a bigger cost? [1]: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/alphabet-retains-top-median-employee-salary-hits-lowest-ceo-pay-gap-in-tech-71896693 https://www.spglobal.com/marketintelligence/en/news-insights...
- deleted 4y ago
  [deleted]
- unmole 4y ago
  I don't understand. You agree that labour is the biggest expense. So why do you think it's bizzare that companies trying cut costs are laying off people?

conductr 4y ago

> That's so weird that layoffs have primarily been in the US, the most expensive labor market. It's almost like the layoffs aren't really out of any necessity in most cases but are just an attack on labor and labor costs. I can give my CFO perspective on this having been through it from that position. It's not that you had that plan, but often when faced with questionable shift in business strategy, you look for the "low hanging fruit" and often just start with a number in mind, Eg. need to trim $x million of cost. From there, there may be complete teams or products that get cut (business decides to cut loss and divest of that product/service/etc), and/or at some point you often do sort by cost and make cuts towards the top first. There's usually a lot of conversations amongst management about which folks are mission critical and who is expendable (there's usually a middle bucket of folks that are neutral, "keep if we can"). This allows you to get to $x million by cutting the least number of headcount. Obviously, with hindsight, it would make more sense to just hire from lower-cost-of-living regions to begin with, but that assumes a level of planning that's rarely in place. Most hiring is done optimistically. For this reason, tech follows a boom/bust cycle just like the oil industry.

nickpinkston 4y ago
Well said. Also, for more sales/ops-heavy companies, their sales teams are likely getting killed on reups, revenue/unit projections are cut, meaning that both their sales/ops teams are overbuilt purely because the customer base themselves is cutting costs. This is how disinflation works really, and is what the Fed is trying to make us all do. The rate cuts increase a company's cost of capital (effectively the interest rate, fundraising environment, etc.) which then increases their "hurdle rate" - ie the ROI a project needs to have in order to be justified, and (in an explicit / implicit sense) the marginally low ROI projects, people, etc. are then not justified.
jmyeet 4y ago
> Eg. need to trim $x million of cost. Let's start with that: the "need" to reduce costs. In another comment I used Google as an example so I'll do so here too. Google is specatacularly profitable on an overall basis and a per-employee basis. Layoffs as a cost-cutting measure are largely virtue signaling than true cuts in costs, for several reasons: 1. Once you factor in severeance costs, it takes a long time to realize any of those savings; 2. Those layoffs assume those laid off were providing no value. It's hard to believe that 10K+ employees were providing no value. Whatever value they were providing is also lost, further defraying any supposed cost savings; 3. Mass layoffs tend to be hugely destructive to culture and have a long-lasting impact on those who remain; and 4. By the time any benefits are realized you're probably hiring again anyway. The point of layoffs is to virtue signal to the market that they're "serious" about cutting costs and to depress compensation. These companies won't be getting inflation pay raises. They'll probably be getting minimal bonuses and 0-2% pay raises, if that. Refresh grants will be less. But the real kicker comes from doing more work for the same pay. Whatever the laid off people were doing will become the additional responsibility of those who remain. Sundar Pichai has come out and said he's aiming for 20% increase in "productivity" (ie 20% more labor for no increase in compensation). Zuckerberg has said similar about Meta. You see with inflation that there is fairly rampant profiteering: raising prices because prices are rising while reaping record profits. These mass layoffs are largely the other side of that coin. Wages are being suppressed due to some largely invented (to this point at least) "recession". Now there are some other commpanies who truly do have to cut costs. They don't have a profitable business model and because of rising interest rates, the cheap VC money well is drying up. But all the FAANG companies are doing just fine but have seen (or arguably created) an opportunity to attack labor costs.