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The tech industry seems to be in a recession. Although unemployment remains low overall, nearly every major tech company—including Amazon, Meta, Snap, Stripe, Coinbase, Twitter, Robinhood, and Intel—have announced double-digit percentage-point layoffs in the past few months. Stock values for many of these companies have fallen more than 50 percent in the past year.
Look at this surge of mass layoffs at big tech companies, plus the lurid chaos that’s been happening on Twitter for the past few weeks. and The spectacular happened implosion of crypto, the big question in my mind is: Why did it all happen at once?
Simple, and possibly simple, answer to this question is: It is the interest ratesstupid
The period following the Great Recession was defined by a weak economy with low aggregate demand and low interest rates. This created the perfect conditions for an era of endless cash that venture capitalists, looking for high rates of return, poured into low-margin software companies. As smartphone penetration rises in the US and around the world, the app revolution is taking off. Social media and consumer technology companies are some of the richest and fastest growing in the world. Hollywood is streaming, content is going digital, and the service economy is being mediated by smartphones.
Then came the post-pandemic inflationary surge. Rising interest rates have meant the end of easy money. Millennial Consumer Subsidy—my term for VCs splitting the bill with consumers to grow their companies—has been shut down. Because the cost of risk has risen, venture capital has fallen, and companies have had to cut costs, raise prices, or both. Meanwhile, the narrative in the market has flipped from growth to profitability, and valuations for tech companies have crashed.
The explanation of inflation is quite technical. I have another story that is a little harder to prove. It goes something like this: The tech industry is going through a midlife crisis.
After using their metaphorical youth to experiment with social media and consumer technology through unlimited investment and unlimited optimization and A/B testing, many technology executives and investors now feel that they have solved the most interesting and important problem of basic digitization. This is not just my opinion: Four years ago, technology analyst Ben Evans observed software that has scaled the mountain of advertising and media and connects the world, and this tech is looking to climb new mountains and find new challenges. A chapter is closing, and the most prominent tech executives and investors are looking for the next story.
Executives at the largest technology firms have spent years diverting resources to new ventures with uncertain results. Amazon recently hired more than 10,000 people to work on its AI product, Alexa. (Jeff Bezos stepped away from the company he founded to work on a rocket ship.) In Meta-the parent company of Facebook, Instagram, and WhatsApp-Reality Labs, a division working to build a metaverse, has about 15,000 employees. Apple reportedly has 3,000 people used in augmented-reality headsets, and thousands more is working on Google’s voice assistant. At the same time, the venture-capital community has been looking for its own moonshot, and many investors have found one (or, at least, have wanted us to believe that they have) in crypto. VCs have reportedly bet tens of billions of dollars in the space, although, for all the bluster and investment, it mostly remains technology in search of a use case beyond betting money on tokens that cash out in dollars. Meanwhile, in what can be a literally midlife crisis, Elon Musk, the car and rocket executive, has installed himself at the helm of the digital transmission mechanism for news outrage with, at best, a plan messed up for resurrecting his business.
It’s unfair to suggest that all these moves are the emotional equivalent of a 52-year-old dying his hair and trading a minivan for a Corvette. A company that’s big and spending money on an important and difficult problem with an uncertain solution is great. But at the moment, many of these batches look half-baked, catastrophically expensive, or outright fraudulent.
These explanations—macroeconomics and psychodynamics—intersect. The tech industry, which has perfected the art of optimizing the digital space for engagement and ad placement, is prepared to invest deeply in its next adventure. But it was plagued by post-pandemic inflation and rising interest rates, which made this pivot more difficult to execute. The result is today’s news: mass layoffs in companies that only a few years ago seemed unstoppable.
One of the mistakes that journalists can make in observing this trend is to assume that, because the software-based technology industry seems to be struggling now, things will stay like this forever. More likely, we are in the intermission between technological epochs. Most of us have gone through the browser era, the social-media era, and the smartphone-application-economy era. But in the past few months, the explosion of artificial intelligence programs has shown that something spectacular and potentially terrifying is on the horizon. Ten years from now, looking back at the technological recession of 2022, we can say that this moment is a paroxysm of scandals and dismissals between two discrete movements.
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