Big Tech Firms Are Bracing For The Challenging Year 2023
A cluster of recently humbled tech giants with operations across the globe is about to have their resiliency put to the test. Investors have long praised the largest technology firms for appearing to be unstoppable juggernauts, while smaller rivals and regulators have occasionally attacked them for this very reason. Revenue and profits increased despite the presence of rivals, the imposition of hefty fines, and the worldwide economic downturn caused by the Covid-19 pandemic.
It looks like we’re heading into another economic downturn. Europe’s efforts to become the world’s tech regulator are finally getting teeth. Some established businesses are seeing their market dominance challenged by new entrants and innovative technologies. Moreover, major tech firms were lured during the pandemic into making substantial investments in personnel and new products based on the assumption that the shift to virtual life would be lasting; this, of course, has not been the case.
Big tech companies are laying off workers as a result, cutting costs more quickly than they have in decades in an effort to survive what tech executives and even bullish investors predict will be a challenging 2023.
Around 18,000 people were informed of layoffs by Amazon.com Inc. on January 5. The company Meta Platforms Inc. announced it would lay off 13% of its workforce, or about 11,000. On January 11th, Alphabet Inc., the parent company of Google, announced it would be cutting 15% of the staff at its healthcare subsidiary Verily. Layoffs.fyi, a website that keeps tabs on media reports and company announcements, estimates that over 170,000 jobs have been lost in the technology industry over the past year.
Wedbush Securities analyst Dan Ives believes that large technology companies will weather the current crisis, which he likens to a “Category 5” storm, and eventually recover from their situation. The tech industry has been spending like it’s the 1980s. They’ve recently taken to spending like retired people living on a fixed income.
There will be no easy road
Experts say there are a number of economic reasons for the change in direction toward austerity. Rising interest rates are a direct result of inflation’s acceleration. The Russian invasion of Ukraine has shifted attention to points of congestion in the supply chain. Advertising revenue, which supports some of the largest technology companies, and consumer spending on electronics, which supports others, would both take a hit in a recession, further reducing demand.
Given the increasing difficulty of competition in some markets, the shift in perspective is not surprising. The research firm Insider Intelligence Inc. found that Google and Meta’s combined share of U.S. digital-ad spending dropped below 50% for the first time since 2014 due to the companies’ slower growth than the market as a whole.
That’s in part because of the rise of Amazon and other online retailers, as well as newer players like TikTok from ByteDance Ltd. On the other hand, video-streaming services are gaining market share, which bodes well for the impending rollout of ad-supported versions of streaming giants like Netflix Inc. and Walt Disney Co.’s Disney+.
The digital landscape may also be rearranged as a result of developments in artificial intelligence. Although it occasionally gets the facts wrong, the ChatGPT chatbot released last year has been heralded by some in the industry as a potential replacement for established search engines like Google.
OpenAI, which develops the chatbot and other tools, is reportedly in talks to sell existing shares in a proposal that might value the company at about $29 billion, approximately double a previous bid finalized in 2021. The report appeared in the Journal earlier this month.
These issues are becoming more pressing at the same time that tech regulation, which investors long ignored as a vague and looming threat, has begun to make a significant impact. Earlier this month, European Union regulators invalidated Meta’s legal justification for its hyper-specific advertisements. The company is now scrambling to find a way to continue serving ads in the bloc based on the online behavior of Facebook and Instagram users despite this setback.
The European Union (EU) has begun enforcing two new laws that were passed last year despite the opposition of major tech companies in order to level the playing field for smaller competitors and require them to more strictly regulate content on their platforms.
While the Digital Markets Act, a law aimed at increasing competition in the technology sector, won’t officially name companies subject to it until later this year and won’t enforce its provisions until 2024, it is already exerting pressure on businesses to alter their operations. For example, Apple Inc. is getting ready to allow users to sideload apps onto iPhones and iPads, a practice the company has long opposed as insecure, in order to stay in compliance with the law.
As part of its settlement with a European antitrust lawsuit, Amazon recently pledged to treat third-party sellers better and give them more prominence in ways that, according to a company executive, are intended to comply with the new law.
Other parts of the law include a prohibition on search engines favoring their own products and tools over those of competitors (a provision that could force Google to alter how it operates within the bloc) and a requirement that messaging apps from digital giants permit smaller rivals to interoperate with them. This could pose a threat to Apple’s attempt to maintain Messages on the iPhone as a closed system.
Big tech companies have been changing how they talk about regulations and saying that they will follow the new rules. A Google spokesman says, “We’re now working hard to find new ways to do things and make changes to our products so we can fully comply.” We believe it is critical to maintain an open, constructive dialogue with the European Commission on regulatory matters for the foreseeable future.
Both Apple and Amazon opted not to provide a statement. A spokesperson for Meta referenced a statement made by Mark Zuckerberg on a recent earnings call: “I believe the stricter prioritization, discipline, and efficiency that we’re driving across the organization will assist us in navigating the current environment and emerging as an even stronger company.”
The United Kingdom and India are two of many countries currently considering legislation with some provisions similar to those being considered in the European Union. According to Anne Witt, a professor of law at the Augmented Law Institute of the EDHEC Business School in Lille, France, “the impending [Digital Markets Act] is already having an impact.” If global pressure increases, it might eventually make sense for these companies to coordinate their behavior on a global scale.
Edited by Prakriti Arora