Removing employees appears to be paying off for big tech growth

• Tech’s “Year of Efficiency” is showing the first signs of working.
• Microsoft, Google and Meta all saw their stock prices rise after reporting better-than-expected results.
• This follows a significant corporate downturn, including massive layoffs and a focus on AI.

No more false work and make way for artificial intelligence.

The tech industry’s recent bout of cost-cutting, from cutting free breakfasts and lunches to laying off thousands of workers, isn’t just about surviving short-term hardship. It’s about the current generation of tech CEOs showing investors they can handle a tight ship into the future.

And early signs suggest the strategy is a success.

On Tuesday, Microsoft and Google-parent Alphabet — two companies that have laid off 22,000 workers in recent months while entrenching themselves around artificial intelligence — released first-quarter results that reassured investors.

The Redmond giant reported a 7% year-over-year revenue increase to $52.9 billion in the three months to March, while Google announced a 3% increase in revenue over the period at $69.8 billion. Their respective cloud businesses were the main drivers of revenue growth, although both made layoffs in those divisions.

Meta has also started reaping benefits from its recent efforts to cut costs and bet on AI as well. The company beat analysts’ expectations for a decline with revenue up 3% year-on-year to $28.6 billion.

The positive results come after tech companies called 2023 a year of efficiency.

At Davos this year, Microsoft CEO Satya Nadella said the company “should do more with less”, while Alphabet’s Sundar Pichai made similar remarks.

“Sometimes there are areas to make progress in (where) you have three people making decisions, understanding that and bringing it down to two or one improves efficiency by 20%,” Pichai said last summer, according to CNBC.

Mark Zuckerberg has talked about making Meta “skinny” and “flatter”.

The job cut has been brutal and the workers affected can rightly blame it on the CEOs who are laying them off now.

Insider analysis has revealed that many of tech’s most brutal job choppers have expanded rapidly during the pandemic, at the cost of efficiency. For critics, much of the drama of the layoffs could have been avoided, with companies hiring too many staff who ended up doing “fake work”.

Layoffs coincide with reorganization around AI

The drop in efficiency has been compounded by the sudden explosion of generative AI tools, such as research startup OpenAI’s ChatGPT. The latter demonstrated that it is always possible for a small, nimble and daring team to show off the giants of technology.

Tech giants have therefore evolved rapidly.

Microsoft laid off 10,000 workers in January. It also cemented an early lead in AI by partnering with OpenAI and implementing GPT-4 in its Bing search engine, in what Satya Nadella described as “a new era of computing.”

He told investors on Microsoft’s earnings call on Tuesday that he believes generative AI has given them a “differentiated game” to seize new opportunities. “We think we have a good lead and we have differentiated offers in the stack,” he said.

Google laid off 12,000 employees earlier this year, refocused on its advertising business and rushed to implement rival AI technology into its core search engine.

For both companies, what will be reassuring is that gains and innovation can come despite a substantial drop in their workforce. Simultaneously cementing their place in the AI ​​wars could set them up for years to come.