Today, Explained - The tech boom is over

Episode Date: November 14, 2022

Mark Zuckerberg fired 11,000 employees at Meta. Elon Musk axed half his staff at Twitter. Other tech giants are slashing jobs and eliminating perks, too. Recode’s Peter Kafka says the era of big tech growth is over. This episode was produced by Amanda Lewellyn, edited and fact-checked by Matt Collette, engineered by Paul Robert Mounsey, and hosted by Noel King. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Our company is now Meta. Meta is making a huge investment in virtual reality or the so-called Metaverse. Your avatar will be able to make natural eye contact and reflect your facial expressions in real-time. Things like raising an eyebrow, squinting, widening my eyes, or scrunching my nose. He's spending more than what it took to create Tesla on this market that we're not sure is going to work.

Meta is the latest Bay Area tech company to announce massive layoffs to their workforce, letting go of 11,000 people this week. Raising an eyebrow and widening my eyes because it's not just meta. Something is shaking the foundations of big tech right now. What it is, coming up on Today Explained. BetMGM, authorized gaming partner of the NBA, has your back all season long.

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. It's Today Explained. I'm Noelle King. 2022 has been a year for tech companies. Mark Zuckerberg's 11,000 employees or 13% of the company gone. Mark! Amazon reportedly plans to lay off around 10,000 people. That news just broke today. Elon Musk fired half of Twitter, which has been presented in some corners as a wild mood swing.

But he also laid off 10 percent of Tesla staff this year after telling investors in a memo that he had a, quote, super bad feeling about the economy. But then he started hiring at Tesla again. So, OK, let's leave Elon out of it. More illustrative, Lyft cut around 13 percent of its staff. Robinhood around 29 percent of its staff. Stripe around 14 percent of its staff, Netflix, Coinbase, a lot of tech companies have had significant layoffs. Peter Kofka, senior correspondent at Recode and host of the Recode Media podcast. What is going on? And start, if you would, with Facebook. Facebook said they're firing 11,000 people, one of the largest layoffs in tech period, certainly the biggest layoff

in Facebook's history, Meta's history. This is a company that seemed invincible forever, even when they had big political problems. The company kept growing, they kept minting money. Facebook stock went up so much, Facebook is now worth more than a trillion dollars for the first time ever. But what happened in the last year was Facebook saying, hey, actually, we've got some problems, but don't worry about it. We're going to continue to invest in the future. We're going to spend billions of dollars a year on the metaverse, this thing that doesn't exist, but we want to will into history.

People say to me, what is the metaverse? I say, I don't know. But if I could imagine it, it's probably like the book Ready Player One, terrible movie, fantastic book. And then at some point this year, Wall Street said, this is a terrible idea. We're freaked out. We're going to cut your value way down. Meta stock is down 70 percent this year. Profits down 50 percent in the third quarter. And then you saw Facebook for really the first time last spring saying, hey, we're going to start tapping the brakes on our growth. We're going to stop giving you guys perks. Maybe some of you shouldn't be working here.

Really signaling that sort of the go, go, go days for Facebook were going to be either gone or at least on pause for a while. This is Mark Zuckerberg saying, we grew too fast. We assumed that the boom times would continue. And they haven't. People who work at Facebook have been freaked out well before these layoffs. Their stock has dropped significantly. That was a big source of their compensation. They're looking at the future of the company.

They no longer have sort of blind faith that it's going to grow and grow and grow. The social media giant Facebook has seen the number of people using it every day fall for the first time in its 18-year history. Facebook's parent company, Meta Networks, warned of slowing revenue growth in the face of competition from rivals such as TikTok and YouTube. They've been streaming out of Facebook on their own, looking for other companies where there's other growth opportunities. And that's been going on for a while. And I've absolutely talked to some of those folks saying, I'm not sure about the future of this company. I want to go somewhere else. All that said, you can say, look, we know that the company is on different footing. We know things are not the same. You can say all that. You can think all that. It's another thing to have 11,000 people disappear in one day.

I want to say, you know, up front, that I take full responsibility for this decision. This was ultimately my call. And it was, you know, one of the hardest calls that I've had to make in the 18 years of running the company. So, Peter, Wall Street says, uh-uh, Zuckerberg, this ain't going to work for us. Why did Wall Street say that? What's going on? So Wall Street's been saying hell no to tech for much of this year. It's a huge reversal from the last couple years and really for the last decade. For the last decade, Wall Street liked tech.

But during the pandemic in particular, when it looked like, first of all, the economy was going to stop, and then it looked like, oh, we're going to be working from home forever, investors plowed money into anything tech-related, whether it was Zoom or Peloton or Snap. Tech stocks did very well during the pandemic because tech was so important to our daily lives. Netflix and Apple moved higher because we stayed home and watched television. Zoom stocked Zoom because we had so many online meetings. And Facebook and Google and Amazon said, oh, we're growing like gangbusters. The pandemic, frankly, is good for us. It accelerates trends that we're well positioned to take advantage of. We're going to spend money. We're going to hire lots of people. Wall Street said, great, that all sounds good. And then as happens, often Wall

Street changed his mind and said, no, we don't like that. So that's tech in general. And then specifically at Facebook, Wall Street's concerned about Facebook's growth possibilities. They're saying, look, you're reaching 2 billion people in the world through Instagram, Facebook, WhatsApp, etc. Seems like it's going to be hard for you to grow. You have specific problems in your advertising business. A lot of that relates to changes Apple made in the way that advertisers can track people around the internet.

That's specifically a big problem for Facebook. The feature, dubbed app tracking transparency, will let you choose if you want your online activity tracked and sold to third parties such as Facebook and other apps. This is a feature that Facebook has been attacking for months. Mark Zuckerberg saying Apple's changes will hurt small businesses' ability to target consumers with ads through Facebook. And then on top of that, Mark Zuckerberg's been saying, hey, by the way, we're not Facebook anymore. We're Meta because we're the Metaverse company. Imagine you put on your glasses or headset

and you're instantly in your home space. It has parts of your physical home recreated virtually. It has things that are only possible virtually. And it has an incredibly inspiring view of whatever you find most beautiful. And this is this project we're going to spend $10 billion on in a single year. And we're going to spend and spend and spend for many years after that. And it's going to take us five, ten years to create this virtual reality world that we think exists.

But it's the future. We're going there. This is a big, bold bet. So giving everyone the tools to be present, no matter where they are, whether it's a hologram sitting next to you in a physical meeting or in a discussion taking place in the metaverse, that's going to be a game changer. And again, last year, Wall Street said, that sounds pretty good. That sounds rational. And this year, Wall Street says, actually, we're not into investing in this idea that may never come. We'd like you to stop spending so much money in general. And we're pretty freaked out about the amount of money you're spending on this virtual reality. When Mark Zuckerberg made that announcement, I have nieces and nephews, and I assumed that by this point, they would all be living in the metaverse.

Like the young people are going to go and get it. And then this year, they're all like doing JV tennis. Is meta really going to be a thing? Look, the metaverse, if you're really cynical about the metaverse, you go, this is the best snake oil ever. Because you can say, look, I'm painting this picture of the future and it's going to be amazing. It's going to be world changing. It's not going to show up for a long time. We have to build this stuff. There's a lot of tech we have to imagine and build and create and then get you to use. So it's not going to come tomorrow, but trust me, it's going to get there. And the nice thing about making it a pitch like that, you can't be held

responsible in a year when it doesn't materialize because it didn't say it was coming next year. It's coming sometime. You know, look, one of the problems that Meta specifically has is that if you're a young person, you're not using the old Facebook app at all. And now you're probably on TikTok. That's a huge existential competitor for Facebook. My kids are 12 and 14. They love Snap. Snap is a crucial thing for them. They have zero interest in Instagram or Facebook.

That can't continue forever for Mark Zuckerberg. He's got to find something that my kids, that your kids, your friends' kids are interested in. And again, that's what he's hoping he's imagining with the metaverse, but that's in the future and the reality is now. So 2022 really has been a make or break year for tech companies, and a lot of it looks like break. And it is not just Facebook. What is going on contextually here? All these companies that are either having big layoffs, or even if they're not having big layoffs, are saying, we're going to stop growing, which means we're either going to let some people go, but we're not going to call it layoffs, or we're just going to stop hiring.

Our headcount's going to sort of stay flat or drop. They all have different stories, but again, they all have a general sort of, we're not sure about our growth prospects. Wall Street's not sure about our growth prospects. We're just going to stop spending as much. And one way to do that is to hire less people or fire people. So Twitter has its problems. Elon Musk bought a company for $44 billion that's probably worth $10 or $15 billion. He needs cash. He needs to fire a bunch of people. Even if he hadn't bought the company, though, Twitter likely would have had layoffs for some of the same reasons other companies did. Their growth prospects are limited. Snap is another example of a company that's hired a ton of people during the pandemic.

And Wall Street said, go, go, go. Snap also has advertising problems. Snap also has ad problems that seem specific to changes Apple made. So their growth is also limited. So they've had to have 20% cuts. Peloton is a classic example of people deluding themselves. Put your phone away. Let's get to work.

Put your phone away. Let's get to work. They literally could not find the bikes they were making. They were sort of getting lost in transit and sitting in warehouses and they had sort of getting lost in transit and sitting in warehouses, and they had sort of no control of the company. And so not only have they had layoffs, but they brought in entirely new management. You see different versions of this throughout tech. In addition to the layoffs, Facebook and some of these other companies are trying to find ways to cut costs that seem to strike right at the heart of what it means to be employed in tech. What do those cost-cutting measures look like at this point? These are cost-cutting measures, but if you talk to people in tech,

they're also sort of emotional cultural resets as well. Google really kicked this off many years ago saying, we're making so much money that we can afford to do this. We're going to hire all the best talent. We're going to keep them here by paying them a lot, but also doing these outrageous perks, not just free food, but multiple cafeterias at every one of our offices where you can gorge yourself all day and really elaborate gyms and shuttle buses to take you from your house down to our campus. Vox has chips.

They're not bad, by the way. And, and we upgraded, we upgraded our, our seltzer water. We had polar water and now we're back to LaCroix. So it's pretty good perks right now. And what you started to see again last spring were companies like Facebook, like Google saying, we're going to tap the brakes on this stuff too. Facebook last spring said, we're going to, we're going to make it harder. You can still have free food if you stay here and work late into the evening. But we're not going to give it to you quite so early. So you really do have to sort of stick around at work.

And also, as petty a thing as we're going to give you smaller to-go boxes so you can't take the steak we're giving you and go feed your family with it, which is just kind of a crazy thing for if you're a normal person at a normal company saying, wait, you guys were giving away free food and people were feeding their family with it? Yes, they were. And for a while, that was kind of okay. And then you had Facebook saying, one, that costs money, but also we don't want you thinking about Facebook this way, that sort of we're going to coddle you, that we're going to give you every resource. It's going to be closer to what normal working conditions for lots of people around the U.S. at least are used to. How much of an existential shift in tech do you think this time period is?

I think it's a pretty big shift. I think most people who are working in tech have only been there during boom times. The last downturn was 2008. And even 2008, a lot of tech companies ended up doing pretty well. The last real deflation in tech was all the way back in 2000, 2001. There's almost no one working in tech who's around for that. So if.com, because pets can't drive. So you've been working in tech. You've been working at Facebook or Google or smaller companies. You've only known things going up and to the right. You got paid more. There were always companies who wanted to hire you away from the company you were at,

so you'd get paid even more. You knew that you could leave Facebook or Google and go to a startup. And if that startup didn't work, maybe it would get bought by Facebook or Google, so you'd be cushioned. You knew that in the worst-case scenario, you could leave your big tech job and go get another big tech job. And all of that is a record scratch sort of stop this spring and now this summer and now this fall people saying, Oh, I can't just walk out.

I can't just leave Facebook or Google and go to a crypto or web three startup and make even more money. I might just actually have to sort of do the job that I have right now and be content with that. And that's a big cultural reset. Support for Today Explained comes from Ramp. Ramp is the corporate card and spend management software designed to help you save time and put money back in your pocket. Ramp says they give finance teams unprecedented control and insight into

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Terms and conditions apply. But this is going to be like I'm not a part of. Meta. It won't be like you're not a part of. Meta. You're not a part of. Meta. My name's on the masthead.

You might want to check again. We're back with Recode's Peter Kofka. And Peter, you're saying that the fundamental problem here is one that we love talking about on Today Explained. The problem is growth or lack of growth. So I'd argue that in addition to the pandemic and the miscalculation sort of weird party that tech had in the last couple of years. There's a bigger story that goes back a couple of decades. These tech companies, Google, Facebook, Amazon, Apple, all had crazy, crazy, crazy growth. While some may see them as the crazy ones, we see genius. They were selling tons of ads.

They were selling tons of ads. They were selling tons of iPhones. They reflected a big change in the way the world used technology. They were at the front of that. They got rewarded for that. Because the people who are crazy enough to think they can change the world are the ones who do. All of that still exists, but those companies aren't growing at the same rate. Many of them pretty old now, or their main product is pretty old. The iPhone is 15 years old. Google's main search ad business is 20 years old.

YouTube is 15 years old, more or less. A lot of these things are still very big, very profitable, but they're not going to grow like gangbusters anymore. It's hard to extract the kind of rapid revenue and profit gains these companies had for the last couple of decades. And so if you're Wall Street and you're looking for growth, you want growth, growth, growth, it's harder to find that in big tech these days. And big tech is, and I've wrote about this, is I think less exciting, less dynamic than it used to be. These big tech is, and I've wrote about this, is I think less exciting, less dynamic than it used to be. These big tech companies were disruptors and now they're kind of the big established giants.

And if from a Wall Street perspective, that is less appealing. So I think a lot of these companies are just simply old. They're old and it's harder to get Wall Street excited about the future when you're old. Do these companies have to grow? If a tech company is valued at a trillion dollars or $500 billion, why can't that just be okay? I ask that question all the time. And I've been writing and reporting and podcasting that business forever. What if you just took some money in for the stuff you sold,

made a profit, went home? Yeah. You can do it. You can definitely do it. It helps if you own your own company. If you don't owe anyone money, if you don't have shareholders looking for a return, but you can definitely do it. And you can even get away with not growing that much if you're a certain kind of company has told investors, we're going to grow a couple percent each year. We'll get a little bit bigger. Dynamism is good. That's good. But we're not going to grow like gangbusters. That's a pretty rational way to live life and to run a business. Wall Street, though, often says,

no, that's fine. But if we wanted that, we'd just go buy T-bills or whatever. What we want are big returns. We want to make more money. So we want massive growth. And we want you to promise us massive growth. And that's what a lot of these tech companies were doing and delivering on for a couple decades. And now it's harder for them to do it.

And are the tech companies being honest with investors? Have they gone to them and said, look, guys and gals, we're not going to grow quite as much as we used to? Yes and no. They have to report their numbers publicly unless they're committing major fraud, which doesn't happen that often. And they can say, yeah, look, this is what the next couple of years look like. But if they say, look, we're essentially going to stop growing, period, or we're only going to grow a little bit for a long time, that's game over. Wall Street doesn't want to hear that. Or Wall Street will say, that's fine, but you're now worth 70% less than what you used to be,

because we want to get that growth somewhere. So you find lots of companies saying, all right, things are slowing now, but trust us, X number of years from now, this magic bean is going to sprout and we're going to have a new VR headset. We're going to have a new metaverse. We're going to grow in markets that don't exist yet, but trust us, we're going to get there. Netflix is going through a version of this where they're saying, yeah, it turns out maybe streaming isn't quite as big as we thought it was, but we're also in gaming. That sounds good, right? And so you see all these big tech companies saying, look, we're going to have another chapter somewhere, but you got to trust us, which is not necessarily being deceptive. It's just saying this thing doesn't exist yet,

but we imagine and hope that it will. You know, I'm a relatively old person. I'm like the Facebook of people. And a thing that I wonder about a lot, you know, as we sit here in late 2022, Facebook has been old for a while. Amazon has been old for a while. Like, I remember when it was a bookstore. Why are investors only now just starting to register their skepticism, just starting to catch on? The reason is, is because you could say for, you could say 10 years ago, look, Amazon's been around for a long time. Apple's been around for a long time. Facebook's been around for a long time. And they'd say, yeah, but look at all the money we're making. There's so much more growth for us left. And if you bet against them, you'd be wrong. You'd be

either losing money or losing out on the opportunity to make money. A lot of this is FOMO, right? Like, I don't know how Tesla or Apple or whomever is going to find a bunch of new sales X number of years from now. But everyone else does. So I'm going to pile in. And, you know, Wall Street is a herd mentality. Once people decide, oh, we're more skeptical about all this, everyone is skeptical at the same time. What does all of this mean for the founders who were like giants among men for a long time? They're old there anymore. There's different stories in every case. Steve Jobs is dead. But a lot of these guys said, we don't want to run these companies anymore. Amazon, Google

said, we're going to bring in Microsoft. We're going to bring in professional managers, hand this company over to them and say, you go for it. We're going to do other stuff. We're going to go buy the Washington Post. We're going to go, in Bill Gates's case, try to vaccinate the world. We're going to do other stuff because, frankly, it's more interesting to do other stuff than to run these big companies. Mark Zuckerberg is the one big exception, the guy who created the company, runs the company, and says, I'm all in, and by the way, I'm not going anywhere. So you are not stepping down as chairman? That's not the plan. Does all of this shakiness mean that the big tech companies have less power than they used to? I don't know that they have less power, frankly.

They are much less valuable, but they're still the most valuable companies in the world. So comparatively, they're still the big dogs. I think it's going to be harder for them to sort of get the best and brightest, the most ambitious people in some cases, because those people will look around and say, we, as employees, we want to go to places where there's a lot of growth. That's fun for us personally. It's intriguing. It's also, there's a lot of financial upside for us. So maybe we're not going to go work at Facebook or Google or Amazon or Apple. We'll go do something else instead. I hear you saying there's a potential upside here,

like a broader upside. Yeah, I don't want to be Pollyannish about this because people are losing jobs. Yeah, yeah, sure. And people are going to have a harder time paying rent or mortgages or feeding their families. I don't want to be glib about this. But it's part real and part sort of fable of Silicon Valley is you have this creative

destruction where old things get taken down, new cool things get built in their place. It's part of the ethos of tech, that cool stuff comes from a guy, a woman in a garage making up a new thing. It's part of the fable and myth of Silicon Valley that has a great deal of truth to it as well. And so there's lots of folks saying, all right, we're going to go make something new. By the way, we made a bunch of money in the last couple years, last 10 years.

We can afford to not be working at a big tech company for a while. Let's go cast around for a new idea. Today's show was produced by Amanda Llewellyn and engineered by Paul Robert Mouncey. It was edited and fact-checked by Matthew Collette. I'm Noelle King. It's Today Explained. explained.