Google, along with other tech companies, hired tens of thousands of new workers during the first two years of the pandemic to take advantage of a surge in spending on cloud services, e-commerce and stay-at-home recreation. But rising interest rates and the potential for an economywide recession have upended that trajectory.
“Over the past two years we’ve seen periods of dramatic growth,” Pichai said. “To match and fuel that growth, we hired for a different economic reality than the one we face today.”
Google makes the vast majority of its money from online ads, and has seen massive growth over the past two decades as more advertising and commerce moves online every year. It has invested billions in artificial intelligence and on building out its cloud business, but ads still brought in 80 percent of the $69 billion Google made in the third quarter of 2022. Despite its AI prowess leading to improvements in its search, mapping and personal assistant products, the core way the company makes money still hasn’t changed. The higher cost of borrowing due to interest rate hikes and skittishness about the economy have cut into budgets for advertising, lowering expectations that Google and other ad giants like Facebook will be able to continue growing at the rates they’ve long been accustomed to.
The cuts, by far the largest in Google’s 25-year history, are the latest in an industry that has shed more than 200,000 workers last year and so far this year, according to the tracking site Layoffs.fyi. On Thursday, Mark Zuckerberg, chief executive of Meta, warned employees that more positions could be eliminated — after Facebook’s parent company already slashed 11,000 workers, or 13 percent of its workforce, in November — as part of a larger effort to turn the social media giant into a less-hierarchical company by having workers report to fewer managers, according to two people familiar with the matter.
This week, Microsoft announced the layoffs of 10,000 employees. Earlier in January, Amazon said it was eliminating 18,000 workers. (Amazon founder Jeff Bezos owns The Washington Post.) Salesforce also announced it was cutting around 10 percent of its 80,000 workers.
As other companies announced cuts, Google employees had held out hope that they wouldn’t be impacted in the same way, banking on the company’s reputation for spending heavily on its workers. Some had speculated that cuts would be done on a more limited basis, focusing on people who weren’t producing as much work, rather than mass layoffs like the ones announced Friday, according to people familiar with internal discussions. Inside the firm, workers were emailing each other to see if their friends and colleagues still had jobs. One, speaking on condition of anonymity to discuss the internal situation, said the atmosphere was “miserable.”
Employees found out they were being fired via emails that came as many of them were fast asleep. Some workers got their termination notices just minutes before the company posted the announcement publicly. Employees who were cut immediately had their email access revoked, and were instructed to sign up for a new email account that would be used to handle severance matters, said one employee who spoke on the condition of anonymity.
“Today, 12,000 of our co-workers woke up to devastating news. In one email Sundar Pichai has taken away the livelihoods of thousands of workers,” said Parul Koul, executive chair of the Alphabet Workers Union, a group that represents both full-time employees and Google contractors. “This is egregious and unacceptable behavior by a company that made $17 billion dollars in profit last quarter alone.”
Pichai is among the highest-paid executives in corporate America. In December, the company’s board approved new stock grants for him worth $210 million that will vest over the next three years. The ultimate value of Pichai’s compensation will change depending on how well the company’s stock performs.
Google’s stock jumped 4 percent on the news, as investors saw it as a sign the company was willing to fire people to preserve profit margins. Tech stocks in general were down around 30 percent in 2022, bucking years of growth.
“The clock has struck midnight on hyper growth and digital advertising head winds are on the horizon,” Dan Ives, an analyst with Wedbush Capital, said in an email. “The Cinderella ride has ended.”
Zuckerberg said during a companywide meeting that managers could end up taking on the work of lower-level individual contributors, said some workers, who were not authorized to speak on the record.
Even as recent data indicates a resilient job market, some analysts have called tech’s retrenchment a harbinger of a recession as large-scale layoffs have also hit the finance, media and housing sectors.
“As an almost 25-year-old company, we’re bound to go through difficult economic cycles,” Pichai wrote. The company is refocusing its priorities, which includes investments in artificial intelligence, Pichai said, adding the company will soon announce “some entirely new experiences for users” when it comes to AI. Still, some of the workers who were cut on Friday were working on AI-focused teams.
Google has made massive investments in artificial intelligence over the past decade, buying promising start-ups in the field and locking down the world’s top academics with lavish pay and promises of letting them direct their own research. But over the last year, much smaller AI companies have stolen the spotlight in AI by launching publicly-available tools that can generate complex, beautiful images based on a short prompt, or produce text on any topic that is often hard to distinguish from human writing.
Microsoft, Google’s longtime rival, had already invested in OpenAI, the maker of the text-generating platform ChatGPT that has taken the internet by storm. It’s in talks to invest another $10 billion in the company, according to news site Semafor. Microsoft, which has a bigger cloud business than Google but is far behind when it comes to its share of the search engine market, could use AI to built out new products and gain marketing hype by associating with the hot start-up.
Google has been developing its own chat bot, but hasn’t publicly released it yet. In the past, AI language tools that have been released by other companies were often shown to produce racist and offensive comments quickly after launching, and Google is particularly sensitive to accusations that its products may cause harm. In 2020, it fired a prominent AI ethics researcher, Timnit Gebru, after she criticized the company’s methods for developing its AI.
In the last week, Google has begun a renewed push to assure its customers, workers and investors that it’s still the leader in the field. On Wednesday, Pichai tweeted out a new blog post outlining all the company’s recent advancements in cutting-edge AI tech like generative machine learning and large language models.
“Look forward to sharing more with everyone soon,” he said. “Stay tuned!”