Big tech companies prepare for a tough year – Crypto News

For years, the biggest tech companies have been lauded by investors—and at times assailed by smaller rivals and investigated by regulators—for how they appeared to be unstoppable juggernauts. Competitors, big fines and even a global recession brought on by the Covid-19 pandemic didn’t stop revenue and profit from going up.

Now the tide has turned.

Another recession is looming. Europe is starting to put teeth behind its efforts to be tech’s global regulator. And new competitors and technologies are threatening some big companies’ holds on their markets. On top of that, big tech companies were seduced during the pandemic into heavy investments in personnel and new products predicated on the idea that the shift to virtual life would be enduring—something that hasn’t panned out.

In response, big tech companies are retrenching, cutting expenses faster than they have in decades in an effort to navigate what tech executives and even bullish investors say is likely to be a tough 2023.

On Jan. 5, Amazon.com Inc. said its layoffs would affect some 18,000 employees. Meta Platforms Inc. said it would cut 13% of its workforce, or around 11,000 people. Google parent Alphabet Inc. on Jan 11 announced staff reductions of 15% at its healthcare unit Verily. Collectively, employers in the tech sector cut more than 170,000 jobs in the past year, based on estimates from Layoffs.fyi, which tracks media reports and company announcements.

“They’ve proven they can thrive in the go-go times, but the free-money era is gone,” says Dan Ives, an analyst for Wedbush Securities, adding that he thinks big tech companies will ultimately navigate their troubles—which he calls a Category 5 storm—and stage a rebound. “Tech companies have spent like 1980s rock stars. Now they’re starting to spend like senior citizens on a fixed budget.”

no easy road

The economic factors behind the pivot to austerity are several, analysts say. Quickening inflation has led to higher interest rates. Russia’s invasion of Ukraine has put new focus on supply-chain bottlenecks. And a recession would further dampen demand—hitting advertising revenue that sustains some big tech companies, as well as consumer spending on electronics that feeds others.

The new attitude comes as competition for big tech companies is becoming tougher—at least in some segments.

Google and Meta saw their share of US digital-ad spending last year fall below 50% for the first time since 2014 because they are growing more slowly than the rest of the market, according to research firm Insider Intelligence Inc. That is, in part, because Amazon and upstarts like ByteDance Ltd.’s TikTok have seen their share of digital ads grow. But video-streaming services are also taking a growing share—a trend that should accelerate the launch of ad-supported versions of Netflix Inc. and Walt Disney Co.’s Disney+.

Advances in artificial intelligence could also reorganize the digital playing field. The ChatGPT chatbot released last year, which can produce plausible-sounding answers to an array of questions, has been praised by some industry observers as an eventual alternative to current search engines like Google, even though the program can sometimes make factual errors. OpenAI, which makes the chatbot, among other tools, is currently in talks to sell existing shares in an offer that would value the company at around $29 billion, roughly double a prior offer completed in 2021, the Journal reported earlier this month.

Tough regulation

These challenges are coming to a head at the same time that tech regulation, long an amorphous and looming threat largely ignored by investors, has started to take a significant bite, too. European Union regulators earlier this month struck down Meta’s legal justification for its highly targeted ads. That is leaving the company scrambling for a way to keep showing targeted ads based on its Facebook and Instagram users’ online activity in the block.

The EU is also starting to implement two other new laws it passed last year—over objections from big tech companies—aimed at ensuring they give more of an opening to smaller competitors, and forcing them to more heavily police content on their platforms.

Even though companies subject to the Digital Markets Act—the law focused on tech competition—won’t be officially named until later this year, and its provisions won’t be enforced until 2024, the law is already pushing companies to change their business practices. . Apple Inc., for instance, is now preparing to let applications be downloaded onto iPhones and iPads outside its App Store, something the company had long said would compromise security, to comply with the law.

Amazon recently promised to give better treatment and prominence to third-party sellers in ways a company executive said were meant to comply with the new law, as part of its settlement of an antitrust lawsuit in Europe.

Other provisions of the law include a ban on a company with a search function giving priority in its results for its own products and tools over those from other companies—a provision that could require changes to how Google operates in the block—and a mandate that messaging apps from digital giants must allow smaller rivals to interoperate with them. That could cut into Apple’s walled-garden approach to its Messages app on iPhones.

Big tech companies have been moderating their tone on regulation, saying they plan to comply with the new laws.

“We’re now hard at work exploring new processes and product changes to comply fully,” a spokesperson at Google says. “For us, it’s key to keep a constructive, hands-on regulatory dialogue with the European Commission for many months to come.” .”

Apple and Amazon declined to comment. A Meta spokesperson pointed to a statement from Mark Zuckerberg on a recent earnings call: “I believe the tougher prioritization, discipline and efficiency that we’re driving across the organization will help us navigate the current environment and emerge an even stronger company.”

What happens in the EU in the coming year could end up being a template for other parts of the world now considering legislation with some similar provisions, including the UK and India.

“The looming [Digital Markets Act] is already having an impact,” says Anne Witt, a law professor at the EDHEC Business School’s Augmented Law Institute, based in Lille, France. “If the pressure piles up internationally, sooner or later it may make sense for these companies to align their behavior globally.”