We know how the economy played out prior to the birth of serious dot-com and Internet-based high tech portfolios, which today significantly play strong in the economy. Pre-Internet, it used to be exceedingly difficult for a company to hit the billion-dollar capitalization mark; requiring a bevy of highly educated, trained, experienced, and skilled business personnel. Big brick-and-mortar companies, such as Boeing, Exxon Mobile, General Electric, IBM, ITT, Lever Brothers, and so on are made up of these kinds of personnel. These companies sell stuff that you can see and touch.
A perfect example of a virtual company with huge fortune is WhatsApp, which was developed by the Ukrainian-born Jan Koum, who immigrated to the US at the age of 18. He was very poor and on welfare, but developed WhatsApp with Brian Acton, and sold it to Facebook for $19 billion. Meanwhile, it is not clear how WhatsApp generates money for Facebook, though we are aware that the trove of data that WhatsApp acquires on people all over the world could in future translate into money in the bank. Many big businesses today combine elements of brick-and-mortar with virtual presence in order to gain competitive advantage. The idea is that the old economy appears to scale with real inputs, whereas high tech business performance doesnt necessarily do so!
In the 16 February 2015 article in this column, I reported on Apples historic capitalization ($710 billion), making the company the first to achieve this level of capitalization in the world. Apple had a real commodity, though: the iPhone 6S did the trick, accounting for almost 70% of the revenue! Good for Apple. It was only in 2013 that it overtook ExxonMobil as the worlds most capitalized company at $415 billion. In the 6 August 2018 article in this column, I reported on Apples breaking of the $1 trillion market capitalization barrier.
So whats the matter with the high tech companies now? A news analysis of job data have reported that high tech companies reported layoffs and job cuts in 2019 at an alarming rate compared to the 2018 figure, to the tune of an increase of 351%. And this applies to high tech companies all over the globe, though the stats are probably those of companies in the West, where transparency is not much of an issue. Nicole Karlis, in her article on 8 January 2020 in salon.com, attributes this to restructuring, trade difficulties, tariffs, or bankruptcy. Uber, the ride-sharing company, is reportedly laying approximately 25% of its 1,200-person strong marketing department, in an effort to slash costs and make operations more efficient following its public debut and first quarter losses of $1 billion.
Karlis lists several high tech companies that laid off workers, and reports that the bubble burst in 2019 for glorified real estate company WeWork, result in 2,400 employees around the world losing their jobs. Companies such as Oracle and PayPal reportedly laid off employees in 2019 as well.
Because of the way it generates income, vis–vis the traditional big businesses, as mentioned above, the technology sector is evidently the most volatile sector, with short product life cycles. According to Karlis, the past few recessions in the United States have been correlated with major layoffs and dips in tech industry fortunes, and indeed, economists see the tech industry as something of an economic bellwether. Note that technology can be more easily leap-frogged, enabling otherwise impoverished developing countries to compete. However, investments in many of the high tech startups are yet to yield good fruits.
The projected outlook for 2020 is not good, with quite a few important layoffs already in the New Year. What to do as an employee? Strive to be the best at what you do – work extremely hard and smart – and be indispensable with respect to the metric that your industry uses to measure productivity. Also, be up-to-date with technology. With this, even if you get laid off, you will be more marketable. You should also always evaluate your professional options, and make a move when a better opportunity knocks. Its always a good thing to be loyal to your employer; but you also have to pay your bills and support your family.
For the employer, the statements of Ubers CEO Dara Khosrowshahi to his employees, are relevant: We all have to play a part by establishing a new normal in how we work: identifying and eliminating duplicate work, upholding high standards for performance, giving direct feedback and taking action when expectations arent being met, and eliminating the bureaucracy that tends to creep as companies grow.