The Pulse #79: Is it fair for profitable companies to fire staff to make more money?
Big Tech companies are enjoying record profits, but still doing mass layoffs. In the US, this is fair game, but in some EU countries, companies can’t let staff go without more justification.
Today, we cover:
Industry pulse. TikTok missed the GenAI train; Mark Zuckerberg and Instagram grilled by senators; Section 174 could (mostly) be undone; Amazon’s purchase of iRobot blocked; and more.
Is it fair for profitable companies to fire staff to make more money? Companies like Google, Microsoft, Amazon and Salesforce are generating profits that are close to, or above their all-time highs. They are also doing mass firings. In the US, this works fine, but in some EU countries, they cannot proceed to cut while business is booming.
Spotify cannot do layoffs in the Netherlands. Spotify did not consult with its works council before announcing it wants to cut 11% of staff. The works council went to court; won; and reversed all layoffs in a matter of weeks.
Will fewer tech workers be angel investors for startups? There’s been a boom in angel investing done by tech workers the past few years. However, with a startup bankruptcy wave ongoing, and a lack of angel investment success stories, could we see a drop, looking ahead? Also: the UK made angel investing out of reach with stricter income requirements.
The EU tries to regulate Apple. The EU wants to see more competition within large gatekeeper platforms like Apple’s App Store. Apple must implement changes, and then the EU decides if it’s happy. Apple has unveiled changes it came up with – and they look unconvincing, and unlikely to create the competition the EU wants to mandate.
1. Industry pulse
TikTok asleep on generative AI
The CEO of ByteDance – which builds TikTok – has berated staff on a company all-hands, telling them to enter crisis mode, because they’ve missed the generative AI wave, while competitors like Meta, OpenAI/Microsoft, and Google are leading, Bloomberg reports.
You may recall that in December OpenAI banned ByteDance’s developer account when it caught ByteDance using ChatGPT to train its own AI model. That incident was pretty embarrassing, suggesting ByteDance is way behind in having a usable large language model (LLM) in house.
It’s also a bit ironic because Meta reportedly went all-in on AI investment two years ago because of the threat TikTok posed. As I wrote in August 2022:
“ML, AI and recommendations are at the center of this new battle to be played out between Meta and TikTok for the attention of users. This is why, according to my source, Meta has not frozen ML hiring, as the company sees machine learning as a critical skillset to invest in.
Meta already built the world’s largest AI cluster called AI Research SuperCluster. This is clearly a gearing up for the next period of head-to-head competition with TikTok.”
Considering how this has played out, credit’s due to Mark Zuckerberg for shaking up Meta and preparing the company for the “AI wartime” period of today, which TikTok has been caught off guard by. This will take more to fix than a flustered CEO berating staff, but at least they all know now.
Meta, Instagram, and Mark Zuckerberg
Mark Zuckerberg has shown himself a charismatic leader at Meta, this past year. However, he put on a very unconvincing display of leadership in front of the US Senate Judiciary committee yesterday (31 January.) Senators summoned CEOs of Meta, TikTok, Snap and X, to accuse them of ignoring harmful content on their platforms aimed at children. Zuckerberg drew the most attention, as lawmakers questioned him on hard-to-defend policies Meta has adopted.
A memorable moment was senator Ted Cruz pulling up an Instagram warning dialog that some search results may contain child sexual abuse material. The message also offered to “show results anyway.” The senator asked, “in what sane universe is there a link that says ‘see results anyway?” Predictably, Zuckerberg had no reply.
The hearing is unlikely to make any difference to how social media companies operate, but they make it increasingly clear that platforms do optimize for users to spend as much time as possible on them, including children. Companies don’t see it as their responsibility to monitor the effects their products have on users, and it’s up to elected officials to rule what platforms need to do, on this. With social media a core part of how people interact, governance and protecting children falls upon regulators, while there are calls for companies to be much more proactive. Social media businesses will seek to protect their business interests and lobby for more forgiving regulation.
As a parent, I welcome thoughtful regulation that shields children from inappropriate content, protects their privacy, and makes popular social media services safe, and not a traumatic experience to use. There are plenty of ways to achieve this, and regulators across the world need to define them because social media companies won’t (it’s not their business interest to reduce users spending time on their platforms!), unless it is mandated. And when it is mandated, business results could worsen if usage by under-18s decreases.
Section 174 one step closer to being (mostly) undone
Changes to S174 of US tax regulation means software developer salaries can no longer be expensed in the same year as they occur, and must be amortized (“spread out”) over 5 years for US-based developers, and 15 years for those abroad. This change means companies employing software engineers paid much more tax in 2023, and will do for the next couple of years. The US is the only place in the world to mandate such strict amortization requirements, and this threatens to make the US much less competitive, and incentivises US-based companies to hire fewer software developers, and perhaps fire more. We analyze this complicated topic in The Pulse #75.
Tax changes targeting the tech industry were never really meant to pass, and Congress is – finally! – looking to undo the damage done. The amendments are mostly reversed in a new tax bill that the House passed yesterday (31 January.) The legislation now goes to the Senate.
The updated bill removes the mandate to amortize US-based developers, but leaves the mandate to amortize costs of foreign-based software developers over 15 years. Assuming this law changes, we can expect US companies to hire developers in the US as before.
Looking ahead, US companies will likely hire fewer developers (and contractors) from overseas. This is true even if remote developers cost much less than US-based ones because wages paid to devs in foreign countries need to be amortized over 15 years. For a company close to making a profit, this means 15 years of potentially paying more corporate tax for employing from abroad. Perhaps this outcome is no mistake, and disincentivizing US companies from hiring from foreign markets is a goal of the legislation. If you work remotely or as a contractor for a US-based company, keep this change in mind; it could make work riskier.
Cuts at tech companies continue
Unfortunately, layoffs are continuing at large tech companies. From this week: