Silicon Valley layoffs aren’t just a cost-cutting measure. They’re a culture reset.

A wave of significant layoffs is crashing across Silicon Valley.

Meta CEO Mark Zuckerberg cut 11,000 employees, or 13 percent of Facebook. Amazon has confirmed plans to slash as many as 10,000 corporate and tech jobs. Lyft. Robinhood. Stripe. Netflix. Coinbase. They’re all downsizing. And they’re not just axing jobs — they’re also doing away with some of the perks that have become synonymous with working in tech.

Each company has its own, unique problems driving cost-cutting measures. But there are also a couple of macro reasons for the contractions. First, tech companies were pandemic winners. When consumers were stuck at home on Zoom meetings, Peloton rides, and watching Netflix, tech companies’ stock went up. They got huge infusions of cash and used it to expand — a lot, and sometimes in increasingly risky verticals. But as the economy worsens and inflation rises, while pandemic restrictions ease, investors are looking for safer bets, and tech companies are coming back to Earth. Hence the belt-tightening.

The other macro reason for cost-cutting, as Recode’s Peter Kafka argues on Today, Explained, is that the biggest tech companies are now mature. In other words, they can’t provide investors the same kind of massive growth they could in the boom times of the late 2000s and 2010s. And that will have all kinds of ramifications for players in the industry.

Below is an excerpt of the conversation, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get podcasts, including Apple Podcasts, Google Podcasts, Spotify, and Stitcher.

Noel King

What do cost-cutting measures look like at this point?

Peter Kafka

These are cost-cutting measures, but if you talk to people in tech, they’re 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 through these outrageous perks: Not just free food but multiple cafeterias at every one of our offices where you can gorge yourself all day. Really elaborate gyms and shuttle buses to take you from your house down to our campus.”

And what you started to see last spring was companies like Facebook and Google saying, “We’re going to tap the brakes on this stuff, too.” Facebook last spring said, “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 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.” They’re saying, “We don’t want you to think of Facebook that way anymore.” It’s going to be closer to what normal working conditions for lots of people around the US, at least, are used to.

Noel King

How much of an existential shift in tech do you think this time period is?

Peter Kafka

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 real deflation in tech was all the way back in 2000, 2001. There’s almost no one working in tech now who was around for that. So if you’ve been working in tech, you’ve only known things going up and to the right. You got paid a lot. There were always companies who wanted to hire you away from the company you were at, so you got 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.

And all of that comes to a record-scratch stop this year. People say, “Oh, I can’t just walk out. I can’t just leave Facebook or Google and go to a crypto or Web3 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.

Noel King

Peter, you argue that the fundamental problem underlying a lot of these cuts is one that we love talking about on Today, Explained: the problem is growth — or lack thereof.

Peter Kafka

Yes. There’s a bigger story that goes back a couple of decades. These tech companies, Google, Facebook, Amazon, and Apple all had crazy, crazy, crazy growth. 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.

But those companies aren’t growing at the same rate anymore. Many of them are 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 companies and products are still very big and very profitable, but they’re not going to grow like gangbusters anymore. It’s hard to extract the 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, it’s harder to find that in Big Tech these days. And Big Tech is less dynamic than it used to be. These Big Tech companies were disruptors, and now they’re kind of the big, established giants. And from a Wall Street perspective, that is less appealing.

Noel King

Do these companies have to grow?

Peter Kafka

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 that has told investors, “We’re going to grow a couple percent each year, 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 “That’s fine, but 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.” That’s what a lot of these tech companies were delivering on for a couple of decades. And now it’s harder for them to do it.

Noel King

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.”

Peter Kafka

Yes and no. They have to report their numbers publicly. 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 percent 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. 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?”

Noel King

What does all of this mean for the founders? They’re old, too, now. What happens to them?

Peter Kafka

One thing that I think is pretty telling is almost all of the men — and they’re all men — who started these Big Tech companies and ran them: They’re not 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, Microsoft all said, “We’re going to bring in professional managers 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’ 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.

Noel King

Does all of this shakiness mean that the Big Tech companies have less power than they used to?

Peter Kafka

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 get the best and brightest, the most ambitious people, 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.”

Noel King

I hear you saying there’s a potential upside here, like a broader upside.

Peter Kafka

Yeah. I don’t want to be pollyannaish about this because people are losing jobs. And people are going to have a harder time paying rent or mortgages or feeding their families. But it’s part real and part fable of Silicon Valley to have this creative destruction where old things get taken down. New, cool things get built in their place. 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 of years, the 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.”