--:-- [Theme music fades out]
--:-- Noel King: I'm a creep. Our company is now Meta. Meta is making a huge investment in virtual reality or the so-called metaverse. Your avatar will be able to make natural eye contact and reflect your facial expressions in real time. Things like raising an eyebrow, squinting, widening my eyes or scrunching my nose.
--:-- Noel King: He's spending more than what it took to create Tesla on this market that we're not sure is going to work. Meta is the latest Bay Area tech company to announce massive layoffs to their workforce, letting go of 11,000 people this week. Raising an eyebrow and widening my eyes because it's not just Meta. Something is shaking the foundations of big tech right now.
--:-- Noel King: What it is, coming up on Today Explained. Support for Today Explained comes from Saks Fifth Avenue. Fall is here. Might be time to find some nice new pieces you can wear again and again. With Saks Fifth Avenue, it can be a breeze to shop for your personal style, like maybe a relaxed Prada blazer or Gucci loafers that are great for both work and the weekend.
--:-- Noel King: This is very Sean. This is very Sean-coded. Gucci loafers. Saks says Saks makes shopping feel totally customized to you, whether that's from an in-store stylist or a visit to Saks.com, where they can show you just what you want to see. They say they'll even let you know when arrivals from your favorite designers are in or when something you've been eyeing is back in stock.
--:-- Noel King: You can find inspiration for your personal style every day at Saks Fifth Avenue. Support for this show comes from strawberry.me. Be honest. Are you happy with your job? Or are you stuck in one you've outgrown? Or never wanted in the first place?
--:-- Noel King: Sure, you can probably list the reasons for staying, But are they actually just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner. Go to strawberry.me slash unstuck to claim a special offer.
--:-- Noel King: It's Today Explained. I'm Noelle King. 2022 has been a year for tech companies. Mark Zuckerberg's 11,000 employees or 13 percent of the company gone. Mark! Amazon reportedly plans to lay off around 10,000 people. That news just broke today.
--:-- Noel King: Elon Musk fired half of Twitter, which has been presented in some corners as a wild mood swing. But he also laid off 10 percent of Tesla staff this year after telling investors in a memo that he had a, quote, super bad feeling about the economy. But then he started hiring a Tesla again.
--:-- Noel King: So, OK, let's leave Elon out of it. More illustrative, Lyft cut around 13% of its staff, Robinhood around 29% of its staff, Stripe around 14% of its staff, Netflix, Coinbase, a lot of tech companies have had significant layoffs.
--:-- Noel King: Peter Kafka, senior correspondent at Recode and host of the Recode Media podcast. What is going on? And start, if you would, with Facebook.
--:-- Peter Kafka: Facebook said they're firing 11,000 people. One of the largest layoffs in tech, period. Certainly the biggest layoff in Facebook's history, Meta's history.
--:-- Peter Kafka: This is a company that seemed invincible forever, even when they had big political problems. The company kept growing. They kept minting money. Facebook stock went up so much, Facebook is now worth more than a trillion dollars for the first time ever.
--:-- Peter Kafka: But what happened in the last year was Facebook saying, hey, actually, we've got some problems, but don't worry about it. We're going to continue to invest in the future. We're going to spend billions of dollars a year on the metaverse, this thing that doesn't exist, but we want to will into history.
--:-- Peter Kafka: People say to me, what is the metaverse? I say, I don't know. But if I could imagine it, it's probably like the book Ready Player One. Terrible movie. Fantastic book.
--:-- Peter Kafka: And then at some point this year, Wall Street said, this is a terrible idea. We're freaked out. We're going to cut your value way down. Meta stock is down 70% this year. Profits down 50% in the third quarter.
--:-- Peter Kafka: And then you saw Facebook for really the first time last spring saying, hey, we're going to start tapping the brakes on our growth. We're going to stop giving you guys perks. Maybe some of you shouldn't be working here.
--:-- Peter Kafka: Really signaling that sort of the go, go, go days for Facebook were going to be either gone or at least on pause for a while.
--:-- Peter Kafka: This is Mark Zuckerberg saying we grew too fast. We assumed that the boom times would continue. And they haven't.
--:-- Peter Kafka: People who work at Facebook have been freaked out well before these layoffs. Their stock has dropped significantly. That was a big source of their compensation.
--:-- Peter Kafka: They're looking at the future of the company. They no longer have sort of blind faith that it's going to grow and grow and grow.
--:-- Peter Kafka: The social media giant Facebook has seen the number of people using it every day fall for the first time in its 18-year history.
--:-- Peter Kafka: Facebook's parent company, Meta Networks, warned of slowing revenue growth in the face of competition from rivals such as TikTok and YouTube.
--:-- Peter Kafka: They've been streaming out of Facebook on their own, looking for other companies where there's other growth opportunities. And that's been going on for a while.
--:-- Peter Kafka: And I absolutely talked to some of those folks saying, I'm not sure about the future of this company. I want to go somewhere else.
--:-- Peter Kafka: All that said, you can say, look, we know that the company is on different footing. We know things are not the same.
--:-- Peter Kafka: You can say all that. You can think all that. It's another thing to have 11,000 people disappear in one day.
--:-- Peter Kafka: I want to say, you know, up front, that I take full responsibility for this decision. This was ultimately my call.
--:-- Peter Kafka: And it was, you know, one of the hardest calls that I've had to make in the 18 years of running the company.
--:-- Peter Kafka: So, Peter, Wall Street says, uh-uh, Zuckerberg, this ain't going to work for us. Why did Wall Street say that? What's going on?
--:-- Peter Kafka: So, Wall Street's been saying hell no to tech for much of this year. It's a huge reversal from the last couple years and really for the last decade.
--:-- Peter Kafka: For the last decade, Wall Street liked tech. But during the pandemic in particular, when it looked like, first of all, the economy was going to stop, and then it looked like, oh, we're going to be working from home forever, where investors plowed money into anything tech related, whether it was Zoom or Peloton or Snap
--:-- Peter Kafka: Tech stocks did very well during the pandemic because tech was so important to our daily lives Netflix and Apple moved higher because we stayed home and watched television Zoom stock zoomed because we had so many online meetings.
--:-- Peter Kafka: And Facebook and Google and Amazon said, oh, we're growing like gangbusters. The pandemic, frankly, is good for us. It accelerates trends that we're well positioned to take advantage of.
--:-- Peter Kafka: We're going to spend money. We're going to hire lots of people. Wall Street said, great, that all sounds good.
--:-- Peter Kafka: And then as happens often, Wall Street changed its mind and said, no, we don't like that.
--:-- Peter Kafka: So that's tech in general. And then specifically at Facebook, Wall Street's concerned about Facebook's growth possibilities.
--:-- Peter Kafka: They're saying, look, you're reaching 2 billion people in the world through Instagram, Facebook, WhatsApp, et cetera. Seems like it's going to be hard for you to grow.
--:-- Peter Kafka: You have specific problems in your advertising business. A lot of that relates to changes Apple made in the way that advertisers can track people around the Internet.
--:-- Peter Kafka: That's specifically a big problem for Facebook. The feature, dubbed app tracking transparency, will let you choose if you want your online activity tracked and sold to third parties, such as Facebook and other apps.
--:-- Peter Kafka: This is a feature that Facebook has been attacking for months. Mark Zuckerberg saying Apple's changes will hurt small businesses' ability to target consumers with ads through Facebook.
--:-- Peter Kafka: And then on top of that, Mark Zuckerberg's been saying, hey, by the way, we're not Facebook anymore. We're Meta because we're the Metaverse company.
--:-- Peter Kafka: Imagine you put on your glasses or headset and you're instantly in your home space. It has parts of your physical home recreated virtually. It has things that are only possible virtually.
--:-- Peter Kafka: And it has an incredibly inspiring view of whatever you find most beautiful. And this is his project we're going to spend $10 billion on in a single year. and we're going to spend and spend and spend for many years after that.
--:-- Peter Kafka: And it's going to take us five, ten years to create this virtual reality world that we think exists. But it's the future. We're going there.
--:-- Peter Kafka: This is a big, bold bet. So giving everyone the tools to be present, no matter where they are, whether it's a hologram sitting next to you in a physical meeting or in a discussion taking place in the metaverse, that's going to be a game changer.
--:-- Peter Kafka: And again, last year Wall Street said, that sounds pretty good. That sounds rational. And this year, Wall Street says, actually, we're not into investing in this idea that may never come.
--:-- Peter Kafka: We'd like you to stop spending so much money in general. And we're pretty freaked out about the amount of money you're spending on this virtual reality.
--:-- Peter Kafka: When Mark Zuckerberg made that announcement, I have nieces and nephews. And I assumed that by this point, they would all be living in the metaverse, like the young people are going to go and get it.
--:-- Peter Kafka: And then this year, they're all like doing JV tennis. Is meta really going to be a thing?
--:-- Peter Kafka: Look, the metaverse, if you're really cynical about the metaverse, you go, this is the best snake oil ever.
--:-- Peter Kafka: Because you can say, look, I'm painting this picture of the future, and it's going to be amazing. It's going to be world-changing. It's not going to show up for a long time.
--:-- Peter Kafka: We have to build this stuff. There's a lot of tech we have to imagine and build and create and then get you to use.
--:-- Peter Kafka: So it's not going to come tomorrow, but trust me, it's going to get there.
--:-- Peter Kafka: And the nice thing about making it a pitch like that, you can't be held responsible in a year when it doesn't materialize. because I didn't say it was coming next year. It's coming sometime.
--:-- Peter Kafka: You know, look, one of the problems that Meta specifically has is that if you're a young person, you're not using the old Facebook app at all.
--:-- Peter Kafka: And now you're probably on TikTok. That's a huge existential competitor for Facebook.
--:-- Peter Kafka: My kids are 12 and 14. They love Snap. Snap is a crucial thing for them. They have zero interest in Instagram or Facebook.
--:-- Peter Kafka: That can't continue forever for Mark Zuckerberg. He's got to find something that my kids, that your kids, your friends' kids are interested in.
--:-- Peter Kafka: And again, that's what he's hoping he's imagining with the metaverse. But that's in the future and the reality is now.
--:-- Peter Kafka: So 2022 really has been a make or break year for tech companies, and a lot of it looks like break.
--:-- Peter Kafka: And it is not just Facebook. What is going on contextually here? All these companies that are either having big layoffs or even if they're not having big layoffs are saying we're going to stop growing, which means we're either going to let some people go, but we're not going to call it layoffs, or we're just going to stop hiring.
--:-- Peter Kafka: Our headcount's going to sort of stay flat or drop. So they all have different stories. But again, they all have a general sort of we're not sure about our growth prospects.
--:-- Peter Kafka: Wall Street's not sure about our growth prospects. We're just going to stop spending as much.
--:-- Peter Kafka: And one way to do that is to hire less people or fire people.
--:-- Peter Kafka: So Twitter has its problems. Elon Musk bought a company for $44 billion that's probably worth $10 or $15 billion.
--:-- Peter Kafka: He needs cash. He needs to fire a bunch of people. Even if he hadn't bought the company, though, Twitter likely would have had layoffs for some of the same reasons other companies did.
--:-- Peter Kafka: Their growth prospects are limited. Snap is another example of a company that's hired a ton of people during the pandemic.
--:-- Peter Kafka: And Wall Street said, go, go, go. Snap also has advertising problems. Snap also has ad problems that seem specific to changes Apple made.
--:-- Peter Kafka: So their growth is also limited. So they've had to have 20% cuts.
--:-- Peter Kafka: Peloton is a classic example of people deluding themselves. Put your phone away. Let's get to work. Put your phone away. Let's get to work. Put your phone away. Let's get to work.
--:-- Peter Kafka: I'm not the one. 60 to 80 resistance. Heavy enough for you to forget about your emails.
--:-- Peter Kafka: They were an incredibly poorly run company. They literally could not find the bikes they were making.
--:-- Peter Kafka: They were sort of getting lost in transit and sitting in warehouses, and they had sort of no control of the company.
--:-- Peter Kafka: And so not only have they had layoffs, but they brought in entirely new management.
--:-- Peter Kafka: You see different versions of this throughout tech. In addition to the layoffs, Facebook and some of these other companies are trying to find ways to cut costs that seem to strike right at the heart of what it means to be employed in tech.
--:-- Peter Kafka: What do those cost-cutting measures look like at this point? These are cost-cutting measures. But if you talk to people in tech, they're also sort of emotional, cultural resets as well.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: We're going to keep them here by paying them a lot. But also doing these outrageous perks not just free food but multiple cafeterias at every one of our offices where you can gorge yourself all day
--:-- Peter Kafka: And really elaborate gyms and shuttle buses to take you from your house down to our campus Vox has chips They not bad by the way.
--:-- Peter Kafka: And we upgraded our seltzer water. We had polar water, and now we're back to LaCroix. So it's pretty good perks right now.
--:-- Peter Kafka: And what you started to see again last spring were companies like Facebook, like Google saying, we're going to tap the brakes on this stuff too.
--:-- Peter Kafka: Facebook last spring said, we're going to make it harder. 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.
--:-- Peter Kafka: So you really do have to sort of stick around at work. And also we're as petty a thing as we're going to give you smaller to-go boxes.
--:-- Peter Kafka: So you can't take the steak we're giving you and go feed your family with it, which is just kind of a crazy thing for if you're a normal person at a normal company saying, wait, you guys were giving away free food and people were feeding their family with it?
--:-- Peter Kafka: Yes, they were. And for a while, that was kind of okay.
--:-- Peter Kafka: And then you had Facebook say, well, one, that costs money. But also, we don't want you thinking about Facebook this way, that sort of we're going to coddle you, that we're going to give you every resource.
--:-- Peter Kafka: It's going to be closer to what normal working conditions for lots of people around the U.S. at least are used to.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: The last downturn was 2008. And even 2008, a lot of tech companies ended up doing pretty well.
--:-- Peter Kafka: The last real deflation in tech was all the way back in 2000, 2001.
--:-- Peter Kafka: There's almost no one working in tech who's around for that. Pets.com, because pets can't drive.
--:-- Peter Kafka: So you've been working in tech, you've been working at Facebook or Google or smaller companies, you've only known things going up and to the right.
--:-- Peter Kafka: You got paid more. There were always companies who wanted to hire you away from the company you were at, so you'd get paid even more.
--:-- Peter Kafka: 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, so you'd be cushioned.
--:-- Peter Kafka: You knew that in the worst case scenario, you could leave your big tech job and go get another big tech job.
--:-- Peter Kafka: And all of that is a record scratch sort of stop this spring and now this summer and now this fall.
--:-- Peter Kafka: People saying, 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.
--:-- Peter Kafka: I might just actually have to sort of do the job that I have right now and be content with that.
--:-- Peter Kafka: And that's a big cultural reset.
--:-- Peter Kafka: Thank you.
--:-- Peter Kafka: and calendars synced. You'll see all your relationships in a fully-fledged platform, they say, all enriched with that actionable data.
--:-- Peter Kafka: And they say you can build AI-powered automations and use its research agent to tackle some of your most complex processes so that you can focus on what matters, building your company.
--:-- Peter Kafka: You can join industry leaders such as Flatfile, Replicate, Modal, and so much more.
--:-- Peter Kafka: You can go to adio.com slash todayexplain to get 15% off your first year.
--:-- Peter Kafka: That's A-T-T-I-O dot com slash Today Explained.
--:-- Noel King: Wow. This is going to be like I'm not a part of Meta. It won't be like you're not a part of Meta. You're not a part of Meta. My name's on the masthead. You might want to check again.
--:-- Noel King: We're back with Recode's Peter Kafka. And Peter, you're saying that the fundamental problem here is one that we love talking about on Today Explained. The problem is growth or lack of growth.
--:-- Peter Kafka: So I'd argue that in addition to the pandemic and the miscalculation sort of weird party that the tech had in the last couple of years, There's a bigger story that goes back a couple decades.
--:-- Peter Kafka: These tech companies, Google, Facebook, Amazon, Apple, all had crazy, crazy, crazy growth.
--:-- Peter Kafka: While some may see them as the crazy ones, we see genius. They were selling tons of ads. They were selling tons of iPhones.
--:-- Peter Kafka: They reflected a big change in the way the world used technology. They were at the front of that. They got rewarded for that.
--:-- Peter Kafka: Because the people who are crazy enough to think they can change the world are the ones who do.
--:-- Peter Kafka: All of that still exists, but those companies aren't growing at the same rate.
--:-- Peter Kafka: Many of them 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.
--:-- Peter Kafka: A lot of these things are still very big, very profitable. but they're not going to grow like gangbusters anymore.
--:-- Peter Kafka: It's hard to extract the kind of rapid revenue and profit gains that these companies had for the last couple of decades.
--:-- Peter Kafka: And so if you're Wall Street and you're looking for growth, you want growth, growth, growth, it's harder to find that in big tech these days.
--:-- Peter Kafka: And big tech is, and I've wrote about this, is I think less exciting, less dynamic than it used to be.
--:-- Peter Kafka: These big tech companies were disruptors and now they're kind of the big established giants.
--:-- Peter Kafka: And if from a Wall Street perspective, that is less appealing.
--:-- Peter Kafka: So I think a lot of these companies are just simply old. They're old and it's harder to get Wall Street excited about the future when you're old.
--:-- Peter Kafka: Do these companies have to grow? If a tech company is valued at a trillion dollars or $500 billion, can that just, why can't that just be okay?
--:-- Peter Kafka: I ask that question all the time. And I've been writing and reporting and podcasting up business forever
--:-- Peter Kafka: What if you just took some money in for the stuff you sold made a profit went home Yeah You can do it You can definitely do it
--:-- Peter Kafka: It helps if you own your own company if you owe anyone money if you don have shareholders looking for a return, but you can definitely do it.
--:-- Peter Kafka: And you can even get away with not growing that much if you're a certain kind of company has told investors, we're going to grow a couple percent each year. We'll get a little bit bigger.
--:-- Peter Kafka: Dynamism is good. That's good, but we're not going to grow like gangbusters. That's a pretty rational way to live life and to run a business.
--:-- Peter Kafka: Wall Street, though, often says, no, that's fine, but if we wanted that, we'd just go, you know, buy T-bills or whatever.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: And that's what a lot of these tech companies were doing and delivering on for a couple decades, and now it's harder for them to do it.
--:-- Peter Kafka: 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 unless they're committing major fraud.
--:-- Peter Kafka: It doesn't happen that often. And they can say, yeah, look, this is what the next couple of years look like.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: Wall Street doesn't want to hear that. Or Wall Street will say, that's fine, but you're now worth 70% less than what you used to be because we want to get that growth somewhere.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: We're going to have a new metaverse. We're going to grow in markets that don't exist yet, but trust us, we're going to get there.
--:-- Peter Kafka: 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.
--:-- Peter Kafka: That sounds good, right? And so you see all these big tech companies saying, look, we're going to have another chapter somewhere, but you got to trust us.
--:-- Peter Kafka: Which is not necessarily being deceptive. It's just saying, this thing doesn't exist yet, but we imagine and hope that it will.
--:-- Peter Kafka: You know, I'm a relatively old person. I'm like the Facebook of people.
--:-- Peter Kafka: And a thing that I wonder about a lot, you know, as we sit here in late 2022, Facebook has been old for a while. Amazon has been old for a while.
--:-- Peter Kafka: Like, I remember when it was a bookstore. Why are investors only now just starting to register their skepticism, just starting to catch on?
--:-- Peter Kafka: The reason is, is because you could say for, you could say 10 years ago, look, Amazon's been around for a long time. Apple's been around for a long time. Facebook's been around for a long time.
--:-- Peter Kafka: And they'd say, yeah, but look at all the money we're making. There's so much more growth for us left.
--:-- Peter Kafka: And if you bet against them, you'd be wrong. You'd be either losing money or losing out on the opportunity to make money.
--:-- Peter Kafka: A lot of this is FOMO, right? Like, I don't know how Tesla or Apple or whomever is going to find a bunch of new sales X number of years from now.
--:-- Peter Kafka: But everyone else does, so I'm going to pile in. And, you know, Wall Street is a herd mentality.
--:-- Peter Kafka: Once people decide, oh, we're more skeptical about all this, everyone is skeptical at the same time.
--:-- Peter Kafka: What does all of this mean for the founders who were like giants among men for a long time? 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 were the founder as CEO.
--:-- Peter Kafka: They're not there anymore. There's different stories in every case. Steve Jobs is dead.
--:-- Peter Kafka: But a lot of these guys said, we don't want to run these companies anymore. Amazon, Google said, we're going to bring in Microsoft. We're going to bring in professional managers, hand this company over to them and say, you go for it.
--:-- Peter Kafka: We're going to do other stuff. We're going to go buy the Washington Post. We're going to go, in Bill Gates's case, try to vaccinate the world.
--:-- Peter Kafka: We're going to do other stuff because, frankly, it's more interesting to do other stuff than to run these big companies.
--:-- Peter Kafka: Mark Zuckerberg is the one big exception. The guy who created the company, runs the company and says, I'm all in.
--:-- Peter Kafka: And by the way, I'm not going anywhere. So you are not stepping down as chairman. That's not the plan.
--:-- Peter Kafka: Does all of this shakiness mean that the big tech companies have less power than they used to? I don't know that they have less power, frankly.
--:-- Peter Kafka: They are much less valuable, but they're still the most valuable companies in the world.
--:-- Peter Kafka: So comparatively, they're still the big dogs.
--:-- Peter Kafka: I think it's going to be harder for them to sort of get the best and brightest, the most ambitious people in some cases because those people will look around and say, we as employees, we want to go to places where there's a lot of growth.
--:-- Peter Kafka: That's fun for us personally. It's intriguing. It's also there's a lot of financial upside for us.
--:-- Peter Kafka: So maybe we're not going to go work at Facebook or Google or Amazon or Apple. We'll go do something else instead.
--:-- Peter Kafka: I hear you saying there's a potential upside here, like a broader upside.
--:-- Peter Kafka: Yeah, I don't want to be Pollyannish about this because people are losing jobs. Yeah, yeah, sure.
--:-- Peter Kafka: And people are going to have a harder time paying rent or mortgages or feeding their families.
--:-- Peter Kafka: I don't want to be glib about this. But it's part real and part sort of fable of Silicon Valley is you have this creative destruction where old things get taken down, new cool things get built in their place.
--:-- Peter Kafka: It's part of the ethos of tech, that cool stuff comes from a guy, a woman in a garage making up a new thing.
--:-- Peter Kafka: It's part of the fable and myth of Silicon Valley that has a great deal of truth to it as well.
--:-- Peter Kafka: And so there's lots of folks saying, all right, we're going to go make something new.
--:-- Peter Kafka: By the way, we made a bunch of money in the last couple of years, last 10 years. We can afford to not be working at a big tech company for a while.
--:-- Peter Kafka: Let's go cast around for a new idea.
--:-- Noel King: Today's show was produced by Amanda Llewellyn and engineered by Paul Robert Mounsey.
--:-- Noel King: It was edited and fact-checked by Matthew Collette.
--:-- Noel King: I'm Noelle King. It's Today Explained. Thank you.
