Thoughts On Google’s Latest Round Of Layoffs

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never want to leave. Given where startup valuations eventually headed during those frothy years (thanks to low rates and a massive flood of money into venture capital), that meant throwing out increasingly massive equity packages. In a sense, Google was saying, I would rather pay you millions to stay here and twiddle your thumbs than for you to leave and start a competitor that might disrupt me.It’s a bit ironic that now Google and its mega-cap tech peers are complaining about the high prices of engineers — after all, they were the ones that set those prices (plus perks) at such sky-high levels. It’s also ironic that Google is on a bit of a productivity push after being OK with paying princely sums for people to do nothing for so many years.The justification behind the latest layoffs seem to be driven by a desire to invest more in AI (artificial intelligence). Outside of Microsoft (and its partner OpenAI), Google seems to be the furthest along in terms of AI and LLM (large language model) capabilities.But AI is a field that’s developing fast and the biggest tech companies along with some well-funded startups are all throwing massive amounts of money into the AI arms race — because they all recognize that AI could eventually be winner takes all (similar to Google in search). The model with the most data and user feedback will likely be marginally better th

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an its competitors. And that marginal difference in quality (or perceived quality) will lead to the biggest user base, allowing it to compound a small advantage into a permanent one.And when something’s the hottest thing under the sun like AI is, it’s very expensive to invest in it. Hence the need to free up cash by allocating away from less core and underperforming parts of the business.The Google of today feels very different from the Google of yesteryear. During COVID when entire swathes of the economy were shutting down, Google not only didn’t layoff anyone, it actually went on a hiring spree (Google was a beneficiary of the increased time spent online). Back then, margins and expense control seemed like phrases that just didn’t matter to a cash machine like Google.Now it’s taking costs and shareholder value very seriously. It’s probably good from a business and investor’s perspective that Google is shifting from an “I have unlimited money” approach to a “be prudent about what I invest in” approach. It’s an admission that much of its non-search and non-YouTube related bets have not paid off. It’s also an admission that AI could significantly change the way people consume internet content, especially the information retrieval side that Google specializes in. These realizations are good for shareholders, but sad for Google employees.</article></body>

Suddenly the world’s richest company cares about its expenses

Google and layoffs just don’t go together. If I told you there was a company that just reported the following financial stats last quarter, what would you think?

Revenues: $76.7 billion (11% growth year over year)

Net Income: $19.7 billion (profit margins of 25.7%)

Operating Cashflow: $30.7 billion

More than $150 billion of cash and liquid investments on the balance sheet.

That’s not the financial picture of a troubled company. That’s a company that continues to make ungodly amounts of cash every quarter!

I remember back in the mid 2010s when there was a talent war going on between Google, Facebook, and the hot (over-funded) startups of the day like Uber and Stripe. Back then, part of Google and Facebook’s competitive (and hiring) strategy was to pay engineers and researchers so much money that they would never want to leave. Given where startup valuations eventually headed during those frothy years (thanks to low rates and a massive flood of money into venture capital), that meant throwing out increasingly massive equity packages. In a sense, Google was saying, I would rather pay you millions to stay here and twiddle your thumbs than for you to leave and start a competitor that might disrupt me.

It’s a bit ironic that now Google and its mega-cap tech peers are complaining about the high prices of engineers — after all, they were the ones that set those prices (plus perks) at such sky-high levels. It’s also ironic that Google is on a bit of a productivity push after being OK with paying princely sums for people to do nothing for so many years.

The justification behind the latest layoffs seem to be driven by a desire to invest more in AI (artificial intelligence). Outside of Microsoft (and its partner OpenAI), Google seems to be the furthest along in terms of AI and LLM (large language model) capabilities.

But AI is a field that’s developing fast and the biggest tech companies along with some well-funded startups are all throwing massive amounts of money into the AI arms race — because they all recognize that AI could eventually be winner takes all (similar to Google in search). The model with the most data and user feedback will likely be marginally better than its competitors. And that marginal difference in quality (or perceived quality) will lead to the biggest user base, allowing it to compound a small advantage into a permanent one.

And when something’s the hottest thing under the sun like AI is, it’s very expensive to invest in it. Hence the need to free up cash by allocating away from less core and underperforming parts of the business.

The Google of today feels very different from the Google of yesteryear. During COVID when entire swathes of the economy were shutting down, Google not only didn’t layoff anyone, it actually went on a hiring spree (Google was a beneficiary of the increased time spent online). Back then, margins and expense control seemed like phrases that just didn’t matter to a cash machine like Google.

Now it’s taking costs and shareholder value very seriously. It’s probably good from a business and investor’s perspective that Google is shifting from an “I have unlimited money” approach to a “be prudent about what I invest in” approach. It’s an admission that much of its non-search and non-YouTube related bets have not paid off. It’s also an admission that AI could significantly change the way people consume internet content, especially the information retrieval side that Google specializes in. These realizations are good for shareholders, but sad for Google employees.