Tech Layoffs and the Economic Landscape: Greg Blatt Provides His Insights

The recent wave of layoffs within the technology sector has left many individuals feeling uneasy about the industry's future.

As news of job cuts and restructuring circulates, there is a prevailing sense of uncertainty and apprehension about how this will affect not only the industry itself, but also the broader workforce, innovation ecosystem, and economic landscape. 

However, gaining a comprehensive understanding of the factors contributing to these layoffs can provide valuable insights and potentially alleviate distress. Industry observer Greg Blatt highlights that these layoffs cannot be attributed to a singular factor; instead, they result from a confluence of various influences such as the intersection of low interest rates and the pandemic-driven increase in remote activities, the collective outlook and approach of tech industry CEOs, and a recalibration of excessive hiring. 

After beginning his career in corporate law, Blatt has held leadership positions for a number of American companies within the internet sector. At InterActivCorp (IAC), a holding company known for its early acquisition of some of the biggest internet companies of the 21st century including Ticketmaster, Expedia, Hotels.com, and the Home Shopping Network, as well as The Daily Beast, Vimeo and other media ventures, Blatt served as general counsel, then CEO of its Match.com business, then as CEO of IAC itself.  He later became CEO of IAC’s Match Group, which housed all IAC’s online dating businesses, which he then took public.  While serving as CEO of Match Group, he also served as CEO of Tinder, its fastest growing subsidiary.  

The Intersection of Low Interest Rates and Pandemic Realities

Blatt points to low interest rates as the backdrop for creating an environment in which companies across various sectors—including tech—were buoyed by exceptional stock valuations. This financial phenomenon, characterized by companies' elevated stock prices regardless of their underlying operational efficiency, altered the traditional metrics by which success and growth were measured. In the tech sector in particular where rapid expansion and ambitious projects are the norm, these soaring valuations offered a unique opportunity for companies to obtain substantial funding and investments, often without facing immediate financial consequences.

However, the current moment has demanded a reassessment of strategies, particularly concerning excessive spending and hiring practices that flourished during the pandemic. Blatt believes the initial impetus for innovation has evolved into a need for thoughtful recalibration, with companies facing the imperative to align their financial trajectories with sustainable long-term growth objectives. 

“Although each business had a reason to [initiate layoffs], I don't think the reason suddenly emerged at that moment for all of them, simultaneously. I think it was built up, excessive hiring when they could afford it,” said Blatt.

Tech CEOs' Mindsets and the Herd Mentality

CEOs in the tech industry, much like their counterparts in other sectors, naturally seek avenues to do more and expand their businesses, and the ease with which they could secure funding and invest without immediate financial repercussions encouraged this approach. Blatt suggests that the first high-profile layoffs, such as those at Twitter, may have triggered a herd mentality, prompting other companies to follow suit to avoid being perceived as outliers in a changing economic landscape.

“If I remember correctly, Twitter was really the first to do it, and they did it in a rather loud and flamboyant way. I'll say, charitably. And I think that opened the door for a lot of other people to jump in,” said Blatt.

The phenomenon of herd mentality, further shaped the landscape of recent layoffs. After Twitter embarked on a conspicuous downsizing effort, the move was closely followed by other tech giants such as Facebook in a seemingly synchronized response. Blatt said that the underlying motivation for this coordinated action was not a case of the entire tech industry simultaneously reaching a moment in which their financials demanded these layoffs, but instead an opportunity to not be the lone bearer of negative news, particularly during a time of economic uncertainty. 

Valuations, Excessive Hiring, and the Paradigm Shift

Blatt also highlights the significant impact of shifting valuations on the decision to lay off employees. He explains that the tech industry, driven by soaring valuations, engaged in a phase of excessive hiring to pursue various speculative projects. However, as economic conditions evolved, the need to realign with an environment in which sustainable profit growth will be the biggest driver of valuation prompted companies to shed excess staff. Blatt explains that while layoffs in conventional industries may be triggered by reduced demand, tech layoffs often result from projects that were not expected to significantly contribute to immediate revenue. He underlines the fundamental difference between tech companies' speculative, long-term projects and the more straightforward revenue-driven models of traditional businesses.

“My strong instinct is that in very few of these cuts did the CEOs believe that they were going to have to endure less productivity as a result,” said Blatt. “Meaning, these are people who were working on projects that had no immediate revenue in the forecast—that were long-term.”

A Cyclical Phenomenon with Future Implications

Blatt views the recent wave of tech layoffs as part of a larger cyclical pattern within the industry. As economic conditions evolve and financial landscapes shift, the tech industry may experience a renewed phase of hiring and growth, but the layoffs have shown that it is by no means immune to cycles of growth and contraction. 

"I believe this is part of the cyclical nature of the industry. The current circumstances are particularly unique,, and predicting the exact timing is challenging," Blatt remarked. "However, as economic conditions improve and capital becomes more accessible due to higher equity multiples and lower interest rates, there is a likelihood that these laid-off employees, if not by the same companies, then by others, will find opportunities.”