TECHNOLOGY

Amazon and Salesforce cut 26,000 jobs in a day, and the year's story is set

The layoffs that began at the startups in the summer reached the largest employers in software in the first week of January.

On the morning of January 4, Marc Benioff told Salesforce's roughly 80,000 employees that the company would cut about 10 percent of them and close some offices. "As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we're now facing," he wrote, "and I take responsibility for that." The company said the plan would cost between $1.4 billion and $2.1 billion in charges. It was the largest cut in Salesforce's history and the first since 2020.

That evening Amazon confirmed it would eliminate more than 18,000 roles, up from the 10,000 it had signalled in November, most of them in its stores and human resources groups. Andy Jassy, the chief executive, used almost the same words as Benioff: the company had hired rapidly for several years and the economy had turned. Together the two announcements made it the largest single day of technology job cuts anyone in the industry could remember.

They followed Meta's 11,000 in November and Twitter's dismissal of roughly half its staff after Elon Musk's takeover. Coinbase, the cryptocurrency exchange, said on January 10 it would cut a further 950 people, about a fifth of its staff. Goldman Sachs began removing about 3,200 employees on January 11, its deepest cut since the financial crisis. Layoffs.fyi, a site that tracks the sector, counted more than 25,000 technology workers let go in the first two weeks of the year, against roughly 160,000 in all of 2022.

The framing from every chief executive was the same: this is a correction of pandemic-era over-hiring, not a collapse. Salesforce's revenue is still growing. Amazon's total headcount, at about 1.5 million, is roughly what it was a year ago. What has changed is the cost of money. With interest rates at their highest in fifteen years, investors have stopped paying for growth and started asking for margin, and the fastest lever on margin is people.

For Salesforce the cuts arrived alongside pressure from an activist investor, Starboard Value, which disclosed a stake in October, and the departure of co-chief executive Bret Taylor, announced at the end of November. Benioff said the company would keep investing in its core products. Partners and consultancies that live in the company's ecosystem, a large share of them in India, spent the week reading the memo for what it meant for them.

Microsoft is in talks to put $10 billion into OpenAI

A deal that would value the maker of ChatGPT at $29 billion, six weeks after it released a research preview.

Microsoft is negotiating an investment of about $10 billion in OpenAI, Semafor reported on January 10, in a structure that would give Microsoft three quarters of OpenAI's profits until it recovers its money and a 49 percent stake thereafter. Neither company would confirm the talks. The Information had reported a week earlier that Microsoft plans to build ChatGPT-style answers into its Bing search engine, and its Azure cloud already sells access to OpenAI's models to corporate customers.

The talks follow Microsoft's $1 billion investment in 2019 and its position as OpenAI's exclusive cloud provider. Bing has held a low single-digit share of the search market for more than a decade; a chatbot that answers rather than lists is the first thing in years that might move it. Google's response, after its internal "code red" in December, has not yet appeared in a product.

AVIATION

The FAA grounds every departure in the country; Southwest puts its December bill at $800 million

Every commercial flight in the United States was held on the ground for about 90 minutes on the morning of January 11 after the Federal Aviation Administration's system for distributing safety notices to pilots, known as NOTAM, failed overnight. It was the first nationwide ground stop since September 11, 2001. The agency said a damaged database file was to blame and that its investigation was continuing. More than 10,000 flights were delayed. Separately, Southwest Airlines told investors on January 6 that its December cancellations would cost between $725 million and $825 million before tax, enough to turn its fourth quarter into a loss.

CONGRESS

McCarthy wins the Speaker's gavel on the fifteenth ballot

Kevin McCarthy was elected Speaker of the House early on January 7 after four days and fifteen rounds of voting, the first time since 1923 that the chamber had needed more than one ballot. To win over about twenty holdouts on the right of his party he agreed to rules that let a single member force a vote to remove him and gave the group more seats on the committee that decides which bills reach the floor. The House then adopted those rules and began its work with a majority of a handful of seats and a Speaker whose job any of them can put to a vote.

BRAZIL

Bolsonaro supporters storm Congress, the Supreme Court and the presidential palace

A week after Lula's inauguration, several thousand supporters of the former president Jair Bolsonaro broke into and ransacked the three branches of Brazil's government in Brasília on January 8. Police made about 1,500 arrests. The Supreme Court removed the governor of the Federal District from office for 90 days for failing to prevent it. Bolsonaro, who has been in Florida since December 30, condemned the violence in a post that also compared it to protests by the left. Governments across the region and in Washington condemned the attack; the parallel with January 6, 2021, was drawn by nearly everyone.

WASHINGTON

Classified documents found at Biden's former office and home; a special counsel is appointed

The White House confirmed on January 9 that classified documents from Biden's time as vice president had been found in November at the Washington think-tank office he used after leaving office, and on January 12 that a second batch had been found in the garage of his home in Wilmington, Delaware. Attorney General Merrick Garland appointed Robert Hur, a former US attorney, as special counsel the same day. The president said he was "surprised" and was cooperating fully. The discovery complicates the Justice Department's separate investigation into documents kept by Donald Trump at Mar-a-Lago.

ECONOMY

US inflation slows to 6.5 percent, the sixth monthly decline

Consumer prices in the United States rose 6.5 percent in the year to December, down from 7.1 percent in November and a peak of 9.1 percent in June, the Labor Department said on January 12. Prices fell slightly month on month, the first outright decline since 2020, led by gasoline. Core inflation, which strips out food and energy, was 5.7 percent. Markets took it as licence for the Federal Reserve to slow to a quarter-point increase at its meeting at the start of February.

INDIA

Joshimath is sinking

Cracks have opened in more than 700 buildings in Joshimath, a town of about 20,000 in the Himalayan state of Uttarakhand that serves as a gateway to the Badrinath shrine and to Auli's ski slopes. Families were moved to relief camps from the first week of January; the state declared parts of the town unsafe and began demolishing two hotels that were leaning into each other. Residents blame a hydroelectric tunnel being bored beneath the town, along with decades of unplanned construction on what geologists have known since 1976 to be an old landslide. The company building the tunnel denies its work is the cause.

IN BRIEF

China reopens; California floods; Meta fined; Nepal crash

China lifted quarantine for arrivals on January 8, ending three years of closed borders, as its own outbreak continued to swell. A series of atmospheric-river storms has killed at least 19 people in California since late December and flooded towns from Santa Cruz to Sacramento; the president declared a major disaster on January 14. Ireland's data regulator fined Meta 390 million euros on January 4 for forcing users to accept personalised advertising in its terms of service. A Yeti Airlines turboprop crashed on approach to Pokhara, Nepal, on January 15 with 72 people aboard; there were no survivors. Lisa Marie Presley died on January 12 at 54. A Russian missile struck an apartment block in Dnipro on January 14, killing dozens; the toll was still rising as this issue went to press.

The Column

Benioff's memo, read from Bengaluru

The company that made my career just said it hired too many people. Everyone who works around it should read that sentence twice.

By Meera Anand

There is a particular kind of city that grows up around a platform. Bengaluru is one of them for Salesforce. Not the company's own offices, though those are here too, but the thousands of consultancies, from two-person shops to floors of a tower on the Outer Ring Road, that make a living configuring, extending and repairing the thing. I have worked in that city for most of my career. So when Marc Benioff wrote on Wednesday that Salesforce had "hired too many people leading into this economic downturn," I did not read it as a story about eight thousand jobs in San Francisco. I read it as a weather report for us.

Here is how the weather works. When Salesforce grows at 25 percent a year, its customers buy licences faster than they can use them, and every unused licence is a project for someone. Implementation budgets get approved on the same optimism that approved the licences. Rates go up. Salaries in Bengaluru go up. Every consultancy hires ahead of demand because the demand has always arrived. That was 2020, 2021 and most of 2022.

When the platform's own chief executive says the company over-hired, he is saying that its customers over-bought, and that his sales teams have been told to protect the renewal rather than expand the deal. Which means the customer's own IT budget is now the one under review, and the first thing to go is the discretionary project that was going to make the licences worth it. I have already sat in two calls this month where the question was not "what should we build next" but "what are we paying for that we do not use." Expect that question in every account for the rest of the year.

None of this is a disaster. It is a return to the ordinary state of a services business, which is that you have to be worth the money every quarter. The firms that will hurt are the ones that grew by selling headcount, because headcount is exactly the thing customers are now cutting. The firms that will be fine are the ones that sell outcomes to operations people, because operations do not stop when budgets do. Houses still turn over. Leases still renew. Someone still has to make the system that runs the business run.

Two other things in the memo are worth more attention than they got. Benioff said the company will keep investing in its core products; read that as "not in the acquisitions." Slack and Tableau were bought at the top. And he took responsibility personally, in the first paragraph, which is rarer than it should be and which I suspect had something to do with an activist investor now sitting on the shareholder register.

Then there is the other story of the week, which nobody in my industry is talking about yet and everyone will be by June. Microsoft is about to put ten billion dollars into the company that made the chatbot. Its cloud already sells the models to businesses, and the reporting says Bing is next, which means Office and Teams will follow, and sooner or later Dynamics, the CRM that competes with the one I build on. Salesforce has its own AI, Einstein, that has been on the slide decks since 2016. The gap between what is on the slides and what a customer can type into a box just got very visible.

I do not know yet whether that helps or hurts a consultancy in Bengaluru. My guess is that it does both: it will make the ordinary configuration work cheaper and the hard integration work more valuable, because the chatbot will be able to write the code and will have no idea which of the eleven systems in a client's landscape holds the truth about a customer. That knowledge is what I have. It is what this city has. We should price accordingly.

Read the memo twice. Then go find out which of your clients' licences are sitting idle, before they do.

The Ledger

Microsoft's $10 billion talks with OpenAI would be the largest AI investment on record. Bing is the first product expected to show it. Salesforce, Google, Meta: nothing shipped.

Rates

US CPI 6.5 percent in December, sixth consecutive monthly decline; markets expect the Fed to slow to a quarter point on February 1.

Real estate

US 30-year mortgage rate 6.33 percent (Freddie Mac, January 12), down from 7.08 percent at the November peak. Purchase applications remain near their lowest since the mid-1990s.

Healthcare

China's reopening on January 8 ended the last national lockdown regime in the world. The WHO continues to ask Beijing for hospital and death data it is not getting.

India tech

Amazon's cuts reach India, with about a thousand roles reported affected. Startup layoffs continue: Ola, ShareChat and Dunzo all announced reductions in the first fortnight of the year.

What we called wrong

Last issue we noted that Microsoft had "said nothing publicly" about OpenAI. It still has not, formally; it let Semafor say it instead. We will take that as confirmed.

The Back Page

Did we win?

Damar Hamlin, a 24-year-old safety for the Buffalo Bills, collapsed on the field in Cincinnati on the night of January 2 after making a tackle, his heart stopped, and medical staff restarted it in front of a stadium and a national television audience. The game was abandoned, the first NFL game not to be finished for reasons other than weather in living memory. Hamlin was released from hospital in Buffalo on January 11. His doctors said that when he first woke and could not speak, he wrote a question on a pad: had they won. One of them told him he had won the game of life. A charity drive he had started in 2020 to buy toys for children in his hometown, with a target of $2,500, passed $8 million.